Unraveling the Role Played by Energy Rating Bands in Shaping Property Prices Using a Multi-criteria Optimization Approach: The Case Study of Padua’s Housing Market

As the topic of energy efficiency is still in the spotlight after a few
decades of studies delving into it, several dozens of recent publications deal with
the potential occurrence of a price premium for green buildings, namely, those
significantly outperforming the best conventional ones. Almost all of those investigations
find that a price premium indeed occurs and is statistically significant -
though its magnitude is still debated - using regression analysis. Especially, the
traditional hedonic price model is widely used in early studies, while the spatial
autoregressive and spatial error models are ever extensively employed in the
newest ones. Here we suggest using a different approach by turning to multicriteria
analysis. In particular, we propose combining an application of the analytical
hierarchy process and linear optimization to identify the role played by energy
rating bands and the energy performance index in shaping property prices. As a
result, we expect to estimate the likely magnitude of the price premium for building
energy efficiency. We test the approach on the local housing market in Padua,
North-eastern Italy. A strong influence is found to be exerted on property prices
by the energy performance as expressed by the rating bands. After discussing the
empirical findings and the limitations of the analytical procedure, we also outline
further developments for our multi-criteria approach.