Sunday, 23 June 2013

Improving your house energy efficiency increases its value - sometimes

The Department of Energy and Climate Change commissioned a survey of house prices across the country to see if having a high EPC rating (Energy Performance Certificate) adds to the value of a house. Since August 2008 all homes have to have an EPC before they can be sold and the EPC rating is a guide to how expensive they will be to heat. You can think of the EPC as a bit like the energy rating for fridges and televisions. Are you prepared to pay more for an A++ rated fridge? The results of this new survey on house prices suggest that houses with better EPC ratings do get a price premium, but not in every part of the country and not for all types of houses.


The survey included more than 325,000 homes which were sold at least twice between 1995 and 2012. This means that the survey could include value appreciation as well as value at one point. The homes were categorised by age and by type (detached, semi-detached, terraced, flat, etc) and the price was divided by the floor area to allow for different sizes.

EPC ratings come in levels A-G with A as the best and G the worst. The average is D. The survey found that A and B rated houses were overall about 14% more expensive than G rated houses but the difference was rather less for detached houses - 9% for detached houses in dense areas and only 5% in rural areas - and more for terraced houses - up to 18%. For semi detached houses and flats the difference was about 10-11%

This difference seems huge, and it probably does over estimate the effect, since one variable the researchers did not have was the condition of the house. It is likely that houses with a high EPC rating are also in a better condition than other houses of the same age. Also the survey does not specifically show that building work that improves the energy rating also increases the value, though it suggests that is likely.

If you start with a level G house you are unlikely to achieve a level A but you might get a level E or D. That would be worth 6.6% or 7.6% on average& but up to 14% for a terraced house.

The price appreciation results were less clear-cut than the price level. You would expect that as energy prices rise the EPC rating for a house would become more important but the data shows that E and F rated homes grew in value more slowly than G rated homes and most of the growth in value for C and D ratings was for detached houses. The report does not suggest an explanation for this and I can't think of one either. Theoretically it could be that upgrading a G rated home to F or E decreases its value, and if this happened to enough houses it could bring down the average for E and F. However, I don't think this is plausible.

One more interesting finding was that the price premium for a high EPC rating was very different in different parts of the country,. In particular there was no price premium at all in the South East and not much in the East of England either. These are areas in which house prices are high and the EPC rating effect is not significant.

The overall conclusion is that having a high EPC rating probably increases the value of your house in areas where buyers have a reasonable choice. However when they are struggling to find anything at all of the right size and in a plausible location then EPC ratings are relatively low priority.

[1] An investigation of the effect of EPC ratings on house prices DECC 2013

3 comments:

  1. Very interesting for those who need to sell now. We, as retired people are hoping to stay put for a decade.. if we're spared as they say in Ireland.Upgrading insulation and getting an EPC is for the grandchildren and the future of the world.
    Have you seen the catastrophic drop in numbers of houses being insulated per month? From 40 000 before the green Deal to 1 000 now, 97.5% by my reckoning. What about all the jobs that will be lost in the insulation companies?

    ReplyDelete
  2. The big drop is in cavity wall insulation which was often provided free by the energy companies and now would have to be paid for, except for vulnerable households which are covered by the new Energy Companies Obligation (ECO). As Ed Davey says here http://www.building.co.uk/sustainability/davey-defends-green-deal-after-cavity-wall-measures-plummet/5056004.article the new emphasis is on solid wall insulation and other hard to treat cases. The worry is that momentum seems to be being lost there too, judging by the kevel of trading in the ECO auctions: over £40 million in March and only about £16 million in April.
    https://www.gov.uk/government/publications/green-deal-and-energy-company-obligation-eco-monthly-statistics-may-2013

    ReplyDelete
  3. The energy performance certificate must be available from the time it is offered, the property for sale or rent is the owner otherwise risk a fine. An EPC must be present for the signing of the agreement or the deed. In this way, potential buyers and tenants informed about the energy efficiency of the house.

    ReplyDelete