A green label on a single-family home in California provides a market premium compared to a comparable home without the label, according to a new study co-authored by Nils Kok (UC-Berkeley) and Matthew E. Kahn (UCLA). The authors found that a green home label — Energy Star, LEED, GreenPoint Rated — adds an average nine percent price premium, or about $34,800 more than homes without a green label using the average home price of $400,000 in California.
Kok and Kahn studied about 1.6 million homes sold in California from 2007 through 2012. While controlling for variables known to influence home values — location, size, vintage, amenities — the authors claim they were able to isolate the added value, or premium, of green home labels.
In addition, the authors found two interesting points of research relating to the so-called green premium. First, green homes sell for a higher premium in hotter climates. The authors speculate that green labels are valued because homes in these areas cost more money to cool. Second, the premium is positively correlated to geographies with higher registrations of hybrid vehicles. The authors use hybrid registrations as a proxy for environmental ideology and believe the correlation suggests homeowners in these areas value the intangible qualities associated with having a green home.
In other words, “in communities with strong environmental values, residents may see green homes as a point of pride or status symbol,” said Kok in a statement announcing the new study, The Value of Green Labels in the California Housing Market.
Indeed, some of the benefits that homeowners may associate with green homes include: lower utility costs, higher quality of construction, better indoor air comfort, healthier indoor air quality, and proximity to amenities including parks, shops, and mass transit. According to some research, demand for green building materials is expected to reach $70 billion by 2015 and green homes could become roughly 28-39% of the market by 2016.