Stars and standards: Energy efficiency in rental markets

Evidence suggests that rental properties are often associated with lower levels of energy efficiency than owner-occupied buildings. Policy makers are increasingly concerned about this energy efficiency gap. In this paper, we investigate the energy investments made and the market efficiency gains associated with different policy interventions at the point of lease. We introduce key features of the housing rental market in the laboratory and examine four policy options: mandatory information on energy efficiency, voluntary information, mandatory minimum standards, and a ‘cost-share’ treatment (i.e., landlords pay a share of the tenants’ energy bill). We find that enabling landlords to post the energy efficiency of their properties increases investment in energy efficiency. Voluntary information achieves efficiency levels comparable to those under a mandatory programme but may lead to lower levels of tenant participation. Mandatory minimum standards lead to higher investments in energy efficiency, but also reduce the number of properties available for lease. Cost-sharing leads to low market efficiency levels, perhaps due to the uncertainty landlords face regarding the energy bill of their tenants.