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Energy Performance Certificates and the Capitalization of Utility Costs in Rents: The Potential Role of Asymmetric Information and Uncertainty

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  • Aras Khazal
  • Ole Jakob Sønstebø

Abstract

This paper is the first to investigate the relationship between the energy efficiency of dwellings, measured by the energy performance certificate (EPC), and utility cost inclusion in rental prices. First, we investigate potential drivers behind the decision to include utility costs in rents. We find that labeled dwellings are more likely to include utility costs and that this likelihood is higher among energy-efficient dwellings than among inefficient dwellings. Next, we surprisingly find that utility costs seem to be under-capitalized in energy-inefficient dwellings. These results are confirmed with the counterfactual decomposition approach. Overall, the findings indicate that the EPC labeling policy may be important for both landlord and tenant decision-making and may enhance market efficiency.

Suggested Citation

  • Aras Khazal & Ole Jakob Sønstebø, 2024. "Energy Performance Certificates and the Capitalization of Utility Costs in Rents: The Potential Role of Asymmetric Information and Uncertainty," The Energy Journal, , vol. 45(1), pages 105-124, January.
  • Handle: RePEc:sae:enejou:v:45:y:2024:i:1:p:105-124
    DOI: 10.5547/01956574.45.1.akha
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    References listed on IDEAS

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    1. Franz Fuerst & Patrick McAllister, 2011. "Green Noise or Green Value? Measuring the Effects of Environmental Certification on Office Values," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 39(1), pages 45-69, March.
    2. Kholodilin, Konstantin A & Mense, Andreas & Michelsen, Claus, 2017. "The market value of energy efficiency in buildings and the mode of tenure," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 54(14), pages 3218-3238.
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