Energy Codes and the Landlord-Tenant Problem

This paper assesses whether commercial real estate participants are willing to pay apremium for an energy efficient building that has not received a green label. I utilizea unique dataset of detailed building-level observations and a spatial semiparametricmatching framework that exploits quasi-experimental state-by-year variation in the implementationof mandatory building energy codes, to estimate selling price and rentpremiums for a more stringent code. I find that buildings constructed under a morestringent energy code are associated with rent and selling price premiums of approximately2.7% and 10%, respectively, compared to buildings constructed just before thecode came into effect. When tenants pay directly for utilities, buildings constructedunder an energy code are associated with 5.7% higher rents. These premiums are consistentwith complete capitalization of estimated building-level savings, and thereforecast doubt on the existence of an energy efficiency gap resulting from adverse selectionbetween landlords and tenants in commercial buildings.