European Commission Publishes Report on Energy Performance Certificates and Their Effect on Transaction Prices and Rents

The Energy Performance of Buildings Directive (EPBD) introduced a framework for energy performance certification with energy performance certificates (EPC) now being required for the sale or rent of a building. This is expected to provide an incentive for builders and owners to invest in energy efficient improvements. A study now published by the European Commission looks at the extent to which there is a link between the energy performance of a building and its value.

The study includes an assessment of EPC schemes in selected Member States. The analysis of property transactions and listings from residential markets in Austria, Belgium, France, Ireland and the UK (both for sales and lettings) overwhelmingly points to energy efficiency being rewarded by the market. For example for Austria, in the Vienna region, the effect of a one-letter improvement in energy efficiency is estimated at 8% in the sales market and 4.4% in the lettings market. The analysis in Belgium also shows a clear relationship between a property’s energy efficiency and its advertised price or rent.

In all three countries for which information on both sales and rental markets was available (Austria, Belgium and Ireland) the estimated rental premium for energy efficiency was smaller than the estimated sales price premium. There is contrasting evidence about how the energy efficiency premium varies by location. In Ireland and in Belgium the effect is smaller in cities than in rural areas. However in Austria the opposite appears with the percentage effect being larger in Vienna than in the surrounding area. More research is needed, but results from Austria, Belgium and Ireland suggest that the price effect of energy efficiency may be stronger where selling conditions are more difficult.

The nature and state of implementation for EPCs schemes varies greatly between countries. The proportion of sales transactions accompanied by EPCs has varied between 10% (Cyprus) to virtually 100% (Portugal and France). However the full potential of EPCs is still not being reaped. It is recommended that Member States pay more attention to quality assurance of EPCs and improve public trust. It is also important to improve the understanding among buyers and renters of the benefits of a better rating in practice.