Return on energy efficiency investments in rental properties. ESRI Research Bulletin 2018/6

Collins, Matthew and Curtis, John (2018) Return on energy efficiency investments in rental properties. ESRI Research Bulletin 2018/6. UNSPECIFIED.

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Abstract

Generally, residential tenants do not invest in energy efficiency, as the upkeep of rental properties is usually the landlord’s responsibility. This research, which is based on a survey of tenants, finds that up to half of rental tenants are willing to pay more for properties with higher levels of energy efficiency. Of rental tenants willing to pay for better energy efficiency, on average they are willing to pay €38 per month extra in rent for a 1-grade improvement in the 15-grade Building Energy Rating (BER) scale for their existing rental properties. How much extra rent tenants are willing to pay varies across a number of circumstances but the factor that had the largest impact is information; information related to BER ratings and the potential savings in energy costs associated with better BER grades. Information on the BER rating scheme and the associated potential energy cost savings have two impacts on tenants’ willingness to pay for energy efficiency improvements. First, with additional information explaining BERs, including what a BER rating measures and how much a grade improvement along the BER scale can affect energy costs more tenants were willing to pay additional rent for energy efficiency improvements, rising from 38% of our survey sample to 55%. Second, the extra rent that tenants were willing to pay for a 1-grade BER improvement declined from €47/month to €38/month. This decline in willingness to pay occurs even among respondents that were willing to pay an additional rent of €47/month prior to learning more about BERs and associated potential energy cost savings. So, a higher proportion of tenants were willing to pay some extra rent for energy efficiency improvements but the amount that they are willing to pay declines, on average. This reduction in willingness to pay implies that in the absence of a good understanding of the potential energy cost savings associated with BER improvements tenants overvalue energy efficiency labels. A substantial minority of tenants are unwilling to pay additional rent for energy efficiency improvements, between 45% and 62% in our sample. The predominant reason tenants indicated why they were unwilling to pay was that they could not afford higher rents. This reflects the current property market in Ireland with high rental rates. When the extra rent that tenants are willing to pay is compared to the cost of associated energy efficiency improvements, the investment payback periods for most retrofit types (e.g. attic and cavity wall insulation, heating system upgrades) are relatively short. For the most energy inefficient properties (BER grades D-G) the investment payback periods are between 1 – 3 years when the Sustainable Energy Authority’s (SEAI) energy efficiency retrofit grant is included, whereas the payback period of more energy efficient properties (BER grades A-C) averages between 2 – 4 years. Payback periods for retrofits comprising external wall insulation or solar panels are substantially longer.

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