Energy-guzzling houses getting more expensive in Flanders

Earlier, we reported that house prices in Belgium have been on an upward trend for some time now. Here we take a closer look at the current state of affairs and focus specifically on the changing impact of EPC value on house prices. Especially in Flanders, prices of the least energy-efficient houses appear to be rising more sharply.

A house in Belgium cost an average of 1802 euros per square meter or € 313 876 in the second quarter of 2022. When we compare the figures for houses from the last quarter with the previous year, house prices in Belgium increased by 5.27 %. We see these price increases in all regions, Flanders (+5.17 %), Wallonia (+4.86 %) and the Brussels-Capital Region (+3.54 %). So no cooling of the market, as we wrote earlier. Especially in Luxembourg (+8.8%) and Walloon Brabant (+8.54%), houses became considerably more expensive.

Apartment prices also rose in the last quarter, 2% higher than in the previous year. An apartment cost an average of € 273 842 or € 2927/m2. Remarkably, while prices rose in Flanders (+1.92 %) and Brussels (+2.45 %), they just fell in Wallonia (-2.19 %). This decrease seems to be mainly driven by a major drop in prices in the province of Namur (-9.06%). Prices rose the most in Antwerp (+3.64 %) and Flemish Brabant (+3.06 %).

Check below how much a house or apartment costs in your municipality.

How important has EPC become for the asking price?

It is now clear that the energy score has become important for determining the value of a home in Belgium. The National Bank of Belgium (NBB) came to that conclusion in April this year. Belfius also reported in their study of the housing market in Belgium large differences in prices based on the EPC value. At the end of May, we ourselves published simulations to calculate how much a better EPC value. However, the NBB's analyses only related to data up to the first half of 2021 and our estimation tool only provides the most up-to-date estimate (see box). To understand today's situation regarding the impact of EPC value on house prices, we here repeat the analysis of the NBB in combination with the most recent real estate data from Realo.

EPC score always important for house prices

To be able to draw the right conclusions about the influence of EPC value, it is important not to compare apples with oranges. The price of a house in 2022, for example, would have been much lower in 2015, partly due to rising inflation. The quality of housing on the market has also improved over time as the government has started to encourage renovations (although we are still far from the goals). The average house in 2015 will therefore not be exactly comparable to the average house in 2022. Based on the analyses of the NBB, it is possible to take these changes into account and thus determine the 'true' influence of the EPC value to study house prices.

Explained: How does it differ from the previous simulations

In May, Realo already published simulations that showed the impact of a better EPC label on the estimated asking price. So why repeat the same exercise here? Both approaches have their own advantages and disadvantages. The May simulations were performed based on Realo's estimation tool. That tool is very powerful, because it was trained on a very broad spectrum of characteristics in order to the most accurate estimate. But the priority is to determine the best estimate in the current market, not the one from, say, two years ago. On the other hand, the new simulations use a very limited number of characteristics of the house (living area, age of the house, number of bedrooms, location, EPC). But they do enable us to measure changes over time in addition to EPC's contribution to house prices.

We focus here on Flanders and Wallonia as separate regions because they have their own policies on renovations and energy efficiency. For the Brussels Capital Region, too few homes come online to reliably perform the same analyses. We see that in both Flanders and Wallonia there is a clear link between house prices and energy efficiency. All comparisons are relative to an average house with an annual consumption of 350 kWh/m2. For Flanders, the estimated differences between the most energy-efficient and the average house are slightly lower compared to Wallonia (10% and 17% respectively). For the least energy-efficient houses (650 kWh/m2 or higher) you lose around 17% in value in both regions. Broadly speaking, these results are in line with our previous findings (labels A and B are included in this analysis both under the EPC 150 category).

Only most energy-efficient apartments offer added value

Also for apartments we see a strong agreement with our previous simulations. The large surcharge can be found in both Flanders and Wallonia for the most energy-efficient apartments and is fairly limited for poorer EPC values. Because apartments generally have a better EPC value, here the comparison is made with an average apartment with an annual consumption of 200 kWh/m2. In Wallonia, there is only a reliable difference with the most energy-efficient apartments (EPC 100 or better), the asking price is estimated at about 21% above the average apartment. In Flanders, the differences in asking price are more modest, but profit can be made with apartments of both EPC 150 (+6 %) and EPC 100 (+14 %).

Worst EPC, best opportunity

Since houses comprise the majority of all publications, we can carry out more detailed analyses here and see how the relationship between EPC values and house prices has evolved in Flanders and Wallonia in recent years. The first thing to notice is that this relationship has remained fairly stable over the years since 2015. Only in Flanders can we note a striking trend that consistently emerges: houses with the worst EPC values have been on the rise since 2020. In other words, the difference in price with houses with better energy consumption is narrowing. Before 2020, prices with the worst EPC value hovered around -15% below EPC 350, while that has already moved to -12% in recent years. By comparison, houses with a slightly better EPC value of 450 remained stable around -6 % throughout that period.

Several factors probably play a role here. Since 2021, the Flemish government offers an interest-free loan between €30 000 and €60 000 on transfer (inheritance or sale) of a house with a very poor EPC score (label E or F), if you plan to improve the EPC score within 5 years. This ensures that buyers have a larger budget available, which increases their buying power and the market can then respond with higher prices. In addition to renovation grants, houses with poor energy efficiency offer another opportunity: demolish and rebuild. With the increasing scarcity of building land and the corresponding rise in prices, it is becoming more interesting to buy a cheap house with poor EPC score, demolish it and put up a more energy-efficient one. Since 1 January 2021, the Belgian government reduced the VAT rate for the demolition and reconstruction of houses from 21% to 6% for the entire Belgian territory. Demolition and reconstruction works that had started in 2020 but were not completed until 2021 could also benefit from the 6% rate. Until the end of 2020, this rate could even be combined with a €7500 demolition and reconstruction premium from the Flemish Government. But even if you do not enjoy the reduced VAT rate on demolition, it is still possible to apply for a €10,000 demolition and reconstruction premium from the Flemish Government. In this way, energy-guzzling houses become a much more interesting purchase than houses that fall just outside the terms of the measures, paradoxically increasing their value.

For Wallonia, we cannot draw reliable conclusions about possible trends. It is possible that there too the most energy-hungry houses are becoming more expensive faster, but based on the available data we cannot establish this with certainty. The number of houses for sale in Wallonia is also lower due to the thinner population density, making reliable conclusions more difficult. With the extension of the reduced VAT rate of 6% for demolition and reconstruction in Belgium until 2023, it remains to be seen whether those prices might rise further during 2022. Finally, in light of rising energy prices, it might be interesting to consider the most energy-efficient houses as well. One would expect that houses that use much less energy would also be more in demand due to rising energy costs. For now, however, we see no indication that this would be the case. Energy-efficient houses are more expensive, but when we factor in rising house prices, the additional price of houses with label A or B remains fairly constant over the years for now.

House prices by municipality in Belgium

Apartment prices by municipality in Belgium

Fabrice Luyckx

Data Storyteller & Lead Data Engineer