Rents as incentive for saving energy: an empirical analysis for Austria
Gunther Maier, Philipp Kaufmann, Andreas Oberhuber
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Overview
Introduction: The need to save energy in the housing sector
The economics: landlords, tenants and investments in energy efficiency
The Austrian context: rent control and improvement funds
The empirical evidence: heating costs in hedonic rent equations
Summary
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Introduction
About 1/3 of energy is used for buildings In Austria, 28.1% used for heating and cooling of
rooms
Kyoto Austria agreed to reduce energy use in the building
sector by 28.1% (relative to 1990) Actual increase by 4.7%
Slow adjustment process Long lifetime of buildings, slow rate of replacement Buildings built today determine energy use for the
next 20-30 years
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Introduction
Reduction of energy consumption in buildings is urgently needed
How can this be achieved? Regulations Investment subsidies Market incentives
How do market incentives work in the current structure?
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Economics
Energy consumptions in buildings is determined by various actors Energy provider: supplies energy in the requested form,
paid by tenant Landlord: rents the appartment to the tenant, decides
about investments into the energy efficiency of the building (insulation, windows)
Tenant: pays rent to the landlord, decides about energy use (heating patterns, room temperatures, ventilation)
Government: sets and controls regulations, provides investment subsidies
Limited transparency of costs of heating/cooling
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Economics
Price of housing: P = rent + operation costs + cost of heating/cooling
Relevant price for the tenant: P Relevant price for the landlord: rent Relevant price for the energy provider: cost of
heating/cooling Tenant:
tradeoff between „rent“ and „cost of heating/cooling“ willing to pay a higher rent for an appartment with
lower costs of heating/cooling
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Economics
incentive for landlord to invest in energy efficiency of the building: market incentive for investments in energy efficiency
Does this mechanism exist in Austria? Empirical approach:
Estimation of a hedonic price equation:
r = f(Xa, Xb, Xl, Xc, h)
h is expected to have a significant negative coefficient (market incentive works in the right direction)
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Austrian context
Austrian housing market is highly regulated (MRG – rental law)
Energy efficiency is not taken into account in these regulations
Most important regulated areas: Protection against eviction Limitations of rent levels and rent increases
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Austrian context
Four types of rent:1. limited (low standard, 1.54 €/m2/month)
2. Guideline rent (good quality, old buildings, legally set base rent + additions – subtractions)
3. Appropriate rent (newer buildings, good quality, improved apartments; appropriateness can be checked by court)
4. Unregulated rent (newer buildings, no public support; negotiable)
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Austrian context
Rent increases: In case of controlled rents, generally limited to CPI Temporary rent increases
Under certain conditions Must be approved by public authorities Can be limited by court For improvement investments Funds cannot be used for other purposes
In case of free rents, generally according to contract
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Empirical results
Does an economic incentive prevail in this regulated market?
Data EU-SLIC 2006 and 2007 for Austria (Statistik Austria) Household survey, 2 years, different numbers of
variables Only rented residential property Only observations where rent is considered to be
according to the market by the respondent dependent variable: (log of) rent (per m2) net of heating
costs Important independent variable: heating costs (per m2)
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Empirical results
Categories of control variables: Fundamental appartment characteristics (size, size-
squared, no.of rooms, availability of water, toilet, heating, garden, balcony, floor); 2006: 10; 2007: 28 variables
Fundamental house characteristics (age, type); 2006: 11; 2007: 12 variables
Locational characteristics (federal state, type of city, accessibility of bank, hospital, public park, shopping, etc., crime, noise); 2006: 15; 2007: 26
Characteristics of contract (limited, length of contract); 2006: 1; 2007: 2
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Empirical results
2006 2007
linear log p. m2 linear log p. m2
Heating 0.461
(5.79)
0.001
(4.64)
0.340
(4.35)
0.210
(2.15)
0.009
(44.1)
0.175
(2.04)
Controls
1/5/10%
9/3/2 9/3/4 11/2/5 7/12/7 3/6/7 12/9/6
R2 0.489 0.440 0.308 0.463 0.689 0.304
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Summary and conclusions
Estimations do not yield the expected significant negative coefficient – positive and significant
Result is stable over years, specifications, and Market incentive works against improvements
in energy efficiency Reason cannot be identified with this analysis
Strict rent regulation Limited transparency (informational problem)