How Energy Efficiency Features are Reflected in Home Prices
In a recent analysis of real estate data from Portland, OR; Austin, TX; and the Research Triangle region of North Carolina, we find, with colleague Todd Gerarden, that local “green” certifications appear to have a larger impact on sales prices for homes than the national Energy Star certification. We also find that Energy Star certification only affects sales prices of homes built between 1995 and 2006 but not newer homes.
Twenty two percent of US carbon dioxide emissions can be attributed to residential buildings, and investments in the energy efficiency of these homes can help reduce both energy bills for homeowners and emissions. But the uncertainty over whether investments in energy efficiency can be recouped upon the sale of a home can lead to underinvestment—buyers may not have full information or understanding of a home’s energy efficient features and sellers may not be able to reliably or accurately advertise those features in the marketplace.
The federal government’s Energy Star program has helped to address this information gap by certifying new homes that are 15 percent more energy efficient than other new homes on the market. And the US Green Building Council oversees the more rigorous LEED (Leadership in Energy & Environmental Design) certification program. Many local certification programs exist around the country as well. But how do these certifications affect home prices?
In a new RFF discussion paper, we assess the impact of Energy Star and two local “green” certifications on home sales prices. Using data from real estate multiple listing services in three independent housing markets, we find that the local certifications appear to have larger effects on sales prices than Energy Star, for newer homes as well as older ones. The local certifications encompass green attributes beyond energy efficiency, including considerations for landscaping, building materials and water efficiency, among others. However, which of these different factors is most important is still a question. We also find that Energy Star certification only affects the sales prices of older homes, not new ones. We hypothesize that the reason for this finding is the improved energy efficiency of new homes, even uncertified ones.
Certification provides an information signal to the marketplace and can be a valuable way for homebuyers to learn about the energy efficiency and other “green” attributes of houses. However, it is an open question how homebuyers interpret these certifications and which of the attributes beyond energy efficiency that are included in local green certification schemes are of most value.