Energy performance certificates and its capitalization in housing values in Sweden

Abstract

The impact on energy performance certificates on housing prices has been investigated extensively in recent years. However, the results of these investigations are mixed. We add to the literature by more specifically controlling for potential biases, by employing a combination of alternative approaches to estimate the causal relationship between house prices and energy performance certificates. We use a traditional hedonic modeling approach, but we additionally employ propensity score methods to be able to compare treated houses with a control group. We also investigate the impact of the outliers, spatial dependency, and parameter heterogeneity of our estimates. Moreover, we use the quantile regression technique to test the hypothesis that the capitalization effect varies across the price distribution. Our results, analyzing more than 100,000 observations, indicate there is an upward bias if one is not controlling for outlier and selection bias. Regardless of the propensity score method approach, the results are lower than a model (around 3 percent capitalization, compared to 6 percent). However, our results do not support that the impact of energy performance certificates varies in the price distribution. Consequently, the certificates are not differently capitalized in the high-end housing price segment. Finally, our results support the hypothesis that the energy performance certificate should be more capitalized into house prices in the northern and colder parts of Sweden than in the southern regions.