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Rents as incentive for saving energy: an empirical analysis for Austria

This empirical analysis examines the impact of rent incentives on energy savings in Austria's housing sector. The study explores the economic dynamics between landlords, tenants, and investments in energy efficiency, as well as the effects of rent control and improvement funds. The results suggest that the current market structure does not effectively incentivize energy efficiency improvements, likely due to strict rent regulation and limited transparency.

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Rents as incentive for saving energy: an empirical analysis for Austria

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

  2. 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

  3. 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 20-30 years

  4. 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?

  5. 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

  6. 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

  7. 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(Xa, Xb, Xl, Xc, h) • h is expected to have a significant negative coefficient (market incentive works in the right direction)

  8. 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

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

  10. 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

  11. 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 m2) net of heating costs • Important independent variable: heating costs (per m2)

  12. 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

  13. Empirical results

  14. 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)

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