Stranded Assets? The Price Effects of the Minimum Energy Efficiency Standard (MEES) in the UK Residential Market

The increasing policy emphasis on reducing carbon emissions has yielded a number of policies in various countries. In the UK, the Minimum Energy Efficiency Standard (MEES) made it illegal from April 2018 for landlords to let properties that did not meet a minimum energy performance standard - an Energy Performance Certificate (EPC) rating of E or higher. Although this policy has a relatively low cap on costs that landlords are expected to spend to upgrade their buildings, a dilemma for policy makers has been the trade-off between the compliance costs for owners and occupiers and potential improvements in energy consumption. An expected effect of introducing MEES is that improvements will be capitalised into the prices of properties. Implicitly, it is also expected that removing properties rated EPC F and G from the market will lead to changes to the relative demand and supply of policy compliant and non-compliant properties. The result is then increased demand for compliant properties and higher price differentials between compliant and non-compliant properties. Using a large dataset of residential sales transactions from 2009-2020, we study the price impact of MEES with a difference-in-difference approach and a regression discontinuity design. Our dataset allows us to compare the price trajectories of rental properties to the general housing market both before and after the introduction of the policy for the entire spectrum of energy efficient buildings. Although properties can hypothetically be switched between the owner-occupier and the private rental segments, we expect a stronger effect on the latter. Our research design also controls for a number of minor and major fiscal and regulatory changes since 2015 that have been introduced independently of MEES that could potentially distort the findings.