IDEAS home Printed from https://ideas.repec.org/a/eee/regeco/v47y2014icp25-34.html
   My bibliography  Save this article

The capitalization of green labels in the California housing market

Author

Listed:
  • Kahn, Matthew E.
  • Kok, Nils

Abstract

The residential sector accounts for 33% of electricity consumption in the U.S., with a total expenditure of $166billion in 2010. Increasing the energy efficiency of the durable housing stock can thus provide significant cost savings for consumers. One promising trend is the rise of homes labeled by a third party as “green” or energy efficient. This paper documents evidence on the effects of providing information about the energy efficiency and “sustainability” of structures in affecting consumer choice. We conduct a hedonic pricing analysis of all single-family home sales in California over the time period 2007 to 2012, and find that homes labeled with a green label transact at a small premium relative to otherwise comparable, non-labeled homes. We show evidence of spatial variation in this capitalization such that both environmental ideology and local climatic conditions play a role in explaining the variation in the green premium across geographies.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:regeco:v:47:y:2014:i:c:p:25-34
    DOI: 10.1016/j.regsciurbeco.2013.07.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0166046213000574
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.regsciurbeco.2013.07.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Piet Eichholtz & Nils Kok & John M. Quigley, 2013. "The Economics of Green Building," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 50-63, March.
    2. Matthew E. Kahn & Nils Kok & John M. Quigley, 2013. "Commercial Building Electricity Consumption Dynamics: The Role of Structure Quality, Human Capital, and Contract Incentives," NBER Working Papers 18781, National Bureau of Economic Research, Inc.
    3. Deng, Yongheng & Li, Zhiliang & Quigley, John M., 2012. "Economic returns to energy-efficient investments in the housing market: Evidence from Singapore," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 506-515.
    4. Kahn, Matthew E., 2007. "Do greens drive Hummers or hybrids? Environmental ideology as a determinant of consumer choice," Journal of Environmental Economics and Management, Elsevier, vol. 54(2), pages 129-145, September.
    5. Hunt Allcott & Michael Greenstone, 2012. "Is There an Energy Efficiency Gap?," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 3-28, Winter.
    6. Matthew J. Kotchen, 2006. "Green Markets and Private Provision of Public Goods," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 816-845, August.
    7. C. Lanier Benkard & Patrick Bajari, 2005. "Hedonic Price Indexes With Unobserved Product Characteristics, and Application to Personal Computers," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 61-75, January.
    8. A. Greening, Lorna & Greene, David L. & Difiglio, Carmen, 2000. "Energy efficiency and consumption -- the rebound effect -- a survey," Energy Policy, Elsevier, vol. 28(6-7), pages 389-401, June.
    9. Ginger Zhe Jin & Phillip Leslie, 2003. "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(2), pages 409-451.
    10. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    11. Mark Bils & Peter J. Klenow, 1998. "Using Consumer Theory to Test Competing Business Cycle Models," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 233-261, April.
    12. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.
    13. Graff Zivin, Joshua & Neidell, Matthew, 2009. "Days of haze: Environmental information disclosure and intertemporal avoidance behavior," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 119-128, September.
    14. John Y. Campbell & Stefano Giglio & Parag Pathak, 2011. "Forced Sales and House Prices," American Economic Review, American Economic Association, vol. 101(5), pages 2108-2131, August.
    15. Nils Kok & Marquise McGraw & John M. Quigley, 2011. "The Diffusion of Energy Efficiency in Building," American Economic Review, American Economic Association, vol. 101(3), pages 77-82, May.
    16. Derwall, Jeroen & Koedijk, Kees & Ter Horst, Jenke, 2011. "A tale of values-driven and profit-seeking social investors," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2137-2147, August.
    17. Black, Dan A. & Smith, J.A.Jeffrey A., 2004. "How robust is the evidence on the effects of college quality? Evidence from matching," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 99-124.
    18. Dastrup, Samuel R. & Graff Zivin, Joshua & Costa, Dora L. & Kahn, Matthew E., 2012. "Understanding the Solar Home price premium: Electricity generation and “Green” social status," European Economic Review, Elsevier, vol. 56(5), pages 961-973.
    19. Raphael W. Bostic & Kwan Ok Lee, 2008. "Mortgages, Risk, and Homeownership among Low- and Moderate-Income Families," American Economic Review, American Economic Association, vol. 98(2), pages 310-314, May.
    20. Piet Eichholtz & Nils Kok & John M. Quigley, 2010. "Doing Well by Doing Good? Green Office Buildings," American Economic Review, American Economic Association, vol. 100(5), pages 2492-2509, December.
    21. Allcott, Hunt, 2011. "Social norms and energy conservation," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1082-1095, October.
    22. Quigley, John M & Rubinfeld, Daniel L, 1989. "Unobservables in Consumer Choice: Residential Energy and the Demand for Comfort," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 416-425, August.
