Author information:
Gábor Hajnal: Magyar Nemzeti Bank, Economic Analyst. E-mail: hajnalg@mnb.hu
Alexandr Maxim Palicz: Magyar Nemzeti Bank, Senior Economic Analyst. E-mail: palicza@mnb.hu
Sándor Winkler: Magyar Nemzeti Bank, Head of Division. E-mail: winklers@mnb.hu
Abstract:
The real estate market is a key component of the green transition, and thus it is worth examining the pricing and financing costs of modern residential buildings in Hungary. In our study, we investigate a) whether a significant price premium can be identified for green properties based on new housing projects in Budapest, and b) whether banks finance residential buildings with more advanced energy technologies at lower interest rates. Based on our regression estimation, the green price premium is clearly evident in the Budapest new housing market: on average, homes with an energy rating of BB or better are 5.1 per cent more expensive than homes with an energy rating of CC. Based on our estimate of housing loan interest rates, no significant difference can be identified in the interest rates on loans granted to finance properties with a certificate higher than CC compared to loans granted for properties with CC certificate, i.e. banks do not yet factor energy aspects into the pricing of loans.
Cite as (APA):
Hajnal, G., Palicz, A. M., & Winkler, S. (2022). Impact of Energy Rating on House Prices and Lending Rates. Financial and Economic Review, 21(4), 29–56. https://doi.org/10.33893/FER.21.4.29
Column:
Study
Journal of Economic Literature (JEL) codes:
C13, G21, R30
Keywords:
green financing, new homes, energy rating, housing loans
References:
Aczél, Á. – Banai, Á. – Borsos, A. – Dancsik, B. (2016): Identifying the determinants of housing loan margins in the Hungarian banking system. Financial and Economic Review, 15(4): 5–44. https://en-hitelintezetiszemle.mnb.hu/letoltes/akos-aczel-adam-banai-andras-borsos-balint-dancsik.pdf
An, X. – Pivo, G. (2018): Green Buildings in Commercial Mortgage-Backed Securities: The Effects of LEED and Energy Star Certification on Default Risk and Loan Terms. Real Estate Economics, 48(1): 7–42. https://doi.org/10.1111/1540-6229.12228
Baccega, T. – Bedin, A. – Billio, M. – Hristova, I. – Riedel, M. (2019): Technical report on the portfolio analysis of banks’ loan portfolios. EeMAP WP5/D5/2.
Banai, Á. – Vágó, N. – Winkler, S. (2018): Measuring heterogeneity of house price developments in Hungary, (1990-2016). Acta Oeconomica, 2018(3): 377–414. https://doi.org/10.1556/032.2018.68.3.4
Billio, M. – Costola, M. – Pelizzon, L. – Riedel, M. (2021): Buildings’ Energy Efficiency and the Probability of Mortgage Default: The Dutch Case. Journal of Real Estate Finance and Economics, 65: 419–450. https://doi.org/10.1007/s11146-021-09838-0
Cajias, M. – Piazolo, D. (2013): Green performs better: energy efficiency and financial return on buildings. Journal of Corporate Real Estate, 15(1): 53–72. https://doi.org/10.1108/JCRE-12-2012-0031
Dancsik, B. – El-Meouch, N.M. (2019): Who Can Refinance? The Possibilities and Limitations of Market-based Refinancing in the Case of Mortgages with a Variable Interest Rate. Financial and Economic Review, 18(2): 5–30. http://doi.org/10.33893/FER.18.2.530
Dancsik, B. – Marosi, A. – Szabó, B. (2022): Túl drága az olcsó hitel – családi otthonteremtési kedvezmény támogatott hitelkamatainak vizsgálata (Cheap loans are too expensive: an examination of interest rates on subsidised housing loans). Közgazdasági Szemle (Economic Review), 69(12): 1493–1506. https://doi.org/10.18414/KSZ.2022.12.1493
Ertl, A. – Horváth, Á. – Mónus, G. – Sáfián, F. – Székely, J. (2021): Az energetikai jellemzők és az ingatlanárak kapcsolata (Relationship between Energy Efficiency Attributes and House Prices). Statisztikai Szemle (Statistical Review) 99(10): 923–953. https://doi.org/10.20311/stat2021.10.hu0923
Ferentios, K. – Gibberd, A. – Guin, B. (2021): Climate policy and transition risk in the housing market. Bank of England, Staff Working Paper No. 918. https://ideas.repec.org/p/boe/boeewp/0918.html
