(Bloomberg) -- If prospective renters had an easy way to compare energy costs, they would choose energy-efficient rentals 21% more frequently, according to a report published Tuesday by the American Council for an Energy-Efficient Economy (ACEEE), a nonprofit research organization in Washington.
No city in the US requires landlords to disclose the energy efficiency of the properties in rental listings, ACEEE said. But that information could be important, especially to families who struggle to pay their bills. Low-income families are more likely to rent than own their homes and spend a higher percentage of their income on energy costs, especially with gas and oil prices rising.
“How can renters possibly make informed decisions about which home to live in without being able to compare what their utility bills will be?” said Reuven Sussman, lead author of the report and director of ACEEE’s behavior and human dimensions program.
The group decided to run a study to address what is known as the split incentive problem: Tenants who pay for utilities would benefit from energy-efficient upgrades while they’re in the rental, but have no incentive to pay toward long-term improvements to a property that isn’t theirs. Landlords have the opposite problem. They may have the money and time to invest in energy efficiency in their own property, but since they often don’t pay for utilities, they have little incentive.
Researchers at the nonprofit wondered if labeling energy efficiency would bridge the gap in interests. “From a tenant’s perspective this could save the shock of a higher-than-expected energy cost,” Sussman said. “From a market transformation perspective, we thought if we can demonstrate that tenants will act on energy efficiency, it might influence landlords to invest in that instead of granite countertops.”
So ACEEE set out to prove the thesis, asking a nationally representative sample of 2,455 renters to search through a mock rental listing website. Participants were able to enter their preferences for standard variables including location, property type (house or apartment), number of bedrooms, and monthly rent. Some saw information about the units’ energy efficiency while those in a control group saw no energy information at all. (Data was collected last summer, before Russia’s attack on Ukraine caused energy prices to spike.)
When energy labels were present, people selected the most efficient listings 21% more often than those who didn’t see the information. This was true across all income bands, not just those most burdened by energy costs. But researchers found that the way the information was presented mattered.
Participants were shown energy scores in six different formats. Those who saw an energy rating along a continuum, or as a numeric score out of 10, were more responsive, since this helped them to compare one unit to others. They were willing to increase their monthly rent by 1.8% for every one-unit increase in energy score (on a scale from 1 to 10, 10 being the most efficient). That would translate into more than $400 of additional annual revenue for landlords for an average-priced US rental unit, according to ACEEE.
Currently, state and local governments in the US have a hodgepodge of requirements around energy efficiency disclosures. Although Sussman’s team didn’t find any that require showing energy costs for rental listings, some jurisdictions require disclosures when families are purchasing a home. The City of Minneapolis does compel landlords to disclose average utility costs when prospective tenants fill out an application.
Sussman said he hoped the study would convince states and localities to pass laws mandating such information be available for all rentals, preferably at the listing stage. “Our experiment showed that if renters have that energy cost or efficiency rating, it’s absolutely going to affect their choices. It may also nudge landlords to make their buildings more efficient.”
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