Rents as incentive for saving energy: an empirical analysis for Austria Gunther Maier, Philipp Kaufmann, Andreas Oberhuber

Untertitel - hier einfügen Overview  Introduction: The need to save energy in the housing sector  The economics: landlords, tenants and investments in energy efficiency  The Austrian context: rent control and improvement funds  The empirical evidence: heating costs in hedonic rent equations  Summary

Untertitel - hier einfügen Introduction  About 1/3 of energy is used for buildings  In Austria, 28.1% used for heating and cooling of rooms  Kyoto  Austria agreed to reduce energy use in the building sector by 28.1% (relative to 1990)  Actual increase by 4.7%  Slow adjustment process  Long lifetime of buildings, slow rate of replacement  Buildings built today determine energy use for the next years

Untertitel - hier einfügen Introduction  Reduction of energy consumption in buildings is urgently needed  How can this be achieved?  Regulations  Investment subsidies  Market incentives  How do market incentives work in the current structure?

Untertitel - hier einfügen Economics  Energy consumptions in buildings is determined by various actors  Energy provider: supplies energy in the requested form, paid by tenant  Landlord: rents the appartment to the tenant, decides about investments into the energy efficiency of the building (insulation, windows)  Tenant: pays rent to the landlord, decides about energy use (heating patterns, room temperatures, ventilation)  Government: sets and controls regulations, provides investment subsidies  Limited transparency of costs of heating/cooling

Untertitel - hier einfügen Economics  Price of housing:  P = rent + operation costs + cost of heating/cooling  Relevant price for the tenant: P  Relevant price for the landlord: rent  Relevant price for the energy provider: cost of heating/cooling  Tenant:  tradeoff between „rent“ and „cost of heating/cooling“  willing to pay a higher rent for an appartment with lower costs of heating/cooling

Untertitel - hier einfügen Economics  incentive for landlord to invest in energy efficiency of the building: market incentive for investments in energy efficiency  Does this mechanism exist in Austria?  Empirical approach:  Estimation of a hedonic price equation: r = f(X a, X b, X l, X c, h)  h is expected to have a significant negative coefficient (market incentive works in the right direction)

Untertitel - hier einfügen Austrian context  Austrian housing market is highly regulated (MRG – rental law)  Energy efficiency is not taken into account in these regulations  Most important regulated areas:  Protection against eviction  Limitations of rent levels and rent increases

Untertitel - hier einfügen Austrian context  Four types of rent: 1.limited (low standard, 1.54 €/m2/month) 2.Guideline rent (good quality, old buildings, legally set base rent + additions – subtractions) 3.Appropriate rent (newer buildings, good quality, improved apartments; appropriateness can be checked by court) 4.Unregulated rent (newer buildings, no public support; negotiable)

Untertitel - hier einfügen Austrian context  Rent increases:  In case of controlled rents, generally limited to CPI  Temporary rent increases  Under certain conditions  Must be approved by public authorities  Can be limited by court  For improvement investments  Funds cannot be used for other purposes  In case of free rents, generally according to contract

Untertitel - hier einfügen Empirical results  Does an economic incentive prevail in this regulated market?  Data  EU-SLIC 2006 and 2007 for Austria (Statistik Austria)  Household survey, 2 years, different numbers of variables  Only rented residential property  Only observations where rent is considered to be according to the market by the respondent  dependent variable: (log of) rent (per m 2 ) net of heating costs  Important independent variable: heating costs (per m 2 )

Untertitel - hier einfügen Empirical results  Categories of control variables:  Fundamental appartment characteristics (size, size- squared, no.of rooms, availability of water, toilet, heating, garden, balcony, floor); 2006: 10; 2007: 28 variables  Fundamental house characteristics (age, type); 2006: 11; 2007: 12 variables  Locational characteristics (federal state, type of city, accessibility of bank, hospital, public park, shopping, etc., crime, noise); 2006: 15; 2007: 26  Characteristics of contract (limited, length of contract); 2006: 1; 2007: 2

Untertitel - hier einfügen Empirical results linearlogp. m2linearlogp. m2 Heating (5.79) (4.64) (4.35) (2.15) (44.1) (2.04) Controls 1/5/10% 9/3/29/3/411/2/57/12/73/6/712/9/6 R2R

Untertitel - hier einfügen Summary and conclusions  Estimations do not yield the expected significant negative coefficient – positive and significant  Result is stable over years, specifications, and  Market incentive works against improvements in energy efficiency  Reason cannot be identified with this analysis  Strict rent regulation  Limited transparency (informational problem)