The "green premium" for environmentally certified homes: a meta-analysis and exploration

by 
Martin J. Brown
martinjohnbrown.net
mjb2000@gmail.com

and

Taylor Watkins
watkinsandassociates.net
taylor.watkins(at)comcast.net

 

Abstract

Housing has a large environmental impact. Certification programs such as LEED and Energy Star endeavor to reduce this impact with homes that, among other things, perform above code requirements. However, the voluntary nature of certification implies the need for a price premium, where certified homes sell for more than similar uncertified homes. Does this premium exist? And if so, what are buyers paying for?

We conducted a systematic review and meta-analysis of existing studies of the premium for certified homes. Over 20 studies worldwide, the mean weighted premium-was 4.3% ± 0.6% SD. This finding was robust, changing little over numerous variations in the analysis, and wasconsiderably less than the 9% figure used in some certification marketing.

Next, we explored several possible sources of value behind the premium, in a sample of 43 certified homes in Portland, Oregon USA. We compared the financed yearly cost of the premium to the market values of the utility savings and carbon mitigation associated with those homes. On average per year, the premium cost the owner $891, while the home provided utility savings of $327, and carbon mitigation with a market value of $24. Many other purchases and lifestyle options available to consumers deliver bigger carbon benefits at lower prices per ton.

These results suggest that while certified homes do provide environmental and financial benefits, those benefits are often limited in scope. Nonetheless, surveys indicate buyers of certified homes are satisfied with their purchases, in part due to tangible but hard-to-quantify characteristics such as comfort and quality. In our Portland sample, 60% of the premium's value came from such sources, while 3% came from carbon mitigation and 37% from utility savings.

The premium for certified homes seems to represent a collection of benefits for the buyer. Currently the values of individual benefits are not well quantified, and open to question. As real estate markets and green building techniques continue to evolve, home certification programs may need to evolve as well, to continue to prove their homes are distinctive enough to merit a higher price.


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