Investigating the distributional impact of housing renovation on household consumption: heterogeneity by age, tenure and housing quality

Improving the energy efficiency of the built environment is a critical element of the UK’s strategy to achieve net-zero emissions by 2050. Enhanced standards in new homes and subsidies for renovation are among the measures put in place to encourage energy efficiency. On the one hand, a literature stream has focused on the heterogeneity of energy savings across different household types and building typologies to assess renovations. On the other hand, the hedonic pricing literature has delved on the existence of energy premiums across different housing markets. While the distributional impact of different fabric interventions has recently become a focus of research, this has not been the case for increases in house prices across housing quality and age groups. It is in this context that this paper poses the question: “How do increases in house prices affect consumption across age groups, tenure and dwelling energy performance?” To assess the relationship between house prices and consumption, this paper draws from a body of economic research dealing with the Marginal Propensity to Consume (MPC) out of house price increases. This paper builds on a combination of two micro cross-sectional datasets: the English Housing Survey (EHS), including data on the housing stock and its inhabitants, and the Living Costs and Food Survey (LCFS), which holds detailed financial and consumption information. We find that older households, more likely to own outright and live in less energy-efficient houses, have increased their consumption in line with rises in house prices. On the contrary, middle-aged groups, more likely to rent and own with a mortgage, have not increased their consumption in line with house prices. The youngest group does seem to increase their consumption with raises in housing prices but less than the oldest one. Noticeably, improvements in the built environment related to energy efficiency drive consumption down since improved fabric standards result in increased housing costs that are compensated by reduced consumption. Based on the heterogeneity of consumption responses to house price increases, this paper contends that an energy transition model that subsidises older households to retrofit their homes is regressive by strengthening the wealth of older households while penalising younger ones with less housing equity and larger housing needs. The distributions of housing wealth and marginal propensity to consume are particularly relevant as grants and subsidised loans dependent on fabric conditions are likely to have heterogeneous effects over generations reinforcing the concentration of assets among older households.