Estimating the Economic Value of Energy Improvements in U.S. Residential Housing

Abstract

Residential buildings are one of the major consumers of energy in the United States. The existing housing stock can be targeted for energy-efficient interventions through energy retrofits. Improving the energy performance of a house can involve a significant financial investment; however, it can also generate economic, environmental, and social benefits. These benefits could represent an increase in the value and marketability of a residential home. A hedonic pricing model (HPM) is used to measure the marginal value or implicit price for improvements in the energy performance of a house in U.S. residential housing markets. To quantify the energy performance of a building, the building energy consumption index (BECI) is defined as annual energy consumption cost per floor area unit of a building. A two-stage least squares approach (2SLS) is employed to estimate the BECI function and the hedonic price function using 27,547 household observations from the 2013 American Housing Survey (AHS). Results indicate that U.S. housing markets capitalize higher energy performance into house value and that decreasing the BECI by $1 per floor area unit (m2) increases the U.S. mean residential unit market value by 2%. In addition, a prediction cost model is developed for estimating the market value of a housing unit through energy performance improvements.