1# RECORD 18a3ce8a193301208557e0d6f2d027166917cb252# TITLE: Impact of ground source heat pumps on house sales prices in Finland3# YEAR: 2023.0 VENUE: Energy Efficiency DOI: 10.1007/s12053-023-10084-x4# AUTHORS: J. Vimpari5# PAGES: 13 CANDIDATE TABLE PAGES (1-based): [8, 9, 10]6# ABSTRACT: Buildings contribute to approximately 28% of global energy-related emissions. Heat pumps are a key technology for decarbonising the heating emissions of buildings. This study focuses on ground source heat pumps (GSHP), which are increasingly used in colder regions. Since, for an average home, the capital expenditure of GSHP can be an order of magnitude higher than that of traditional heating, it is important to understand whether GSHP has an impact on house transaction prices. A hedonic price model was constructed to estimate the sales prices of detached houses, where heating type is the main variable of interest. The hedonic analysis revealed that for detached houses, GSHP had a statistically significant positive impact of 5.33% on house sales prices. Further analysis puts the premium in the context of housing prices in different locations in Finland. An average house in the Helsinki Metropolitan Area (HMA) could cover the required capital expenditure of a GSHP system with the sales price premium, whereas in other areas in Finland, 5 years of energy savings are required on top of the premium. Hence, in locations with lower housing prices, the house must be owned for a longer period to recoup the investment costs. This is important to understand when national energy aid policies are planned to accelerate investments in heat pumps.789===== PAGE 1 (score 8, numeric-paren 0, table-words 0, var-words 8) =====1011Vol.: (0123456789)121 313https://doi.org/10.1007/s12053-023-10084-x14SHORT COMMUNICATION15Impact of ground source heat pumps on house sales prices 16in Finland17Jussi Vimpari18Received: 25 May 2022 / Accepted: 14 January 2023 19© The Author(s) 202320Abstract Buildings contribute to approximately 2128% of global energy-related emissions. Heat 22pumps are a key technology for decarbonising the 23heating emissions of buildings. This study focuses 24on ground source heat pumps (GSHP), which are 25increasingly used in colder regions. Since, for an 26average home, the capital expenditure of GSHP can 27be an order of magnitude higher than that of tradi-28tional heating, it is important to understand whether 29GSHP has an impact on house transaction prices. A 30hedonic price model was constructed to estimate the 31sales prices of detached houses, where heating type 32is the main variable of interest. The hedonic analy-33sis revealed that for detached houses, GSHP had a 34statistically significant positive impact of 5.33% on 35house sales prices. Further analysis puts the pre-36mium in the context of housing prices in different 37locations in Finland. An average house in the Hel-38sinki Metropolitan Area (HMA) could cover the 39required capital expenditure of a GSHP system with 40the sales price premium, whereas in other areas in 41Finland, 5 years of energy savings are required on 42top of the premium. Hence, in locations with lower 43housing prices, the house must be owned for a longer 44period to recoup the investment costs. This is important 45to understand when national energy aid policies are 46planned to accelerate investments in heat pumps.47Keywords Heat pump · House prices · Hedonic 48model · Energy prices · Housing market49Introduction50Buildings contribute to approximately 28% of global 51energy-related emissions (IEA, 2020a). In the USA, 5220% of the nation’s greenhouse gas emissions come 53from heating, cooling and powering households 54(Goldstein et al., 2020). In Germany, private house-55holds’ energy consumption causes approximately 5631% of Germany’s total CO2 emissions (Destatis, 572021; Ritchie & Roser, 2020). In the UK, heating in 58the residential sector accounts for approximately 21% 59of CO2 emissions (National Statistics, 2020a, b). In 60Finland, building heating and electricity consumption 61caused 36% of all emissions, of which roughly two-62thirds were from heating (SYKE, 2020).63Heat pumps are a key technology for decarbonis-64ing the heating sector. Currently, only 5% of global 65heat is delivered with heat pumps, but this may tri-66ple by 2030, and eventually, heat pumps could cover 6790% of the global space and water heating needs for 68low emissions (IEA, 2020b). Ram et al. (2019) cal-69culated that by 2050, over €7 trillion will be invested 70into individual heat pumps that heat or cool buildings. 