Value Premiums of Sustainable Elements in Residential Homes in the Greater Philadelphia Area

Abstract

Energy consumption in the United States has critical implications for national security, health, the environment, scarce resources, and the overall economy. Residential energy consumption is a major component of overall energy use. Conservation measures are of utmost importance as energy reduction may be the most cost effective means in order to reduce negative effects caused by energy generation. Most residential conservation efforts have been focused upon cost savings. Recent research shows that substantial sales premiums for homes are obtained for sustainability features and certifications (Aroul, 2009; Aroul & Hansz, 2012; Bloom, Nobe, & Nobe, 2011; Cadena & Thompson, 2015; Dastrup, Zivin, Costa, & Kahn, 2012; Kahn & Kok, 2013; Shewmake & Viscusi, 2015; Walls, Gerarden, Palmer, & Bak, 2017). These premiums are currently not systematically considered for promotional and decision-making purposes. Adding premiums with the cost savings into the decision process may help builders, remodelers, and real estate agents promote green items to buyers. This study shows the differences in labels that achieve premiums may be attributable to differences in consumer preferences unique to each geographic region, which may explain the lack of emphasis on sustainability in real estate marketing materials. Previous studies of premiums on residential homes with green labels have been concentrated on the southern and western parts of the United States (Kahn & Kok, 2013; Walls et al., 2017). To draw results on an overall willingness to pay, this auxiliary study was done for the northeast region, filling a geographic gap. All study results were tabulated across the United States. This study adds to the establishment of a universal acceptance that sustainable items add value to a home but cautions that consumer preferences modulate the acceptance and value of specific sustainable features. The influence of different sustainability features and certifications on house prices was statistically analyzed using sales data obtained from the Realtor’s® multiple listing service (MLS) TREND between 2009 and 2017 in the Philadelphia region. Drawing from 250,354 home sales transactions, matched pairs of sustainable featured and green certified homes with non-sustainable featured and non-green certified homes from the same school districts were used to determine their respective differences. Through propensity score matching, Energy Star showed a statistically significant sizable premium of 5.11%, while Other Green Certification showed an even higher statistically significant premium of 8.53%. Ground source heating showed a statistically significant premium of 12.31% while solar heating and biofuel did not show significant premiums. Additionally, the number of sales per year of green-labeled homes in the Philadelphia region shows a bell curve pattern typical of an innovation adoption cycle. In such a cycle, increased use often comes by innovations including productivity improvements, technological advances, new customer appeals, or the additional of new customer segments (Rogers, 2005). Sale premiums may fulfill a similar role to promote the sale of homes with sustainable features and certifications. Thus, reliance upon premiums may be an innovation that is needed to push additional adoption past the point of considering cost savings alone. Otherwise, a decline in the number of green label homes sales is likely in the Philadelphia region.