Decarbonising Europe's building stock

Climate change is now widely acknowledged to require the urgent decarbonisation of all aspects of the economy, including buildings. The latest scientific findings indicate that an 80 per cent reduction in carbon by 2050 is not enough.

The UK target has therefore shifted to zero carbon by 2050; other European countries are moving in a similar direction, with the Netherlands and Germany in particular taking strong measures.

The challenge is primarily old builds: estimates suggest a mere three per cent of European residential stock is fully energy-efficient. This situation becomes increasingly apparent with the introduction of measures such as energy performance certificates (EPCs). These have informed the development of regulations on the energy efficiency of existing stock as well as new builds; for example, minimum standards for UK investment stock are now in place.

From occupier and owner-occupier perspectives, a stronger case may be made for energy-efficient buildings on the basis of health and well-being, as some popular retrofitting and energy-efficiency measures provide increased levels of comfort and feelings of security.

The paper, based primarily on EU-funded research, considers the valuer's role, and how — through their data collection and reporting processes — they can promote more energy-efficient housing. It reviews the context in which energy efficiency is climbing the European regulatory agenda, and the impact this has on value.

A review of the many large-scale quantitative studies conducted in Europe on value and energy efficiency found no single, firm relationship between the two qualities, as it varies between countries and study parameters, although there is a slight trend for positive relationships.

Most studies use hedonic pricing analysis and examine either capital or rental value in relation to EPCs. One large-scale study notes that energy-efficiency upgrades may result in higher values but that these may not outweigh the costs, whereas another study found a high return on investment. One study suggests that the small supply of energy-efficient stock leads to a skewing of demand and that, as new energy-efficient stock is developed, the premiums observed may fall. However, if legislation bites then inefficient stock may lose value.

There is limited qualitative research, but where it has been undertaken it reveals that individual property characteristics that have an impact on energy efficiency are more influential in terms of value than EPCs. But to date energy efficiency has not been a major factor in value.

Overall, the evidence reported in the insight paper points towards energy efficiency beginning to affect value, although it has a small impact compared with traditional factors. While column inches are often devoted to certification, specific visible characteristics such as good quality, climate-appropriate glazing may have greater important influence on value.

However, in the light of the rapidly changing policy environment, energy efficiency is likely to inform decisions by both owner-occupier and investor-owner more and more frequently, including those relating to lending and mortgages; this will in turn be reflected more clearly in reported property values.