Impact of energy performance on transaction prices: Evidence from the apartment market in Bucharest

Abstract

Purpose – This paper aims to estimate the green premium effect of retrofitted apartments in Bucharest and draw comparisons with international examples. Design/methodology/approach – A geo-referenced transaction database including information on whether the property had been retrofitted is utilised. The paper uses two approaches to test the green premium. One is a hedonic model controlled by areas to estimate the price incentive of a green building. The second is a STAR GLS model evaluating the diffusion effect of house prices spatially by sub-market and assessment upon the pricing effect of green characteristics. Findings – The authors’ findings suggest a green premium in two Bucharest areas of between 2.2 per cent and 6.5 per cent. Spatial diffusion effects are shown to contribute positively to house prices, but the unobserved spatial component reduces this effect. Originality/value – This paper is the first to assess price impacts of green characteristics in Bucharest and one of the first analysing green premium using spatial techniques. The analysis is of significance to policymakers and real estate developers.