Green Enhances Value in California Homes

Contributed by Barry Hooper, San Francisco Department of the Environment

In the first rigorous independent economic analysis of the value of green home labels in California, University of California researchers have demonstrated green certified homes have 9% (+/-4%) greater value. The study by UC Berkeley economist Nils Kok and UCLA professor Matthew Kahn analyzed all single-family homes sales in California between 2007 and 2012.

Using a method called hedonic pricing, they examined the sales prices of all 1.6 million homes sold in the state over the past five years, of which approximately 4,300 were certified via ENERGY STAR, LEED for Homes, and GreenPoint Rated. Armed with the size, age, location, and amenities of each home, they were able to hold the factors that greatly influence home prices constant. Where the need for comparative sales data can make it a challenge for appraisers to systematically recognize the value of a green certification within a neighborhood, hedonic pricing essentially evaluated all “comps” statewide over the past 5 years.

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

• Even in the tough economy of recent years, a green certification added an average 9 percent (+/-4%) value to 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.

The price premium associated with a green label varies across regions, and is highest in areas with hotter climates. Residents may rely on green certifications as an indicator that a home will cost less to keep cool in summer. Environmental ideology of an area, measured by registrations of hybrid vehicles, also appears to influence prices.

However, the size of the premium is greater than can be explained from expected energy and water savings, or the “Prius effect.” This suggests savvy homeowners attribute value to benefits of green homes beyond reduced utility bills - such as construction quality, thermal comfort, indoor air quality, and of course other factors that reduce environmental impact such as proximity to parks, shops, and transit.

Previous research has shown the value of green certifications in commercial real estate. “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.

For more information:
http://www.sfenvironment.org/article/sf-home-improvement-performance/the-value-of-green-homes