FV-79 | Swiss Investors’ Decision-Making in the Field of Energy Efficient Real Estate

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

Finanzmanagement

Research Objectives
In this project, we investigate the profitability of investments into building energy efficiency. While more energy efficient real estate, on average, is linked to higher rents on the income side, it is so far unclear if investing in a higher level of building energy efficiency effectively pays off from an investor’s perspective, when upfront costs and the energy costs are considered. The question therefore is whether investing into housing sustainability and an energy efficiency label is ultimately a profitability-increasing decision, and if so, why not all investors and property owners opt for retrofits and labels. This question is relevant irrespective of whether one considers new constructions, renovations, or retrofits.

Unlike in our previous WWZ-FV project (where we’ve shown that energy efficiency yields a rent premium on average), both the upfront costs for more sustainable heating systems, building technology, and isolation as well as the cost savings from energy usage over the investment’s lifetime are very complex to measure. Therefore, we specifically focus on the following three research questions: 

What are best estimates for the upfront and periodic costs of operating green buildings? (Q1)

How do rent premiums for Minergie labels translate into investors’ effective profitability? (Q2)

Do investors’ knowledge about rent premiums, costs, and profitability in the Swiss real estate market diverge from the actual measures? Which drives investment decisions? (Q3)

The themes are 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. 


Completed steps

We submitted our paper from WWZ-FV 71 to the American Real Estate Society (ARES) 2020 Annual Conference to be presented in April 2020 (accepted). Unfortunately, the conference was cancelled due to COVID-19. We completed the subsidy dataset. It comprises commune-level subsidies in the field of heating-related investments and construction improvements. This is part of our cooperation with WüestPartner (WP). We compiled a separate dataset on subsidies for photovoltaic (PV) installations. For each municipality, it lists available resources over many years. We gladly closed a data cooperation agreement with WüestPartner (WP). As mentioned above, finding, compiling, and matching cost-related data is a challenging and time-consuming task. We therefore decided to model costs based on a sample of costs. Access to such reliable data is a crucial part of this methodology and the data negotiation was not trivial. We merged our Minergie data with the real estate returns data. The merging of the WP cost data and Minergie data is about to be completed. 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.  


Results
Based on the unique large dataset of rents and labels, we have confirmed that energy efficient real estate (measured by ‘Minergie’) leads to higher rent premiums. Both energy efficiency and the Minergie label pay off in terms of higher rents. Furthermore, we assess if investment behavior and willingness to pay (WTP) is driven by actual or perceived net premiums. Although there is only punctual evidence so far, we see that perceived profitability diverges from the actual one.

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). We are currently analyzing the link between variation of those factors and spatial differences in PV adoption rates. 


Publications
The completed working paper with the largest dataset of Minergie labels, rents, and energy costs will be converted to a publication in a real estate journal.


Presentations and conferences 
We seek to present both papers at conferences, including the next American Real Estate Society (ARES) Annual Conference.