Valuation of energy efficient certificates in buildings

Abstract

Building energy efficiency labeling programs are promising strategies to encourage investments in green buildings. It is necessary to explicitly measure the value of energy efficient labels from an economic perspective that is more understandable to both developers and buyers. This research not only documents evidence on whether a sales premium exists for energy-certified homes but also investigates the effects of market characteristics on the magnitude of the added value of building energy efficiency labeling programs. A hedonic pricing model of 1679 single-family home sales in the metropolitan Atlanta area in the U.S. is developed, with numerous explanatory variables (such as location, time of sale, green features, and other housing characteristics) taken into account. Results indicate that: (i) Homes that earn energy certificates demonstrate a sales price premium of 11.7%, which equates to a dollar value of over $47,000 in Atlanta’s housing market; (ii) The regional energy labels certificated by the EarthCraft House receives higher recognition in the marketplace than that by national Energy Star programs. (iii) The certified homes that are located in the top school districts (i.e., with the top 50 schools) enjoy a substantially higher increase in the home sales premium, compared to green homes in districts with the low-quality schools. A random sampling method is further used to ensure the quality of the regression results with the limited size of the dataset by eliminating stochastic effects of the selected dataset. This research contributes to (i) the body of knowledge by analyzing the market value of building energy efficiency labels in the residential housing market and (ii) the state of practice by shedding light on the information asymmetry problem between home developers and buyers in the housing market to facilitate the adoption of energy labels in building products.