Green Home Labels Add Significant Value, New Study Shows

Study finds California homes with green labels are worth 9 percent more on the real estate market

SAN FRANCISCO--()--Researchers from the University of California, Berkeley and the University of California, Los Angeles today released a new study on the economic value of green home labels in the California residential marketplace. “The Value of Green Labels in the California Housing Market” is the first rigorous, large-scale independent economic analysis of the value of green home labels in California.

Led by researchers Nils Kok, visiting professor at the University of California, Berkeley, and Matthew Kahn, professor at the Institute of the Environment, Department of Public Policy and Department of Economics at the University of California, Los Angeles, the study examined data on the 1.6 million single-family homes sold between 2007 and 2012 in California. Of these homes, approximately 4,300 were certified with green home labels from Energy Star, GreenPoint Rated or LEED for Homes.

Key findings of “The Value of Green Labels in the California Housing Market”:

  • A green home label adds an average 9 percent price premium for single-family homes in California.
  • Based on the average California home price of $400,000, homes with a green label sell for an average of $34,800 more than comparable homes without a green label.
  • This study yields two key insights into the effect of green labels on property values:
              1.   The price premium associated with a green label varies considerably from region to region in California, and is highest in the areas with hotter climates. This may indicate that residents in these areas value green labels more due to the increased cost of keeping a home cool.
 
2. The premium is also positively correlated to the environmental ideology of the area, as measured by the rate of registration of hybrid vehicles. This correlation suggests that some homeowners attribute value to intangible qualities associated with owning a green home.

“In certain regions of the state, we observed a phenomenon we’ve termed the ‘Prius effect’ — a positive correlation between the value of green home labels and environmental ideology, as measured by the rate of hybrid registrations,” said Kok. “In communities with strong environmental values, residents may see green homes as a point of pride or status symbol.”

“Environmental ideology was not as strong in some other areas, and yet we still saw a high value placed on homes with a green label,” Kok continued. “It appears that a hotter local climate also provides a practical reason to value green homes. With both ideological and pragmatic reasons to go green, it’s no surprise that the popularity of these labels is rising.”

The estimated $34,800 price premium for green-labeled homes is significantly greater than the price increase associated with other typical home improvements made by homeowners prior to sale, such as home staging. A 2012 survey by HomeGain found that staged homes sold for an average of $2,144 more than non-staged homes, while an upgrade of the kitchen and bathroom was found to increase the sale price by $3,254.

The benefits of green homes include:

  • Lower operational costs than conventional homes due to greater energy and water efficiency, which can result in lower utility bills;
  • High quality construction, since green label requirements for building materials and techniques often go beyond standard building codes;
  • More comfortable and stable indoor temperatures;
  • Healthier indoor air quality; and
  • Other features that reduce environmental impact such as proximity to parks, shops and transit.

“Increasingly, homeowners who are planning to sell their home are looking for innovative ways to make their home more attractive to potential buyers,” said Robin Gaskins, a realtor who has worked for 7 years in Alameda County. “If a home already has a number of green or energy-saving features, it really does pay to go the extra mile and get a green label.”

Growing awareness about global warming and the extent of greenhouse gas emissions from the residential sector has increased attention to green building in recent years. Previous research has shown the value of green labels and certifications in the commercial real estate sector. “The Value of Green Labels in the California Housing Market” confirms that the same trend applies to single-family homes.

“The Value of Green Labels in the California Housing Market” has been submitted for presentation at the 2013 Annual Meeting of the American Economic Association and will be submitted to a scientific journal in fall 2012.

About the Researchers

Nils Kok currently holds positions as a visiting scholar at the Goldman School of Public Policy at the University of California at Berkeley, and as associate professor in Finance and Real Estate at Maastricht University, the Netherlands. His research on the intersection of sustainability and finance in the real estate sector has been rewarded with several international grants and prizes, and has appeared in leading academic journals. He communicates his ideas and findings in the global arena as a frequent speaker on academic and industry conferences and actively shares his expertise through workshops with investment practitioners and policy makers. Nils is also the co-founder of the Global Real Estate Sustainability Benchmark (GRESB); a premier investor-led initiative to assess the environmental and social performance of the global real estate investment industry. More information and blog at www.nilskok.com.

Matthew E. Kahn is a professor at the University of California, Los Angeles, with appointments in the Institute of the Environment, the Department of Economics, and the Department of Public Policy. He is a research associate at the National Bureau of Economic Research. He has taught at Columbia University and the Fletcher School at Tufts University, in addition to serving as a visiting professor at Harvard and Stanford. He holds a Ph.D. in Economics from the University of Chicago.

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Contacts

Allison+Partners
Jessica Lee, 415-875-3043
Cell: 408-242-9428
Jessica.Lee@allisonpr.com