71Currently, the European Commission (2022) and its 72J. Vimpari (*) 73Department of Built Environment, Real Estate Economics, 74Aalto University, P.O. Box 11000 (Otakaari 1B), Aalto, 75FI‑00076 Espoo, Finland76e-mail: jussi.vimpari@aalto.fi77/ Published online: 23 January 2023787980===== PAGE 8 (score 43, numeric-paren 20, table-words 6, var-words 7) =====8182 831 384Vol:. (1234567890)85on heating costs, as older buildings that are in a bad 86condition have lower energy efficiency.87When a location is controlled, the GSHP premium 88drops dramatically. This is expected because in the 89dataset, GSHP houses had a larger market share in 90cities with higher prices (see Tables 2 and 3). Adding 91the lower-level, time-varying neighbourhood charac-92teristics did not have a significant effect on either the 93performance or the estimates. When building char-94acteristics were added, the performance increased by 95approximately 0.22 in both regression models, but the 96price premiums also decreased. This change was then 97further analysed by excluding first age, then condi-98tion and then both from the final model. The perfor-99mance remained high, but interestingly, these exclu-100sions decreased the price premium. This suggests that 101GSHP houses did not have some unseen conditional 102effect that accounted for the estimated GSHP price 103premium.104Further analysis was conducted by estimating how 105the premiums had developed over time and in differ-106ent cities. Two regression models are created with 107interaction variables, see Table 6.108There positive premiums have been quite consist-109ent since 2010, when the heating costs also started 110to increase more rapidly than housing prices, as pre-111sented in Fig. 1. However, the positive housing price 112developments were fuelled by higher loans and very 113low interest rates. Since heating costs are paid by 114available income rather than the debt that is used for 115buying the house itself, the increasing trend in pre-116miums could be linked to the ratio between avail-117able income and energy costs. Figure 3 presents the 118indexed development of electricity prices and district 119heating (oil is excluded given the high volatility), 120as well as wages and salaries in Finland (Statistics 121Finland, 2021b, d). Up until the financial crisis in 1222007–2009, heating costs and wages followed each 123other. However, since the financial crisis, there has 124been a clear and growing gap between these indexes. 125Regarding the municipality interaction variable, 6 126municipalities have a statistically significant positive 127price premium with quite a bit of volatility between 128the size of the premium.129Economic return of GSHP in detached houses130The total economic and environmental performance 131of GSHP was estimated for an average detached 132house in Finland. At the end of 2020, the average 133selling price of an old, detached house in HMA 134was 3 369 €/sqm and in the rest of Finland, it was 1351 497 €/sqm (Statistics Finland, 2021b). Based on 136Table 4 Hedonic OLS 137regression estimates of log 138sales prices139Statistically significant at 140***1% level, **5% level, 141*10% level. AGSHP true/142false, i.e. other heating 143types as one category. 144BEvery heating type as own 145category, direct electricity 146omitted. The following 147categorical variables are 148omitted: condition = decent, 149lot_ownership = own150GSHPA151Heating typeB152Coefficient153SE154Coefficient155SE156Intercept15712.6308***1580.140515912.6097***1600.1404161C(GSHP)[T.True]1620.0519***1630.0060164C(heating_type)[T.district_heating]1650.0126***1660.0046167C(heating_type)[T.GSHP]1680.0474***1690.0062170C(heating_type)[T.oil]171 − 0.0228***1720.0041173Sqm1740.0039***1750.00001760.0039***1770.0000178Age179 − 0.0051***1800.0001181 − 0.0049***1820.0001183Distance to CBD184 − 0.0161***1850.0015186 − 0.0160***1870.0015188C(condition)[T.excellent]1890.3189***1900.02001910.3170***1920.0200193C(condition)[T.good]1940.1800***1950.00371960.1791***1970.0037198C(condition)[T.poor]199 − 0.2987***2000.0080201 − 0.2995***2020.0080203C(lot_ownership)[T.rented]204 − 0.0561***2050.0040206 − 0.0593***2070.0041208Sale year and month fixed effects209Yes210Postcode fixed effects211Yes212Neighbourhood characteristics213Yes214N21519,008216Adj. R22170.8512180.8512194220Page 8 of 13221222223===== PAGE 9 (score 79, numeric-paren 56, table-words 5, var-words 6) =====2242251 3226Vol.: (0123456789)227building data statistics, the average house in HMA 228was constructed in 1984 and has a living area of 181 229sqm (Statistics Finland, 2021c). The correspond-230ing house in the rest of Finland was constructed in 2311972 and has an area of 143 sqm. Using the above 232square metre prices, the respective values of these 233houses were estimated at €609 789 and €214 071. 