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Economic returns to residential green building investment: The developers' perspective

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  • Deng, Yongheng
  • Wu, Jing

Abstract

While many studies have shown that “green price premiums” accompany the development of green buildings, there is still significant doubt among the public as to the financial viability of investments in energy efficiency. In this paper, we examine this issue from the developers' perspective, and draw on data from Singapore's Green Mark (GM) system, which was introduced in 2005 to evaluate the sustainability and energy-efficiency of buildings. We find that the “green price premium” of residential developments arises largely during the resale phase, relative to the presale stage. The market premium of GM-rated units is about 10% at the resale stage, compared to about 4% during the presale stage. This implies that, while developers pay for almost all of the additional costs of energy efficiency during construction, they only share part of the benefits associated with such green investments. We also find no evidence that the development of green housing can immediately and significantly improve the corporate financial performance of Singaporean residential developers. These results provide the first evidence of the mismatch that developers face between outlays and benefits in the residential green building sector. This mismatch may impede further development of green residential properties. The emerging green real estate markets should be encouraged to introduce innovative business arrangements and financial products that allow residential developers to capture the future benefits associated with green properties.

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  • Deng, Yongheng & Wu, Jing, 2014. "Economic returns to residential green building investment: The developers' perspective," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 35-44.
    • Handle: RePEc:eee:regeco:v:47:y:2014:i:c:p:35-44
    DOI: 10.1016/j.regsciurbeco.2013.09.015
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    4. Walls, Margaret & Gerarden, Todd & Palmer, Karen & Bak, Xian Fang, 2017. "Is energy efficiency capitalized into home prices? Evidence from three U.S. cities," Journal of Environmental Economics and Management, Elsevier, vol. 82(C), pages 104-124.
    5. Catherine Baumont & Masha Maslianskaia-Pautrel & Pierre Voyé, 2019. "Hedonic estimation of the green value of residential housing," Working Papers 2019.20, FAERE - French Association of Environmental and Resource Economists.
    6. Fuerst, Franz & Warren-Myers, Georgia, 2018. "Does voluntary disclosure create a green lemon problem? Energy-efficiency ratings and house prices," Energy Economics, Elsevier, vol. 74(C), pages 1-12.
    7. Copiello, Sergio, 2017. "Building energy efficiency: A research branch made of paradoxes," Renewable and Sustainable Energy Reviews, Elsevier, vol. 69(C), pages 1064-1076.
    8. Jia, Jun–Jun & Wu, Hua-Qing & Nie, Hong-Guang & Fan, Ying, 2019. "Modeling the willingness to pay for energy efficient residence in urban residential sector in China," Energy Policy, Elsevier, vol. 135(C).
    9. Shen, Liyin & Zhang, Zhenyu & Long, Zhijian, 2017. "Significant barriers to green procurement in real estate development," Resources, Conservation & Recycling, Elsevier, vol. 116(C), pages 160-168.
    10. Fesselmeyer, Eric, 2018. "The value of green certification in the Singapore housing market," Economics Letters, Elsevier, vol. 163(C), pages 36-39.
    11. Ossokina, Ioulia V. & Kerperien, Stephan & Arentze, Theo A., 2021. "Does information encourage or discourage tenants to accept energy retrofitting of homes?," Energy Economics, Elsevier, vol. 103(C).
    12. Helen X. H. Bao & Steven Haotong Li, 2016. "Overconfidence And Real Estate Research: A Survey Of The Literature," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(04), pages 1-24, September.
    13. 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.
    14. Ming-Yi Huang, 2023. "Analyzing the effects of green building on housing prices: case study of Kaohsiung, Taiwan," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(2), pages 1205-1235, February.
    15. Matthew Collins & Seraphim Dempsey & John Curtis, 2018. "Householder Preferences for the Design of an Energy Efficiency Retrofit Subsidy in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 49(2), pages 145-172.
    16. Yuval Arbel & Chaim Fialkoff & Amichai Kerner, 2020. "The Chicken and Egg Problem: Obesity and the Urban Monocentric Model," The Journal of Real Estate Finance and Economics, Springer, vol. 61(4), pages 576-606, November.
    17. He, Jia & Wu, Jing, 2016. "Doing well by doing good? The case of housing construction quality in China," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 46-53.
    18. Li Zhang & Hongyu Liu & Jing Wu, 2017. "The price premium for green-labelled housing: Evidence from China," Urban Studies, Urban Studies Journal Limited, vol. 54(15), pages 3524-3541, November.
    19. Fuerst, Franz & McAllister, Pat & Nanda, Anupam & Wyatt, Pete, 2016. "Energy performance ratings and house prices in Wales: An empirical study," Energy Policy, Elsevier, vol. 92(C), pages 20-33.
    20. Liao, Wen-Chi & Zhao, Daxuan, 2019. "The selection and quantile treatment effects on the economic returns of green buildings," Regional Science and Urban Economics, Elsevier, vol. 74(C), pages 38-48.
    21. Aydin, Erdal & Eichholtz, Piet & Yönder, Erkan, 2018. "The economics of residential solar water heaters in emerging economies: The case of Turkey," Energy Economics, Elsevier, vol. 75(C), pages 285-299.
    22. Florian Fizaine Fizaine & Pierre Voye & Catherine Baumont, 2018. "Les études hédoniques soutiennent-elles une valeur verte élevée dans le bâtiment ? Une réponse par la méta-analyse," Post-Print halshs-01957447, HAL.
    23. Zhang, Li & Sun, Cong & Liu, Hongyu & Zheng, Siqi, 2016. "The role of public information in increasing homebuyers' willingness-to-pay for green housing: Evidence from Beijing," Ecological Economics, Elsevier, vol. 129(C), pages 40-49.
    24. Zhang, Li & Wu, Jing & Liu, Hongyu, 2018. "Policies to enhance the drivers of green housing development in China," Energy Policy, Elsevier, vol. 121(C), pages 225-235.
    25. Yong Tu, 2018. "Urban debates for climate change after the Kyoto Protocol," Urban Studies, Urban Studies Journal Limited, vol. 55(1), pages 3-18, January.

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    More about this item

    Keywords

    Environmental sustainability; Green residential building; Singapore Green Mark system; Energy-efficiency investment; Financial performance;
    All these keywords.

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • G3 - Financial Economics - - Corporate Finance and Governance

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