My New Paper on the Price Premium for Energy Star Certified Homes in California

Nils Kok and I have conducted a large sample real estate study measuring the sales price premium for Energy Star homes relative to other comparable homes. We find a large positive effect.   Here is a LA Times writeup and here is a draft of our paper.  For those who follow my work too closely, you will recall that I recently published a paper on the price premium for solar homes.     Starting with my early work on who buys the Prius, I continue to be interested in the demand for green products and how incentives can be used to increase their market share.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

3 thoughts on “My New Paper on the Price Premium for Energy Star Certified Homes in California”

  1. Good news. The parallel improvements in energy efficiency in commercial buildings over the last decade have been remarkable; the drivers are presumably dollars and cents savings, building codes, and the internalisation of energy efficiency in the ethos and practice of the relevant professions – architects, construction engineers, building managers. According to Joe Romm, this is a rare area of green energy policy that enjoys steady bipartisan support.

    For your next assignment, why not look at the premia for the much smaller number of radically green – passive and zero energy – houses. You’d expect the ideology and image factors to count for more here than ordinary Green Star properties. Compare the buyers of the Tesla sport car, much better for wowing green girls and rival cool males than for the school and shopping run. These pioneering efforts are important long before they become economically worthwhile, because they demonstrate and debug the technology, and percolate through the trade values of the professions.

    Buying a house is one of the few financial decisions, like saving for retirement, that forces one to take a long view. The relevant discount rate is presumably that of your mortgage, which is much lower than for other purchases.

  2. In a way, I’m surprised that the premium is so small. Might be uncertainty.

    It makes a lot of sense that there should be a premium (ditto for commercial structures) because most people fold energy costs into their total budget for housing. So every hundred dollars a month someone saves on energy costs is $1200 a year in improved cash flow, which (very back of the envelope) turns into about $20K in additional price they can afford.

  3. Aside, but related: I did a project outside of Anchorage, AK a few years ago. I was surprised at the number of DIY homes using SIPs. They all looked to be ~R-30 walls. Tilted right up, braced, secured, much less time overall to closure of envelope. The folks up there got it. We can get it down here, too.

    Minimum IBC standards are a good start, no reason not to go higher and do 8-inch walls. That would eliminate the need for trees for building conditioning (yet allowing for aesthetics), then that frees the roof for solar hot water and/or PV arrays.

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