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Green luxury goods? The economics of eco-labels in the Japanese housing market

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  • Fuerst, Franz
  • Shimizu, Chihiro

Abstract

Using a unique transaction database of condominiums in the Tokyo metropolitan area and a hedonic analytical framework, we find that eco-labelled buildings command a small but significant premium on both the asking and transaction prices. This finding is consistent with results from other countries but in contrast to these studies, the present analysis also incorporates buyer characteristics which provide further information on the sources of demand for eco-labelled real estate. A separate estimation by subgroups reveals that the price premium is primarily driven by wealthier households that exhibit a higher willingness-to-pay for eco-labelled condominiums, both as a total amount and as a fraction of the total sales price. Less affluent households are also shown to pay higher prices for the eco label but the effect is less pronounced. The results indicate that capitalised utility bill savings are likely to account for a large proportion of the observed premium but the higher premium paid by affluent households suggests that more intangible benefits of living in a green building may also play a role.

Suggested Citation

  • Fuerst, Franz & Shimizu, Chihiro, 2016. "Green luxury goods? The economics of eco-labels in the Japanese housing market," Journal of the Japanese and International Economies, Elsevier, vol. 39(C), pages 108-122.
    • Handle: RePEc:eee:jjieco:v:39:y:2016:i:c:p:108-122
    DOI: 10.1016/j.jjie.2016.01.003
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    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D10 - Microeconomics - - Household Behavior - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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