A new study from economists at the University of California provides statistical evidence that, holding other factors constant, green home labels do, in fact, provide a market premium.
By comparing the 1.6 million single-family production homes sold in California between 2007 and 2012, researchers Nils Kok and Matthew E. Kahn found that homes labeled by Energy Star, LEED for Homes, and GreenPoint Rated sell for 9% more than comparable, non-labeled homes—a difference of about $34,800 in California.
Although prior research has shown that green labels can positively affect the financial performance of commercial buildings, this is the largest published regression analysis of how green features and energy efficiency impact U.S. home-sales prices. According to the authors, the results also provide “the first evidence on the importance of publicly providing information about the energy efficiency and ‘sustainability’ of structures in affecting consumer choice.”
Cliff Majersik, executive director of the Institute for Market Transformation and Vision 2020 chair, says he isn’t surprised by the results, but he does find it remarkable that buyers are already significantly valuing green features and energy efficiency, even given limited information and a suboptimal signal-to-noise ratio. “It shows the latent demand and the value of credible third-party labels,” he says. “This could accelerate a virtuous cycle of increasing investment in verified green/energy-efficient features and upgrades.”
In addition, Majersik says that greater awareness could lead to increasingly predictable price premiums, as well as falling construction costs for the current levels of green--yielding “tidy profits” for builders.
“Price-premium levels will wax and wane, as will profit levels for builders, but when combined with falling incremental costs as sustainability goes increasingly mainstream, building sustainably should yield generally greater profits for adept builders,” he notes. “In other words, smart builders will increasingly build green.”
Majersik expects labels to gain steam as they gain greater market share and become more mainstream; however, at some point, he warns that labels will need to raise the bar or gradually lose cachet. The point where that will happen varies from label to label, he says, depending on how selectively the labels are positioned.
You can read the entire report, “The Value of Green Labels in the California Housing Market,” here.