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The Impact of Heating Efficiency Investment Subsidies on Real Estate Prices: Evidence from Latvia

Author

Listed:
  • Ernests Romanovs

    (Latvijas Banka)

  • Dzintars Jaunzems

    (Latvijas Banka)

Abstract

A large portion of the Latvian housing stock is aged and, as a result, quite inefficient pertaining to heating energy consumption. Despite government programmes that subsidize investment in these buildings to improve their heating efficiency, only a small portion of this old housing stock has been retrofitted. This study explores the economic dimension as a possible factor contributing to the low interest in carrying out such renovations. Specifically, the return on investment in retrofitting buildings is analysed by looking at the differences in prices of otherwise similar apartments in renovated and non-renovated buildings. Combining data on renovation projects in Latvia, which were completed in part utilizing EU funds between 2016 and 2023, with the Real Estate Transactions database, containing all property transactions in Latvia, and data from Latvia's Credit Registry, the study shows that apartments in retrofitted buildings cost roughly 11% more than otherwise similar apartments in non-retrofitted buildings. Taking into account the costs and savings related to these renovations already incurred by the sellers, the premium amounts to 10% of an apartment's value. The impact varies across regions, increasing with the quality of the renovation, and is highly contingent on government subsidies.

Suggested Citation

  • Ernests Romanovs & Dzintars Jaunzems, 2025. "The Impact of Heating Efficiency Investment Subsidies on Real Estate Prices: Evidence from Latvia," Discussion Papers 2025/03, Latvijas Banka.
    • Handle: RePEc:ltv:dpaper:202503
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    References listed on IDEAS

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    1. Fuerst, Franz & Oikarinen, Elias & Harjunen, Oskari, 2016. "Green signalling effects in the market for energy-efficient residential buildings," Applied Energy, Elsevier, vol. 180(C), pages 560-571.
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    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment

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