234Thus, the premium of 5.33% would indicate a price 235premium of €32 484 in HMA and €11 404 in the 236rest of Finland.237Using the methodology presented by Vimpari 238(2021), the actual energy consumption of these build-239ings was estimated based on the floor area, construc-240tion year and location. For the rest of Finland, the 241city of Kuopio (located in the centre of Finland) was 242used as a reference point, as the climate is colder and 243Table 5 Sensitivity analysis of regression estimates244Statistically significant at ***1% level, **5% level, *10% level, standard errors in parenthesis. AGSHP true/false, i.e. other heating 245types as one category. BEvery heating type as own category, direct electricity omitted246GSHPA24712482249325042514a2524b2534c254C(GSHP)[T.True]2550.2175***2560.0976***2570.0898***2580.0519***2590.0555***2600.0363***2610.0374***262(0.0140)263(0.0096)264(0.0094)265(0.0060)266(0.0064)267(0.0067)268(0.0076)269Sale year and month fixed 270effects271Yes272Yes273Yes274Yes275Yes276Yes277Yes278Postcode fixed effects279Yes280Yes281Yes282Yes283Yes284Yes285Neighbourhood character-286istics287Yes288Yes289Yes290Yes291Yes292Building characteristics293Yes294Yes295Yes296Yes297 Exclude age298Yes299Yes300Yes301 Exclude condition302Yes303Yes304 Exclude age and condi-305tion306Yes307N30819,008309Adj. R23100.13093110.61793120.63323130.85073140.82823150.81193160.7609317Heating typeB31813192320332143224a3234b3244c325C(heating_type)[T.district_326heating]3270.0661***3280.0394***3290.0353***3300.0126***3310.0262***3320.0121**3330.0338***334(0.0089)335(0.0071)336(0.0070)337(0.0046)338(0.0049)339(0.0051)340(0.0057)341C(heating_type)[T.GSHP]3420.2023***3430.0810***3440.0762***3450.0474***3460.0436***3470.0297***3480.0184**349(0.0142)350(0.0097)351(0.0096)352(0.0062)353(0.0066)354(0.0069)355(0.0077)356C(heating_type)[T.oil]357 − 0.1354*** − 0.0832*** − 0.0710*** − 0.0228*** − 0.0564*** − 0.0305*** − 0.0874***358(0.0089)359(0.0064)360(0.0063)361(0.0041)362(0.0043)363(0.0046)364(0.0051)365Sale year and month fixed 366effects367Yes368Yes369Yes370Yes371Yes372Yes373Yes374Postcode fixed effects375Yes376Yes377Yes378Yes379Yes380Yes381Neighbourhood character-382istics383Yes384Yes385Yes386Yes387Yes388Building characteristics389Yes390Yes391Yes392Yes393 Exclude age394Yes395Yes396Yes397 Exclude condition398Yes399Yes400 Exclude age and condi-401tion402Yes403N40419,008405Adj. R24060.14804070.62284080.63684090.85104100.83034110.81244120.7658413Page 9 of 134144415416417===== PAGE 10 (score 46, numeric-paren 19, table-words 8, var-words 5) =====418419 4201 3421Vol:. (1234567890)422heating requirements are higher compared to HMA, 423which is in the south. Oil was used as the current heat-424ing system. Table 7 presents details regarding current 425heating costs and emissions, as well as the numbers 426of whether GSHP is the heating system. Additionally, 427some details of GSHP are provided, together with key 428financial parameters, such as the payback period and 429the internal rate of return (IRR). The heating costs 430and emissions are higher for the building in the rest of 431Finland, even though they are 21% smaller. The loca-432tions in a colder region, as well as an older construc-433tion year with worse insulation, are the reasons for 434this. However, savings from GSHP are larger for the 435building in HMA, a key reason being that the coef-436ficient of performance for GSHP is higher in southern 437Finland and electricity (distribution) prices are lower. 438Heating costs and emissions in HMA are reduced by 439approximately 71% and 94%, respectively, compared 440to the buildings in the rest of Finland, with 58% and 44193%, respectively. In both cases, the payback period 442for the investment was approximately 10 years with-443out considering the potential sales price premium. 