Research
Research
Love Thy Neighbour, or Not: Peer Effects in the Market for Energy Efficient Housing
This paper explores the spatial nature of peer effects in the London property market and how they increase property prices and upgrades exclusively within clusters of highly energy efficient properties. By exploiting random variation in the timing of listings to leverage information reported to the market, I find that buyers are attentive to energy efficiency scores at the neighbourhood-level, generating a discontinuity in prices at the border of highly-efficient clusters. This discontinuity reflects a local price premium which exists and persist only when clusters are identifiable through listings and is driven by the upgrades undertaken by households who sort into these neighbourhoods based on preferences for energy efficiency. Exposure to selecting households induces peer effects among incumbent residents who are then more likely to make energy efficiency upgrades. A theoretical spatial model is developed to capture the impact of neighbourhood selection through peer-based investment matches on property prices. The model predicts that households pay premiums to locate in neighbourhoods that exhibit match only when expected investment returns are high. Current literature has focused more on the impact of private investments on prices at the property-level, with little research into how one’s peers influence this dynamic. I fill this gap with both empirical and theoretical evidence, while also reflecting on the growing debate surrounding Net Zero and the role of residential emissions.
Pricing Potential: Understanding the Cost of Unrealised Energy Efficiency
With Enrico Vanino and Alberto Montagnoli
A wealth of literature has explored the capitalisation of energy efficiency improvements into property prices following changes in current energy efficiency scores. We argue that this approach neglects the differing incentives to make improvements that arise from heterogeneity in the potential returns to investment. This paper proposes a different approach to estimating capitalisation using what we term Unrealised Efficiency – capturing these incentives by measuring the difference between a property’s current and potential energy efficiency. Applying this new definition allows us to estimate specifically how buyers value improvements relative to their potential. A 2SLS approach is adopted to address endogeneity concerns and shows that buyers bid higher for properties with lower unrealised efficiency - with bids increasing by 1% in response to a 10% decrease in that that’s unrealised. Conversely, buyers lower their bids for higher unrealised efficiency to compensate for improvement works. The capitalisation rate of unrealised efficiency is half that of the current efficiency, suggesting buyers are myopic in their valuation of the future benefits of energy efficiency improvements. A back of the envelop calculation suggests that 40% of properties in the sample would fail to achieve a positive return on investment at this rate, calling into questions the efficacy of policies aiming to stimulate housing retrofit and providing support to the persistence of the energy efficiency gap
Local Economic Effects of Renewable Energy Transition: Evidence from Offshore Wind Energy in the UK
With Enrico Vanino and Milan Quentel
The transition towards renewable energy could play a key role in the local economic development of peripheral and lagging-behind regions, allowing many peripheral regions across developed countries, once dependent on mature declining industries, to regenerate their local economies by sustainably transitioning towards new higher added-value green industries. This is the first study providing robust evidence at a granular level analysing investment in offshore wind energy in the UK. By applying an instrumental variable approach to address endogeneity, modelling the probability of wind farms’ locations based on offshore natural characteristics, we identify the causal impact of offshore wind farms on the economic development of local onshore coastal
communities in the UK, linked through the location of infrastructures servicing these farms. We find positive effects of investment in offshore wind energy capacity both on employment (+10%) and on firm entry (+20%), with stronger effects in local labour markets around key infrastructure servicing offshore wind farms. This is mainly driven by service and high-productivity industries related to the offshore wind energy industry, with positive effects also for lagging-behind places, but not for the most deprived areas, with long-term effects beyond the construction period.