Mispricing Energy Efficiency? Discrete Labels, Continuous Performance, and Policy Gaps in Urban Housing Markets

Energy Performance Certificates (EPCs) have been designed to overcome information asymmetries in housing markets, making the energy efficiency of homes an observable and comparable property characteristic. However, the energy classes used by EPCs can influence housing prices in ways that go beyond the underlying level of energy performance itself. This paper investigates whether the market valuation of energy efficiency follows the logic of energy consumption or the structure of EPC classes as discrete labels. Using listing data from six urban housing markets in the Veneto region (Italy), we estimate city-specific hedonic price models with spatial controls under two alternative representations of energy efficiency: a categorical one, based on EPC class dummies, and a continuous one, derived from representative values of non-renewable primary energy consumption. Results show that energy efficiency positively impacts housing prices, but capitalization patterns differ across markets and model specifications. While in some cities price premiums change smoothly along the EPC ladder and largely correspond to the energy performance gradient, in other cities thresholds, discontinuities, and non-monotonicity can be detected. These findings suggest that the representation of energy efficiency is not merely a modeling choice, but a substantive issue for both empirical analysis and policy design.