Is Energy Efficiency Capitalized into Home Prices? Evidence from Three US Cities

We test for evidence that energy efficiency features are capitalized in home prices in three US metropolitan areas. Using a careful matching procedure and hedonic regressions, we find that Energy Star certification is associated with higher sales prices in two of the markets: the Research Triangle region of North Carolina and Portland, Oregon. We find that local “green” certifications in Portland and in Austin, Texas, are also associated with higher prices and the estimated impacts are larger than Energy Star. Matching on observables proves to be important—estimated impacts are reduced by roughly half compared with models without matching. We calculate the implied energy savings from the estimated premiums and find that, in the Triangle and Portland markets, the Energy Star premiums roughly match the savings that program is designed to achieve. In contrast, the local certifications appear to capitalize more than just energy savings.

• Our results show that Energy Star certification is associated with an increase in the sales prices of single-family homes in the Research Triangle and Portland markets of approximately 2 percent, but we find no statistically significant effect in Austin
• The local certifications in Austin and Portland, which encompass other environmental attributes beyond energy, appear to have larger effects on sales prices than Energy Star—3 percent in Portland and 7 to 8 percent in Austin.
• Under the assumption of a 5 percent discount rate, the implied savings from these home price premiums are 21 to 23 percent of the estimated average annual energy costs of a home in Portland, and 16 to 19 percent in the Research Triangle housing market
• These implied savings roughly match the Energy Star requirement that homes be 15 to 30 percent more energy efficient than noncertified homes, suggesting that these certification schemes provide appropriate and valuable information to the marketplace.