Project title: Climate risks, energy efficiency and mortgage lending
Does Climate Change pose financial risks? Would the introduction of green policies change house prices and mortgage default risk?
Primary supervisor: Prof. Melanie Luhrmann
Second supervisor: Prof. Juan Pablo Rud
University: Royal Holloway, University of London, Department of Economics
SeNSS Pathway: Economics
Collaborative partner: The Bank of England
Collaborative partner supervisor: Dr Caspar Siegert, Head of Climate Risk, Bank of England
Degree structure: a three-year PhD programme (+3)
Project background
The UK has committed to reaching net carbon zero emissions by 2050. One of the biggest challenges is the reduction of its carbon footprint from residential heating which currently exceeds the combined emission contribution of all petrol and diesel cars in the country. Climate Change leads to increasingly volatile weather which affects current and future heating and cooling demands. Policies to achieve net zero will likely involve rising energy costs and the setting of minimum energy efficiency standards for homes, as initiated in the UK in 2020. The PhD project “Climate Risks, Energy Efficiency and Mortgage Lending” aims to understand the financial risks arising from the climate-related changes in housing and mortgage markets. We will simulate future financial risks from the physical, i.e. weather, side of Climate Change, but also from future policies in the transition to net zero, such as carbon taxes and energy standards. The research will answer questions such as: is energy efficiency already priced into house valuations? Does this value difference between high and low energy efficient homes vary by local weather conditions? Has the introduction of minimum energy efficiency standards for rental properties in the UK in 2020 increased the value of energy efficient homes, and vice versa? How does the recent energy (price) crisis affect the valuation of residences with different energy performance levels? Has the financial pressure from strongly rising energy prices led to increased mortgage default among borrowers of less energy efficient homes, representing hardship for households and increasing financial risk for mortgage lenders? Will a future carbon tax lead to a drop in the price for less energy efficient homes and a rise number of households defaulting on mortgage payments? The project is conducted in a close collaboration between the Climate Risks team in the Market Directorate of the Bank of England and academics in the Department of Economics at Royal Holloway, University of London (RHUL). The studentship offers the exciting prospects of working at the frontier of academic research and policy recommendations.
Project aims and objectives
The aim of the project is to advance our understanding of the financial risk posed by the physical changes from Climate Change, i.e. changing weather and temperatures, and of green policies accompanying the transition to net zero. The project focuses on risks in the housing and mortgage markets in the UK. The project aims to deliver high-quality research output that quantifies these climate-related risks in mortgage lending. Using unique microdata, we will investigate how i) changing heating and cooling demands, ii) energy costs, and iii) efficiency standard setting affect house prices and mortgage default rates. The empirical results will be used to simulate the impact of currently proposed green policies and climate-related weather events on aggregated risk in the mortgage market and to the BoE’s balance sheet. The ensuing financial risks in the mortgage market, and how to manage and mitigate them, have received little attention so far. The collaboration with BoE presents an excellent opportunity for impact. The research directly informs the Bank of England’s Climate Risk management strategy, and should be highly relevant to decision-makers in the financial industry, e.g. commercial mortgage lenders, financial regulators, and government (in particular BEIS).
Training opportunities
A comprehensive package of training will be agreed in consultation with the supervisors from Royal Holloway and the Bank of England. Elements of training will be provided by the supervisors, Royal Holloway, and by other providers. The successful candidate will be hosted at the Department of Economics at RHUL and will also conduct research in the Climate Risks Market Directorate at the Bank of England in central London. In the first year, the successful candidate will join the thriving doctoral training programme offered by the department and the online training network (ShOT, comprised of eight universities in the South of England) to supplement their economics and econometrics skills. Throughout the PhD, they will have access to the Southern PhD Economics Network (SPEN). The training programme also includes interdisciplinary training courses provided by SeNSS.
Essential and/or desirable attributes/skills
A high-calibre MSc Economics graduate with a strong quantitative background, including programming in Stata and/or R and, preferably, expertise in the handling of large datasets was sought. In addition, the candidate with a talent for effective communication within and beyond academia was appointed.
Studentship details
This studentship will only be taken as a full-time +3 award (a three-year PhD).
Residential eligibility
Home or international students are eligible for a fully-funded award (fees will be paid, and they receive a stipend/salary).
How to apply for this studentship
This competition is now closed.