Sustainable Measures and Economic Value in Green Housing

Abstract

As interest grows in environmentally friendly buildings, or “green buildings,” the real estate industry is expected to play an increasingly active role in the realization of a low-carbon society. Various efforts toward such a society are currently being promoted vigorously within an international framework. To supply a socially desirable level of green buildings via the market mechanism, the economic value of green buildings (as measured by the market) must be commensurate with the required investment. Many remain sceptical, however, about the true economic value of green buildings. A thorough analysis has yet to be conducted to evaluate whether green buildings realize income increases commensurate with the enormous initial investments required, although it is clear that cost savings do result from lower energy consumption. This paper shows through a series of analyses that certain market conditions must be in place in order for green buildings to produce economic value. Specifically, it used the hedonic approach to clarify whether or not there is added economic value, focusing on the new condominium market in the Tokyo metropolitan area. Based on a demonstration analysis of the housing market, the author shows that new condominiums with “green labels” using “sustainable measures” command a premium of approximately 5.8% in asking prices and 4.7% in transaction prices.