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Home energy efficiency and mortgage risks: an extended abstract

Author

Listed:
  • Nikhil Kaza
  • Roberto Quercia
  • Robert J. Sahadi

Abstract

In recent years, home energy efficiency (EE) has progressed from the margins to the mainstream. However, many households are deterred by large upfront costs and longer payback periods, so are missing significant opportunities to implement cost effective energy savings measures in their homes. Financing would help overcome these obstacles. However, the use of loans for energy efficiency upgrades has been low. In particular, as de T?Sercales (2007) points out, lenders have not promoted loans for energy efficiency upgrades because of lack of information about the relationship between energy efficiency and risks. We provide initial evidence of the associative relationship between home energy efficiency and mortgage risks. Using a national sample, compared to non-ENERGY STAR houses, we find that the odds of default for households in ENERGY STAR houses are 32 percent lower and odds of prepayment are 28 percent lower. Furthermore, the greater the efficiency within the ENERGY STAR residences, the lower the risk of default. These results are reported in Cityscape by Kaza, Quercia and Tian (2014) and this paper summarizes them.

Suggested Citation

  • Nikhil Kaza & Roberto Quercia & Robert J. Sahadi, 2014. "Home energy efficiency and mortgage risks: an extended abstract," Community Development Innovation Review, Federal Reserve Bank of San Francisco, issue 01, pages 063-069.
    • Handle: RePEc:fip:fedfcr:00034
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    References listed on IDEAS

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    1. Kaza, Nikhil, 2010. "Understanding the spectrum of residential energy consumption: A quantile regression approach," Energy Policy, Elsevier, vol. 38(11), pages 6574-6585, November.
    2. Kahn, Matthew E. & Kok, Nils, 2014. "The capitalization of green labels in the California housing market," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 25-34.
    3. Nevin, Rick & Watson, Gregory, 1998. "Evidence of rational market valuations for home energy efficiency," MPRA Paper 35343, University Library of Munich, Germany.
    4. Andrew M. Isserman, 2005. "In the National Interest: Defining Rural and Urban Correctly in Research and Public Policy," International Regional Science Review, , vol. 28(4), pages 465-499, October.
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    Cited by:

    1. Yongsheng Jiang & Dong Zhao & Andrew Sanderford & Jing Du, 2018. "Effects of Bank Lending on Urban Housing Prices for Sustainable Development: A Panel Analysis of Chinese Cities," Sustainability, MDPI, vol. 10(3), pages 1-16, February.
    2. Mérő, Bence & Borsos, András & Hosszú, Zsuzsanna & Oláh, Zsolt & Vágó, Nikolett, 2023. "A high-resolution, data-driven agent-based model of the housing market," Journal of Economic Dynamics and Control, Elsevier, vol. 155(C).
    3. Billio, Monica & Costola, Michele & Pelizzon, Loriana & Riedel, Max, 2022. "Creditworthiness and buildings' energy efficiency in the Italian mortgage market," SAFE Working Paper Series 352, Leibniz Institute for Financial Research SAFE.
    4. Zhang, Zhinan & Xu, Xiangyun, 2023. "Sustainable financial risk, resources abundance and technological innovation: Evidence from resources abundance economies," Resources Policy, Elsevier, vol. 83(C).
    5. Louis-Gaëtan Giraudet, 2018. "Energy efficiency as a credence good: A review of informational barriers to building energy savings," Working Papers 2018.07, FAERE - French Association of Environmental and Resource Economists.
    6. Florijan Celic & Nela Vlahinic Lenz, 2022. "EU Financial Instruments in Practice: SMEs investments in energy efficiency and renewable energy in Croatia," International Journal of Energy Economics and Policy, Econjournals, vol. 12(4), pages 173-185, July.
    7. Luca Caneparo, 2020. "Financing the (Environmental) Quality of Cities with Energy Efficiency Investments," Sustainability, MDPI, vol. 12(21), pages 1-25, October.
    8. Giraudet, Louis-Gaëtan, 2020. "Energy efficiency as a credence good: A review of informational barriers to energy savings in the building sector," Energy Economics, Elsevier, vol. 87(C).
    9. Giraudet, Louis-Gaëtan & Petronevich, Anna & Faucheux, Laurent, 2021. "Differentiated green loans," Energy Policy, Elsevier, vol. 149(C).
    10. Andrew R. Sanderford & George A. Overstreet & Peter A. Beling & Kanshukan Rajaratnam, 2015. "Energy-efficient homes and mortgage risk: crossing the chasm at last?," Environment Systems and Decisions, Springer, vol. 35(1), pages 157-168, March.
    11. Avis Devine & Andrew Sanderford & Chongyu Wang, 2024. "Sustainability and Private Equity Real Estate Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 68(2), pages 161-187, February.
    12. Niina Leskinen & Jussi Vimpari & Seppo Junnila, 2020. "A Review of the Impact of Green Building Certification on the Cash Flows and Values of Commercial Properties," Sustainability, MDPI, vol. 12(7), pages 1-22, March.
    13. Louis-Gaëtan Giraudet & Anna Petronevich & Laurent Faucheux, 2019. "How do lenders price energy efficiency? Evidence from personal consumption loans," Working papers 716, Banque de France.
    14. Monica Billio & Michele Costola & Loriana Pelizzon & Max Riedel, 2022. "Buildings’ Energy Efficiency and the Probability of Mortgage Default: The Dutch Case," The Journal of Real Estate Finance and Economics, Springer, vol. 65(3), pages 419-450, October.
    15. Justin Contat & Caroline Hopkins & Luis Mejia & Matthew Suandi, 2023. "When Climate Meets Real Estate: A Survey of the Literature," FHFA Staff Working Papers 23-05, Federal Housing Finance Agency.

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