Sustainability features increasingly determining house prices
Houses are increasingly subject to all kinds of energy-efficiency
requirements. The environmental impact of a home’s location is also
more often emphasised. The accelerated transition to a more
sustainable housing stock has important consequences for the price
formation at a sale. In the coming years there will be a wider gap in
terms of price and sale speed for (coveted) sustainable homes versus
(no longer coveted) non-sustainable homes.
What’s in a price?
On the macro level, the development of house prices is determined by
factors such as household incomes, interest rates and real estate
taxation. When an individual piece of real estate is sold, the price
in most cases follows the general price trend on the market. In
addition, at the micro level, individual housing characteristics also
play a role, such as the year of construction, the condition and
nature of the building (e.g. detached or not). In particular, the
location of the home is an important price determinant in a sale. It
concerns the region in which the house is located and neighbourhood
characteristics such as a quiet street or the proximity of facilities
such as shops or public transport.
One individual characteristic that is rapidly gaining in importance
in the price-setting process is the sustainability of a dwelling.
After all, the energy and environmental friendliness of housing is an
important topical issue in the context of climate change. In most
European countries, including Belgium, the housing stock is still
largely made up of older dwellings that do not meet current energy-
efficiency standards (see table). This is often accompanied by
ill-considered use of space with a high degree of spatial
fragmentation, which results in congestion, environmental pollution
and pressure on biodiversity.
Towards a more sustainable housing stock
The fact that there is still a long way to go explains why housing
policies everywhere are strongly committed to making the housing stock
more sustainable. Such policies often take the form of various strict
requirements that new buildings and renovations have to meet. As the
sustainability performance of a house becomes more important, this
will also have an increasingly dominant effect on the pricing of a
sale. The new requirements will entail additional costs for the
builder or renovator. As a result, prices will rise. But new and
well-renovated buildings will also retain their value relatively
better. On the other hand, the requirements will reduce the selling
price of existing, non-sustainable homes. After all, prospective
buyers will consider the costs of the required investments in the
negotiations in order to lower the price.
Because we are at a tipping point where sustainability is gaining in
importance, the price development of homes will increasingly diverge.
Existing (no longer coveted) homes with a poor sustainability score
may experience a (substantial) price drop, because the required
investments for energy efficiency will weigh on the selling price. New
or well-renovated homes that meet the requirements will retain their
value better and, because they are in demand, achieve higher prices
when sold. It is a good thing that the sustainability performance of a
house is included in the price. If this were not the case, investments
in sustainability would be lower than what would be optimal.
The extent to which the expected effects will play a role,
admittedly, remains uncertain. Research has been carried out in
various countries (particularly the Netherlands and the Scandinavian
countries) into the effect of the introduction of official energy
labels on the selling price of homes. The vast majority of them
confirm what is outlined above. It appears that especially
unfavourable energy scores have a very large negative price impact.
The labels or scores not only seem to influence the price, but also
the speed of the sale.