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Is Energy Performance too taxing: A CAMA approach to modelling residential energy in housing in Northern Ireland

Davis, P, McCord, M, McCluskey, WJ, Montgomery, E, Haran, M and McCord, J (2017) Is Energy Performance too taxing: A CAMA approach to modelling residential energy in housing in Northern Ireland. Journal of European Real Estate Research, 10 (2). pp. 124-148. [Journal article]

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DOI: 10.1108/JERER-06-2016-0023


Purpose: Buildings contribute significantly to CO2 production. They are also subject to considerable taxation based on value. Analysis shows that whilst similar attributes contribute to both value and CO2 production, there is only a loose relationship between the two. If we wish to use taxation to affect policy change (drive energy efficiency behaviour), we are unlikely to achieve this using only the current tax base (value), or by increasing the tax take off this current tax base (unlike extra taxation of cigarettes to discourage smoking, for example). Taxation of buildings on the basis of energy efficiency is hampered by the lack of current evidence of performance. This research models the now obligatory (at sale or letting) Energy Performance Certificate (EPC) data to derive an acceptable appraisal model (marked to market, being the EPC scores) and deploys this to the entire population of properties. This provides an alternative tax base with which to model the effects of a tax base switch to energy efficiency and to understand the tax incidence effects of such a policy. Design: The research employs a multiplicative hedonic approach to model energy efficiency utilising EPC holding properties in a UK jurisdiction (Northern Ireland (NI)) as the sample. This model is then used to estimate discrete energy assessments for each property in the wider population, using attributes held in the domestic rating (property tax) database for NI (700,000+ properties). This produces a robust estimate of the EPC for every property in its current condition and its cost effective improved condition. This energy assessment based tax base is further utilised to estimate a new millage rate and property tax bill (green property tax) which is compared against the existing property tax based on value to allow tax incidence changes to be analysed. Findings: The findings show that such a policy would significantly redistribute the tax burden and would have a variety of expected and some unexpected effects. The results indicate that whilst assessing the energy performance of houses can be a complex process involving many parameters, much of the explanatory power can be achieved via a relatively small number of input variables, often already held by property tax jurisdictions. This offers the opportunity for useful housing stock modelling – such as the savings possible from power switching. The research also identifies that whilst urban areas display the expected ‘heat island’ effect in terms of energy consumption, urban properties are on average more efficient than suburban / rural properties. This facilitates spatial targeting of policy messages and initiatives.Research limitations/implications: Analogous with other studies, data deficiencies introduce the risk of omitted variable bias. Modelling of the energy efficiency in the sample is limited to property attributes that are available for the wider population of properties. Whilst this limits the modelling exercise, it is a perennial issue facing mass appraisal worldwide (where knowledge of the transacted sample attributes generally exceeds knowledge of the unsold properties). That said, the research demonstrates the benefits of sharing data and improving knowledge of the housing stock, as taxation databases would be stronger, augmented with EPC derived property attributes for example.Originality/value: The EPC lead in time for wide residential coverage is likely to be considerable. The paper contributes to emerging literature and policy debate surrounding the effect, performance measurement and implementation of energy efficiency certification, through a greater understanding of the sectorial and geographical dispersion of energy efficiency. It provides high level research to help guide policy and decision-making, identifying key locales where there is more of a physical problem and locations where there is more to gain in terms of targeting energy improvement and / or encouraging behavioural change. The paper also allows a glimpse of the implications of a change towards a taxation regime based on energy efficiency, which contributes to the debate surrounding the ‘greening’ of property based taxes.

Item Type:Journal article
Keywords:Energy efficiency, Energy performance, Mass Appraisal, Property Taxation, Housing Policy
Faculties and Schools:Faculty of Social Sciences > School of Law
Faculty of Art, Design and the Built Environment
Faculty of Social Sciences
Faculty of Art, Design and the Built Environment > School of the Built Environment
Research Institutes and Groups:Built Environment Research Institute > Centre for Research on Property and Planning (RPP)
Built Environment Research Institute
ID Code:38210
Deposited By: Dr Peadar Davis
Deposited On:19 Jun 2017 09:04
Last Modified:16 May 2019 22:23

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