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

Abstract

We look for evidence of capitalization of energy efficiency features in home prices using data from real estate multiple listing services (MLS) in three metropolitan areas: the Research Triangle region of North Carolina; Austin, Texas; and Portland, Oregon. These home listings include information on Energy Star certification and, in Portland and Austin, local green certifications. Our results suggest that Energy Star certification increases the sales prices of homes built between 1995 and 2006 but has no statistically significant effect on sales prices for newer homes. The local certifications appear to have larger effects on sales prices, and that effect holds for both newer and older homes. The estimated home price premiums from certification imply annual energy cost savings that are sizeable fractions of estimated annual energy costs for homes in our sample, in some cases even above 100 percent. This suggests that the certifications either embody other attributes beyond energy efficiency that are of value to homebuyers or that buyers are overpaying for the energy savings. Further research is needed to better understand how consumers interpret home certifications and how they value the combination of “green” characteristics that many of those certifications embody.

Keywords: Energy Star homes, energy efficiency, green certifications, hedonic model

JEL Classification: L94, L95, Q40