rents as incentive for saving energy: an empirical analysis for austria

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


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


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?


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


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


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)


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


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)


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


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)


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


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


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)

rents as incentive for saving energy: an empirical analysis for austria

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