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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.

Suggested Citation

  • 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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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. repec:pal:assmgt:v:19:y:2018:i:4:d:10.1057_s41260-018-0079-6 is not listed on IDEAS
    3. 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.
    4. repec:eee:eneeco:v:74:y:2018:i:c:p:1-12 is not listed on IDEAS
    5. Copiello, Sergio, 2017. "Building energy efficiency: A research branch made of paradoxes," Renewable and Sustainable Energy Reviews, Elsevier, vol. 69(C), pages 1064-1076.
    6. repec:eee:ecolet:v:163:y:2018:i:c:p:36-39 is not listed on IDEAS
    7. 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.
    8. 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.
    9. repec:eso:journl:v:49:y:2018:i:2:p:145-172 is not listed on IDEAS
    10. 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.
    11. repec:eee:enepol:v:121:y:2018:i:c:p:225-235 is not listed on IDEAS

    More about this item

    Keywords

    Environmental sustainability; Green residential building; Singapore Green Mark system; Energy-efficiency investment; Financial performance;

    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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