Fuerst, F.– Haddad, M. – Adan, H. (2020): Is there an economic case for energy-efficient dwellings in the UK private rental market? Journal of Cleaner Production, 245, 11862. https://doi.org/10.1016/j.jclepro.2019.118642
Giraudet, L.G. – Houde, S. – Maher, J. (2018): Moral hazard and the energy efficiency gap: theory and evidence. Journal of the Association of Environmental and Resource Economists, 5(4): 755–790. https://doi.org/10.1086/698446
Giraudet, L.G. – Petronevich, A. – Faucheux, L. (2021): Differentiated green loans. Energy Policy, 149, 111861. https://doi.org/10.1016/j.enpol.2020.111861
Gosling, S.N. – Zaherpour, J. – Ibarreta, D. (2018): PESETA III: Climate change impacts on labour productivity. EUR 29423 EN, Publications Office of the European Union, Luxembourg, 2018. https://doi.org/10.2760/07911
Government of Hungary (2020): Hungary: Modernisation of Public and Residential Buildings – Identification and Elaboration of Support Programmes. https://www.ebrd.com/documents/comms-and-bis/energy-efficiency-hungary.pdf
Guin, B. – Korhonen, P. (2020): Does energy efficiency predict mortgage performance? Bank of England, Working papers No. 852. https://doi.org/10.2139/ssrn.3532373
Guin, B. – Korhonen, P. – Moktan, S. (2022). Risk differentials between green and brown assets? Economics Letters, 213, 110320. https://doi.org/10.1016/j.econlet.2022.110320
Hartenberger, U. – Lorenz, D. – Sayce, S. – Toth, Z. (2017): Creating an energy efficient mortgage for Europe – Mortgage lending valuation and the impact of energy efficiency: an overview of current practice. RICS. https://www.igbc.ie/wp-content/uploads/2017/10/FINAL-Technical-Report-on-Mortgage-Valuation.pdf
Hirsch, J. – Hahn, J. (2018): How flood risk impacts residential rents and property prices: Empirical analysis of a German property market. Journal of Property Investment & Finance, 36(1): 50–67. https://doi.org/10.1108/JPIF-11-2016-0088
Hyland, M. – Lyons, R. – Lyons, S. (2013): The value of domestic building energy efficiency – evidence from Ireland. Energy Economics, 40: 943–952. https://doi.org/10.1016/j.eneco.2013.07.020
Kim, S.K. – Peiser, R.B. (2020): The implication of the increase in storm frequency and intensity to coastal housing markets. Journal of Flood Risk Management, 13(3), e12626. https://doi.org/10.1111/jfr3.12626
MNB (2022): Housing Market Report – May 2022. Magyar Nemzeti Bank. https://www.mnb.hu/letoltes/laka-spiaci-jelente-s-2022-ma-jus-eng.pdf
Nguyen D.D. – Ongena, S. – Qi, S. – Sila, V. (2018): Climate Change Risk and the Cost of Mortgage Credit. Swiss Finance Institute Research Paper Series No. 20–97. https://doi.org/10.2139/ssrn.3738234
Schnabel, I. (2022): A new age of energy inflation: climateflation, fossilflation and greenflation, Monetary Policy and Climate Change. Speech at a panel on “Monetary Policy and Climate Change” at The ECB and its Watchers XXII Conference, European Central Bank, 17 March. https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220317_2~dbb3582f0a.en.html
Schütze, F. (2020): Transition Risks and Opportunities in Residential Mortgages. DIW Berlin Discussion Papers No. 1910. https://doi.org/10.2139/ssrn.3726012
Stanley, S. – Lyons, R.C. – Lyons, S. (2015): The price effect of building energy ratings in the Dublin residential market. Energy Efficiency, 9, 875–885. https://doi.org/10.1007/s12053-015-9396-5
Zachmann, G. – Fredriksson, G. – Claeys, G. (2018): The distributional effects of climate policies. Bruegel. Blueprint Series, 28. https://www.bruegel.org/sites/default/files/wp-content/uploads/2018/11/DistributionalEffectsofClimatePolicies.pdf
Zancanella, P. – Bertoldi, P. – Boza-Kiss, B. (2018): Energy efficiency, the value of buildings and the payment default risk. EUR 29471 EN, Publications Office of the European Union, Luxembourg. https://doi.org/10.2760/267367
Zöldy, M. – Szalmáné Csete, M. – Kolozsi, P.P. – Bordás, P. – Török, Á. (2022): Cognitive Sustainability. Cognitive Sustainability, 1(1). https://doi.org/10.55343/cogsust.7