444The lifecycle investment performance (IRR) was 445slightly better for the building in HMA.446Finally, the number of years of energy savings 447on top of the price premium required to cover the 448capital expenditure of GSHP was calculated. In 449HMA, 0 years of energy savings plus the price pre-450mium cover the investment costs, whereas 5 years 451are needed in the rest of Finland. This highlights the 452relationship between the investment costs of a GSHP 453system and housing prices. The relative investment 454Table 6 Interaction variable estimations for GSHP houses455Interaction variable for sale year:GSHP true456Interaction variable for municipality:GSHP true457Coefficient458SE459Coefficient460SE461Intercept46212.6364***4630.1405464Intercept46512.5322***4660.1624467C(GSHP)[T.True]:C(sale_year)[1999]468 − 0.01864690.0514470C(GSHP)[T.True]:C(municipality)[Espoo]4710.0932***4720.0142473C(GSHP)[T.True]:C(sale_year)[2000]474 − 0.03174750.0570476C(GSHP)[T.True]:C(municipality)[Helsinki]4770.0374**4780.0155479C(GSHP)[T.True]:C(sale_year)[2001]4800.05744810.0434482C(GSHP)[T.True]:C(municipality)[Kuopio]4830.01624840.0340485C(GSHP)[T.True]:C(sale_year)[2002]486 − 0.01474870.0415488C(GSHP)[T.True]:C(municipality)[Lahti]4890.0641***4900.0223491C(GSHP)[T.True]:C(sale_year)[2003]492 − 0.01574930.0406494C(GSHP)[T.True]:C(municipality)[Oulu]4950.0783***4960.0176497C(GSHP)[T.True]:C(sale_year)[2004]4980.0654*4990.0357500C(GSHP)[T.True]:C(municipality)[Tampere]5010.0319**5020.0133503C(GSHP)[T.True]:C(sale_year)[2005]5040.0836***5050.0288506C(GSHP)[T.True]:C(municipality)[Turku]5070.0430***5080.0148509C(GSHP)[T.True]:C(sale_year)[2006]5100.02265110.0283512C(GSHP)[T.True]:C(municipality)[Vantaa]5130.02355140.0198515C(GSHP)[T.True]:C(sale_year)[2007]5160.00375170.0296518Sale year and month fixed effects519Yes520C(GSHP)[T.True]:C(sale_year)[2008]5210.0555*5220.0298523Postcode fixed effects524Yes525C(GSHP)[T.True]:C(sale_year)[2009]5260.03115270.0338528Neighbourhood characteristics529Yes530C(GSHP)[T.True]:C(sale_year)[2010]5310.0853***5320.0287533Building characteristics534Yes535C(GSHP)[T.True]:C(sale_year)[2011]5360.0990***5370.0250538N53919,008540C(GSHP)[T.True]:C(sale_year)[2012]5410.0499**5420.0235543Adj. R25440.851545C(GSHP)[T.True]:C(sale_year)[2013]5460.01905470.0227548C(GSHP)[T.True]:C(sale_year)[2014]5490.0417*5500.0219551C(GSHP)[T.True]:C(sale_year)[2015]5520.0315*5530.0191554C(GSHP)[T.True]:C(sale_year)[2016]5550.0624***5560.0189557C(GSHP)[T.True]:C(sale_year)[2017]5580.0771***5590.0182560C(GSHP)[T.True]:C(sale_year)[2018]5610.0846***5620.0175563Sale year and month fixed effects564Yes565Postcode fixed effects566Yes567Neighbourhood characteristics568Yes569Building characteristics570Yes571N57219,008573Adj. R25740.8515754576Page 10 of 13577578579===== PAGE 11 (score 9, numeric-paren 0, table-words 1, var-words 7) =====5805811 3582Vol.: (0123456789)583Fig. 3 Development of 584heating costs and wages in 585Finland586058750588100589150590200591250592300593199959420005952001596200259720035982004599200560020066012007602200860320096042010605201160620126072013608201460920156102016611201761220186132019614Index (1999=100)615District Hea ng616Electricity617Wages andSalary618Table 7 Overall economic 619and environmental analysis 620of GSHP in an average 621detached house622HMA623Other Finland624Average detached house625 Price (€/sqm)6263 3696271 497628 Average construction year6291 9846301 972631 Average floor area (sqm)632181633143634 Price, average detached house (€)635609 789636214 071637 Energy consumption (MWh p.a.)6383563938640 Heating costs, oil (€ p.a.)6413 5006423 800643 Heating emissions, oil (kg CO2-ekv p.a.)64410 30064511 200646GSHP investment647 Heat pump investment Cost (€)64826 00064922 000650 Heat peak power demand (kW)6511765214653 GSHP peak power demand (kW)6541365511656 Borehole production (kWh/metre)65710065890659 Heating costs, GSHP (€ p.a.)66010006611600662 Heating emissions, GSHP (kg CO2-ekv p.a.)663600664800665 Savings on heating costs (€ p.a.)66625006672200668 Reduced emissions (kg CO2-ekv p.a.)6699 70067010 400671 Payback period (a)67210,467310,0674 IRR67510,9%6769,9%677GSHP premium678 Mean (5.33%)67932 48468011 404681 Lower bound (4.08%)68224 8866838 736684 Upper bound (6.61%)68540 30268614 148687Years to cover investment cost minus price premium688 Mean (5.33%)6890,06904,8691 Lower bound (4.08%)6920,56936,0694 Upper bound (6.61%)6950,06963,6697Page 11 of 136984699