Prof. P. Gantenbein, Prof. A. Kachi, F. Oeri, M. Melzig

Finanzmanagement

Research Objectives
Housing typically accounts for the largest share of energy consumption in an economy, hence investing into building energy efficiency clearly has a positive impact on the environment. From an investor’s perspective, several studies have shown that properties with a higher energy efficiency yield some rent premium, on average. The question, however, is how these rent premiums can be structured across different types of real estate and energy efficiency levels, whether and how these ultimately translate into investor profitability, and how investors in the Swiss real estate market opt for higher or lower levels of energy efficiency. In
particular, it is an open question so far, if investing into housing sustainability and an energy efficiency label can be seen as a profitability-increasing decision. Therefore, we specifically focus on the following three research questions: 
1. What are best estimates for the upfront and periodic costs of operating green buildings? (Q1)
2. How do rent premiums for Minergie labels translate into investors’ effective profitability? (Q2)
3. Do investors’ knowledge about rent premiums, costs, and profitability in the Swiss real estate market diverge from the actual measures? Which one drives investment decisions? (Q3)

The three themes are all relevant both from research and policy perspectives, as they elicit implications of different investment types and illuminate that investment decisions do not only depend on pure financials, but also on investors’ perceptions. It turned out, however, that finding, compiling, and matching cost-related data is a challenging task. Hence, we decided to model costs based on a sample of costs and to focus on construction improvements, heating investments, and specifically on the adoption rates of photovoltaic installations and their driving factors. For the research questions related to the rent premium, we expanded our dataset on Minergie labelled properties in order to further investigate the rent premium effect of both energy efficiency and the energy efficiency label.

Completed steps
We continued on the completion of the subsidy dataset. It comprises communelevel subsidies in the field of heating-related investments and construction improvements. This is part of our cooperation with WüestPartner (WP). Also, we compiled a separate dataset on subsidies for photovoltaic (PV) installations. For each municipality, it lists available resources over many years. The data on subsidies for PV
installations has been merged with data on solar potential and usage as well as other factors relevant to costs. This includes electricity prices, feed in tariffs, tax and information centres. Regarding the effect of costs on PV adoption rates, we have found substantial distributional differences between municipalities for both, PV usage and exploitation of PV potential. Similarly, there is significant variation of cost
pushing factors of the institutional environment (subsidies). Related to rent premiums, we merged our Minergie data with the real estate returns data. Drawing from over 860’000 real estate observations from Fahrländer Partner (FPRE) and a full set of 46’000 Minergie labelled properties (all label types), this enabled us to generate a dataset with over half a million observations we could use for the empirical analysis. Aside from its contribution to the body of literature on the analysis of rent premium, enabling a comparison between years, certification levels and different sub-markets, this study offers a broader contribution to the literature as it utilizes a vast number of observations. This is still the highest coverage of the Swiss market so far and rarity in the literature.

Results
Based on hedonic modelling it is now possible to state that property owners obtain a small but significant premium when renting out Minergie certified residential dwellings. This premium ranges between 8 and 2% for the analysed sample. Although the effect is less pronounced in some subsamples, the results are stable across the data. This broadly supports the idea of a willingness to pay by tenants for Minergie
certified buildings in Switzerland as previously demonstrated for similar settings in other countries in Europe. However, the gap between certified and non-certified buildings seems to be closing as regulations and standards tighten (MUKen 2008 & 2014). Although declining in magnitude, the positive and statistically significant coefficients for this subgroup support the idea of a “pure labelling effect". In this context, this study provides preliminary empirical evidence of not only a premium stemming from energy performance (expected energy consumption) but also from energy labelling. We also found supporting evidence for an increase in market price moving from the basic label to stricter specifications (Minergie-P and A), although the evidence is rather mixed and cannot be generalised for all levels and add-ons in the analysed sample. Contrary to expectations, this study did not find a premium moving from Minergie-P to Minergie-A. Minergie-ECO buildings seem to be rented at a discount when compared to their non-certified counterparts. When evaluated carefully, it is has been established that for these subgroups, the heterogeneity of the submarkets and clustering of observations have a strong influence on the analysis. It is plausible that the locational fixed effects are not enough for controlling this type of clustering. Given the results of similar studies, it is highly likely that the rent premium is increasing with certification level, but further investigation is needed. These results are significant in at least two major respects: The results offer a possible solution for the split incentive problem by demonstrating the value of energy efficient dwellings. This can play an important role in the upcoming years as Switzerland's building stock is relatively old. The results might also help investors in their decision making while they are choosing between certification levels enabling the comparison of incremental costs and benefits. 

Publications
As planned, the project was completed by June 2021. At least, this is true for the main body of our research. Yet, some final steps are to be completed, and the paper on rent premiums needs to be finalized and submitted. 

Presentations and conferences
We seek to present both papers at the next American Real Estate Society (ARES)  Annual Conference and expect to have at least one journal publication from this project.