The Impact of Minimum Energy Efficiency Standards on the Private Rental Market

This study details the findings of a study that seeks to establish how minimum energy efficiency standards have affected the domestic private rental sector using data from England and Wales. The research questions studied mainly concern rent affordability both in the general market as well as above and below the energy efficiency thresholds for legally renting out space under the new regulations. The present study also estimates the effect the policy has had on the attractiveness of investing into rental properties relative to other asset classes and the owner-occupied property market segment. The main findings are: Rents of F/G rated properties were lower before and after MEES implementation compared to higher EPC grades which is in line with previous research During the implementation period, an additional rental discount to properties in the F/G band can be detected with increasing magnitude over time. Above-threshold properties in the EPC E band and/or D show a moderate rent increase in response to MEES No signs of a significant sell-off of properties from the private rental sector into the policy-neutral owner-occupied market segment are detected. The main finding is hence that substandard energy efficiency as indicated by an F or G EPC rating has become significantly lower over time and the evidence suggests that the introduction of MEES has contributed to this trend. Although causal inference is complicated by the staggered introduction of standards which does not permit a clear separation between a pre and post MEES period, it appears that government intervention aimed at upgrading lowest EE has at least supported and augmented a trend towards higher energy efficiency, even if this upgrading process may not have been entirely due to this policy instrument. Concerns about MEES impacting negatively on rental affordability are not supported by the present analysis although some moderate uplifts are found for D/E-rated properties and further research will seek to corroborate these first findings.