    23. Shimshack, Jay P. & Ward, Michael B., 2010. "Mercury advisories and household health trade-offs," Journal of Health Economics, Elsevier, vol. 29(5), pages 674-685, September.
    24. Ginger Zhe Jin & Phillip Leslie, 2009. "Reputational Incentives for Restaurant Hygiene," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 237-267, February.
    25. Kahn, Matthew E., 2011. "Do liberal cities limit new housing development? Evidence from California," Journal of Urban Economics, Elsevier, vol. 69(2), pages 223-228, March.
    26. Brounen, Dirk & Kok, Nils & Quigley, John M., 2013. "Energy literacy, awareness, and conservation behavior of residential households," Energy Economics, Elsevier, vol. 38(C), pages 42-50.
    27. Allcott, Hunt, 2011. "Social norms and energy conservation," Journal of Public Economics, Elsevier, vol. 95(9), pages 1082-1095.
    28. Gyourko, Joseph & Kahn, Matthew & Tracy, Joseph, 1999. "Quality of life and environmental comparisons," Handbook of Regional and Urban Economics, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 37, pages 1413-1454, Elsevier.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kahn, Matthew E. & Walsh, Randall, 2015. "Cities and the Environment," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 405-465, Elsevier.
    2. Ramos, A. & Gago, A. & Labandeira, X. & Linares, P., 2015. "The role of information for energy efficiency in the residential sector," Energy Economics, Elsevier, vol. 52(S1), pages 17-29.
    3. Chegut, Andrea & Eichholtz, Piet & Kok, Nils, 2019. "The price of innovation: An analysis of the marginal cost of green buildings," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    4. Lu Zhang & Lennart Stangenberg & Sjors van Wickeren, 2020. "The information value of energy labels: Evidence from the Dutch residential housing market," CPB Discussion Paper 413.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Fuerst, Franz & Gabrieli, Tommaso & McAllister, Patrick, 2017. "A green winner's curse? Investor behavior in the market for eco-certified office buildings," Economic Modelling, Elsevier, vol. 61(C), pages 137-146.
    6. Delgado, Michael S. & Harriger, Jessica L. & Khanna, Neha, 2015. "The value of environmental status signaling," Ecological Economics, Elsevier, vol. 111(C), pages 1-11.
    7. Lu Zhang & Lennart Stangenberg & Sjors van Wickeren, 2020. "The information value of energy labels: Evidence from the Dutch residential housing market," CPB Discussion Paper 413, CPB Netherlands Bureau for Economic Policy Analysis.
    8. Aydin, Erdal & Brounen, Dirk & Kok, Nils, 2020. "The capitalization of energy efficiency: Evidence from the housing market," Journal of Urban Economics, Elsevier, vol. 117(C).
    9. Chegut, Andrea & Eichholtz, Piet & Holtermans, Rogier, 2016. "Energy efficiency and economic value in affordable housing," Energy Policy, Elsevier, vol. 97(C), pages 39-49.
    10. Konstantin A Kholodilin & Andreas Mense & Claus Michelsen, 2017. "The market value of energy efficiency in buildings and the mode of tenure," Urban Studies, Urban Studies Journal Limited, vol. 54(14), pages 3218-3238, November.
    11. Andreas Mense, 2018. "The Value of Energy Efficiency and the Role of Expected Heating Costs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(3), pages 671-701, November.
    12. Todd D. Gerarden & Richard G. Newell & Robert N. Stavins, 2017. "Assessing the Energy-Efficiency Gap," Journal of Economic Literature, American Economic Association, vol. 55(4), pages 1486-1525, December.
    13. Deng, Yongheng & Li, Zhiliang & Quigley, John M., 2012. "Economic returns to energy-efficient investments in the housing market: Evidence from Singapore," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 506-515.
    14. Wichman, Casey J., 2016. "Incentives, green preferences, and private provision of impure public goods," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 208-220.
    15. Andrea Chegut & Piet Eichholtz & Nils Kok, 2014. "Supply, Demand and the Value of Green Buildings," Urban Studies, Urban Studies Journal Limited, vol. 51(1), pages 22-43, January.
    16. Anna Alberini, Markus Bareit and Massimo Filippini, 2016. "What is the Effect of Fuel Efficiency Information on Car Prices? Evidence from Switzerland," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    17. Jonathan E. Hughes & Molly Podolefsky, 2015. "Getting Green with Solar Subsidies: Evidence from the California Solar Initiative," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(2), pages 235-275.
    18. Andrea Chegut & Piet Eichholtz & Rogier Holtermans & Juan Palacios, 2020. "Energy Efficiency Information and Valuation Practices in Rental Housing," The Journal of Real Estate Finance and Economics, Springer, vol. 60(1), pages 181-204, February.
    19. Caroline Dieckhoener, 2012. "Does subsidizing investments in energy efficiency reduce energy consumption? Evidence from Germany," EWI Working Papers 2012-17, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    20. Simcoe, Timothy & Toffel, Michael W., 2014. "Government green procurement spillovers: Evidence from municipal building policies in California," Journal of Environmental Economics and Management, Elsevier, vol. 68(3), pages 411-434.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:regeco:v:47:y:2014:i:c:p:25-34. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/regec .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.