Willingness-to-pay for energy efficient homes: new insights from the “energy crisis” in the UK

An extensive literature shows a positive relationship between housing energy efficiency and house prices. However, the methodological issue of omitted variable bias (OVB) has weakened claims of a causal effect. It is also unclear whether any willingness-to-pay (WTP) for housing energy efficiency reflects a concern with energy costs or a more symbolic ‘green’ consumption. The recent exogenous shock of the global ‘energy crisis’ in 2022 offers a novel opportunity to examine both. If WTP changes significantly after the energy crisis, it effectively removes OVB issues and strengthens causal interpretations. It could also indicate that WTP for energy efficiency is driven (at least in part) by energy cost savings. Using over 170,000 listings for second-hand house sales in Greater Manchester, UK (2017-24), we model WTP for energy efficiency before and after the dramatic rise in energy prices using multilevel hedonic regressions. We find that WTP for more energy efficient homes increased after the energy crisis, largely because the ‘brown discount’ (penalty) for more inefficient homes increased. These results confirm the causal interpretation of the relationship between house prices and energy efficiency and indicate that consumers are motivated at least in part by energy cost savings. These findings suggest that policymakers could promote housing energy efficiency by focussing on financial benefits in policy design and advertisements, as well as support financially vulnerable households to ensure an equal sustainable housing transition process.