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Study Says Green Homes Sell for 9% More

Friday, July 27, 2012

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California homes sporting green certification labels also bring in more green at sale time—an average of $34,800 more than those without, according to a new study.

Researchers from the University of California at Berkeley and at Los Angeles recently released The Value of Green Labels in the California Housing Market, a study on the economic value of green home labels in the California marketplace.

Green-labeled homes in California sell for 9% more than homes without a green label, the report says.

Billed as the first “rigorous, large-scale independent economic analysis” of its kind, the report examined data on 1.6 million single-family homes sold in California between 2007 and 2012.

Of these homes, 4,300 were certified with green-home labels from Energy Star, GreenPoint Rated or LEED for Homes.

In order to be certified under the delineated programs, homes must meet a list of criteria, including the use of low-VOC or zero-VOC paints, flooring, caulk and construction adhesives.

Key Findings

The report concluded that a green home label adds an average 9% price premium for single-family homes in California.

Based on the average 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 report said.

The study also yielded insights into the effect of green labels on property values:

• 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.

• 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.

‘Prius Effect’

“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 Nils Kok, visiting professor at UC Berkeley and a leading researcher on the project.

“In communities with strong environmental values, residents may see green homes as a point of pride or status symbol,” he said.

Wikimedia Commons / Mario Roberto Duran Ortiz

The Prius Effect: Where there were more hybrid car registrations, people paid more for green homes.

“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 said. “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 study was also led by Matthew Kahn, professor at the Institute of Environment, Department of Public Policy and Department of Economics at UCLA.

Sold on ‘Green’

The estimated $34,800 price premium for green-labeled homes is significantly greater than the price increase associated with staging, painting or other typical home improvements that homeowners make before a sale.

According to a 2012 survey by HomeGain, 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.

Painting a home’s interior increases sale price by $2,001, while painting the exterior increases the sale price by $2,176, HomeGain found.

“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 California real estate agent.

“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, the study said.

Benefits of Green Homes

The report says that green homes offer:

• Lower operating costs than conventional homes, due to greater energy and water efficiency;

• High-quality construction, since green label requirements for building materials and techniques often exceed 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.

Previous research has shown the value of green labels and certifications in the commercial real estate sector. The new study confirms that the same trend applies to single-family homes, the researchers said.

The study has been submitted for presentation at the 2013 Annual Meeting of the American Economic Association and will be submitted this fall to a scientific journal.

Comment from John Fauth, (7/30/2012, 8:27 AM)

I think this article blurs the lines between greeen home costs, and green home values. It's quite likely the vast majority of the 4,300 green homes sold in California from 2007 to 2012 were new builds. The real question is whether the additional $ 34,000 cost will result in increased home value for resale. Many people spend money to personalize a home, knowing it will never really add to the home value, but does add to their perceived quality of life in some personal way. A secondary question might be how much (if any) of the additional $ 34,000 cost was offset by subsidies, which would tend to skew the original cost effect. Finally, a statistician (I am not) might opine that at 0.0027 % of the California real estate market in the years studied, the number of green homes is statistically insufficient to draw any real conclusions.

Comment from Tom Schwerdt, (7/30/2012, 9:26 AM)

I'm also unclear whether the study controlled for age of the homes - ie does "comparable" mean the "green" and "not green" homes were the same age, size, location, development amenities, et cetera. There is a reason the real-estate mantra for value is "location, location, location"

Comment from Mary Chollet, (7/30/2012, 9:37 AM)

All, the link to the full study is available in the article.