Creating Value for Residential Investment in Energy Efficiency

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The typical U.S. household spends about $2,300 in annual energy costs, more than the average cost of property taxes or homeowners insurance.  Energy costs are the largest ongoing cost for the average home owner, and many projects will ultimately pay for themselves from the avoided costs of energy.  However, many people will not stay in their home long enough to fully recover these upfront costs.

In those cases, the homeowner will rely on the market to place value on the energy efficiency of the home. If they do not feel they can recapture the additional costs of EnergyStar appliances or increased insulation, a homeowner may be reluctant to invest in energy efficiency.

Recent studies estimate that nearly nine in ten buyers felt that a home’s energy costs were at least somewhat important to their buying decision.  But the information and financing infrastructure is not always there to help them translate this value into a higher home price.  As such, local governments and realtor organizations across the country using a variety of approaches to encourage the incorporation of energy use into real estate transactions.

A few examples across the country include:

The City of Austin, TX: As of June 2009, the City of Austin requires home sellers to get an energy audit and disclose the results of that energy audit in the real estate transaction.  Just as a home must have a termite inspection and disclose results, homes in Austin now must have an energy audit, which typically costs between $200 – $300 for a typical 1800 – 2200 square foot home.  The local legislation, entitled Energy Conservation, Audit and Disclosure Ordinance (ECAD) took effect in June 2009, and was the first audit-based disclosure policy in the United States.    Click here for more information.

Montgomery County, MD: In 2008, the Montgomery County Council (in Maryland) passed legislation requiring single-family home sellers provide electricity, gas and home heating oil bills for the 12 months prior to the sale.

Portland, OR and Seattle, WA: Another way to signal the energy efficient features of a home is obtaining third-party certification.  If homebuyers become aware of the energy, air quality (and possibly water) benefits of a home, researchers have argued that homebuyers would likely pay more.   In Portland and Seattle, this premise has been put to the test, as the Portland Multiple Listing Service (MLS) and the Williamette County MLS have been tracking sustainability certifications, including this information in MLS advertisements, and on the back end, tracking sales data of these homes.  Using this sales data and comparing sustainable third-party certified to non-certified homes, researchers compared sale values across comparable homes during 2007 and 2008.  Overall, price premiums ranged from 3 to 10% for sustainable third-party certified homes in the Portland Seattle metropolitan areas.

Local efforts

In North Carolina, there have also been initiatives to incentivize or highlight energy efficiency features in residential buildings.  Two regional initiatives that are particularly relevant are the NC HealthyBuilt Homes Program and the Triangle MLS’ recent incorporation of energy efficiency features and sustainability certifications into their MLS listing.  Moreover, several NC local governments have developed green building incentives (e.g. City of Asheville, Catawba County and Chatham County).  These are all important steps toward better capturing the value of energy efficiency, and in turn promoting investment in energy efficiency, in homes across the state.

Mary Tiger was formerly on staff with the UNC Environmental Finance Center.

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