Prof. Dr. Pascal Gantenbein, Prof. Aya Kachi, Andrea Blum, Fintan Oeri

Finanzmanagement | Political Economics of Energy Policy

Research Objectives
In this project, we investigate the market- and property conditions under which investors are willing to pay for energy efficiency in buildings. Specifically, we analyze the following questions:

• (Q1) What is the direction and extent of rent premiums associated with Minergie labels? Does the label generate its own premium on top of the actual energy performance premium? 

• (Q2) What is the intertemporal trend of Minergie-linked rent premiums? Do newer/stricter Minergie sublabels gain more premiums, compared to the older/original Minergie label? 

• (Q3) Given that rents are spatially autocorrelated, does a new Minergie label obtained by a building generate positive spillover effects on rents of proximate non-certified buildings?

Completed steps
We completed the following steps:

1) The working paper titled “The Rent Premium of Residential Minergie Buildings in Switzerland” is completed. The paper presents our initial analyses for (Q1) and (Q2). Using hedonic analysis for rents, we estimated the rent premium linked to the traditional Minergie certificate. Based on a sample of 370,000 properties, out of which 12,500 are Minergie-labeled, we find a rent premium of 3-5% for Minergie-labeled residential real estate in Switzerland.

2) Furthermore, we compiled the largest dataset (ca. N=800,000) on asking rent prices and detailed building characteristics by programming more precise geo-matching procedures than those of existing studies. This was enabled by the strengthened cooperation with Minergie Schweiz, and this will enable us to improve the analysis done in the working paper.

3) We completed a pilot spatial analysis for (Q3) using a small subsample (Basel-Stadt only). So far, we have run geographically weighted regressions with R’s GWmodel package. 

4) In addition to what we proposed as milestones in the original proposal, we also developed a method for merging property characteristics data. The method aims at overcoming challenges that stem from overlapping observations across datasets as a result of varying geocodes used in the respective dataset (e.g., rooftop, front door, geometric center, interpolated range). We will present the method at the Swiss Real Estate Research Congress (SRERC) 2020 (provided that our conference application were accepted) in March 2020.

Results
Economically, investing in buildings’ energy efficiency is only interesting for investors if there is a financial incentive such as a rent or a price premium. Research in this area has so far largely concentrated on the commercial real estate sector and on the US market. While existing empirical studies find positive rent premiums, studies on Swiss cases suffer from major data limitations. Furthermore, existing Swiss studies focus only on the oldest Minergie label, and do not consider rent spillovers from Minergie to non-Minergie properties.

We analyze the rent premium of energy efficient buildings with and without energy certification relative to other buildings by using hedonic models and a large and recent dataset for properties in Switzerland. We also provide detailed results for different certification levels. We control for buildings’ actual energy performance with new data including stricter Minergie sublabels and re-assess the inter-temporal trend. This is crucial to capture the potential effect improving building standards can have on rents regardless of certificates. From 2008 to 2018, a net rent premium of about 5% for certified residential real estate was identified. Our findings further suggest that tenants are willing to pay more for buildings with a higher certification standard (measured by Minergie). While the rent premium has somewhat decreased since its inception, the label seems to have a value by itself.

Furthermore, we provide the first empirical assessment for potential spillover of rents from Minergie-certified to non-certified buildings. The real estate literature has shown that rents are geographically autocorrelated (e.g., McCord et al. 2014). By using a spatial regression method, we estimate the existence and degree of this spillover effect of a newly Minergie-certified building on the rents of proximate buildings that are not certified for the first time.

Publications
We expect to generate a publication based on the aforementioned working paper in a real estate journal from this project.

Presentations and conferences
The paper (the rent analysis) has been accepted for presentation at the American Real Estate Society (ARES) 2020 Annual Conference in April 2020. A presentation proposal (a method poster) has been submitted to the Swiss Real Estate Research Congress (SRERC) 2020 taking place in March 2020.