Impact on house prices of an energy renovation obligation for homebuyers

This article analyses the impact of the Flemish energy renovation obligation on house prices. This policy, introduced in January 2023, obliges buyers of the most energy-inefficient homes to renovate within five years from purchasing the property in order to obtain at least a class D energy performance certificate (EPC). Applying a difference-in-differences technique and leveraging a unique dataset that merges sales data for all Belgian dwelling transactions with datasets on energy performance certificates, asbestos certificates and online real estate listings, we find that energy-inefficient houses in the Flemish Region became about 2% cheaper. This result holds true across multiple control groups: similar houses in the Walloon Region, houses with a class D energy certificate in Flanders, and a triple difference estimation comparing the price differential between EPC classes across both regions. The reasons for this relatively limited effect of the energy renovation obligation are, first, that a majority of buyers of energy-inefficient houses were already renovating their properties to at least a class D EPC prior to its introduction and, second, that the renovation cost was already largely factored into house prices beforehand. The slight increase in the price discount for energy-inefficient homes as a result of the renovation obligation creates some financial leeway for buyers to carry out an energy renovation. However, for those who were not planning to renovate, the renovation obligation results in a large compulsory investment, which could hamper the accessibility of homeownership for potential buyers without sufficient repayment capacity. As Flanders is the only region in the world to have introduced an energy renovation obligation for homebuyers, our findings may be of interest to the many other countries that are considering a similar policy.