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. 

Research confirms

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.

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