Rental price and sustainability ratings: which sustainability criteria are really paying back?

Abstract

Given the centrality of the price mechanism to resource allocation in market economies, the effect of sustainable construction on real estate prices has become an increasingly important empirical issue for market participants and policy makers in the real estate sector. Drawing upon a sample of approximately 2500 residential building units in Switzerland, this study assesses the effects of buildings’ sustainability on their rental prices. In contrast to the vast majority of previous studies that have focused on the price effects of eco-labels, this study investigates the effects of individual sustainability attributes. Overall, we find a positive relationship between the environmental performance of residential buildings and their rental levels. Sustainable building characteristics, especially those which enhance the water efficiency, the health and comfort level and the building’s safety and security, have significant positive price effects. It is argued that the unexpected negative relationship between energy performance and rental prices is attributed to the bundling of energy costs and rents in Swiss lease structures.

Keywords:

• Hedonic model
• rent
• residential
• sustainability
• sustainability evaluation

Acknowledgements

This study was supported financially by Ernst Basler & Partner and the Holcim Foundation for Sustainable Construction. We gratefully acknowledge this support. Furthermore, we would like to thank the Züricher Kantonalbank for assisting us with the necessary location ratings and the five portfolio owners who kindly provided all the required building information. Special thanks go to Markus Gaebel, whose help with the data preparation and continuous feedback is greatly appreciated. We would also like to thank the anonymous reviewers of this paper for their very helpful comments and much-appreciated suggestions.

Notes

1. Different types of Minergie certificates can be achieved depending on a building’s actual energy consumption. The regular Minergie-Standard requires that general energy consumption must not be higher than 75% of that of average buildings. Minergie-P defines buildings with very low energy consumption. Minergie-ECO adds ecological requirements such as indoor air quality, noise protection, etc. to the regular Minergie-Requirements.

2. In this analysis the category location 6 is not included since no buildings have been evaluated with a location rating of 6.

3. In this analysis the category 1949–40 has been excluded due to the lack of data availability.