Sustainability in Times of Economic Downturn: The Resilience of Green Premiums and Brown Discounts in German Residential Markets

This study investigates the resilience of green premiums and brown discounts on German residential property markets during the ongoing economic crisis. While previous research extensively examines green premiums and brown discounts in growing markets, little is known about their persistence during economic downturns. We address this gap by exploring how green building characteristics, especially energy efficiency, influence property values in challenging market conditions. The setting of the study is the ongoing German real estate market crisis, marked by soaring energy prices, inflation, rising construction costs and rapid interest hikes. It severly reduced residential property values in Germany, providing a suitable market phase to investigate whether investing in sustainable properties can offer a hedge against negative market developments. The study analyses an extensive dataset, covering detailed hedonic characteristics for German residential property markets spanning from 2017 to 2024. Given the immediate onset of the crisis in February 2022, a Difference-in-Differences analysis is used to examine a potential impact of the economic downturn on green premiums and brown discounts. The research provides policymakers and investors with valuable insights into green premiums and brown discounts by analysing if energy-efficient properties benefit from enhanced economic resilience. The findings indicate whether sustainable investments should be prioritised in residential property markets to support long-term stability and mitigate the impacts of volatility. To the best of the authors’ knowledge, this study is the first to provide empirical insights into the resilience of green premiums and brown discounts to challenging market periods.