The Political Economy of Green Building

Abstract

Purpose: This paper examines whether rental premiums accrue to environmentally certified class “A” office buildings, and further, to what extent such premiums vary with the political ideology of the local market area.

Design/Methodology/Approach: Using standard OLS regression techniques, we model rental rates on environmentally certified structures as a function of the space market characteristics, economic environment, and political ideology within each local market area.

Findings: We find significant variation in environmentally certified rental premiums across jurisdiction specific political ideology metrics. Specifically, politically liberal locations exhibit green rental premiums of nearly 6 percent, while politically conservative locations exhibit premiums of less than 2 percent.

Originality/Value: This paper expands the existing literature by offering further evidence of positive rental premiums accruing to environmental certification, and by systematically exploring the fundamental determinants of these observed value differences.

Keywords: green real estate, political ideology, LEED, Energy Star