Greener homes get nice price premiums
WASHINGTON — It has been a controversial question in the home real estate market for years: Is there extra green when you buy green?
Some studies have shown that consumers' willingness to pay more for Energy Star and other green-rated homes tends to diminish during tough economic times. Others have found that green-certified houses sell for at least a modest premium over similar but less efficient homes.
But now a new study involving 1.6 million homes sold in California between 2007 and early 2012 has documented that, holding all other variables constant, a green certification label on a house adds an average of 9 percent to its selling value. Researchers also found something they dubbed the "Prius effect": Buyers in areas where consumer sentiment in support of environmental conservation is relatively high — as measured by the percentage of hybrid auto registrations in local ZIP codes — are more willing to pay premiums for green-certified houses than buyers in areas with fewer hybrid registrations.
The study found no significant correlations between utility rates — the varying charges per kilowatt hour of electricity in different areas — and consumers' willingness to pay premium prices for green-labeled homes. But it did find that in warmer parts of California, especially in the Central Valley compared with neighborhoods closer to the coast, buyers are willing to pay more for the capitalized cost savings on energy that come with a green-rated property.
The research was conducted by professors Matthew E. Kahn of UCLA and Nils Kok of Maastricht University in the Netherlands, currently a visiting scholar at the University of California at Berkeley. Of the 1.6 million home transactions in the sample, Kahn and Kok identified 4,321 dwellings that sold with Energy Star, LEED or GreenPoint Rated labels. They then ran statistical analyses to determine how much green labeling contributed to the selling price — eliminating all other factors contained in the real estate records, from locational effects, school districts, crime rates and time period of sale, to amenities such as pools and views.
Energy Star is a rating system sponsored by the U.S. Department of Energy and the Environmental Protection Agency that is widely used in new home construction. It rewards designs that improve indoor air quality and sharply reduce operational costs in heating, cooling and water use. The LEED certification was created by the private nonprofit U.S. Green Building Council and focuses on "sustainable building and development practices." Though more commonly seen in commercial development, it is also available as a rating for single-family homes. The GreenPoint Rated designation was created by a nonprofit group called Build It Green, is similar to LEED and can be used on newly constructed homes as well as existing ones.
The 9 percent average price premium found for green-rated homes is roughly in line with studies conducted in Europe, where energy-efficiency labeling on houses is more common.
Labeling in the United States is a politically sensitive issue. The National Association of Realtors has lobbied Congress and federal agencies to thwart adoption of any form of mandatory labeling of existing houses, arguing that an abrupt move to adopt such a system could have severely negative effects. A loss of value at resale because of labeling would be disastrous, the Realtors have argued.
The National Association of Home Builders, on the other hand, has embraced labeling as a selling advantage for newly constructed homes.