Real Estate

Does it pay to go green?

Study suggests a 'Prius effect' drives value farther up

Making your home a little more green can do more than just score points with Mother Nature. It also might put some more green in your pocketbook, a University of California team of researchers suggest.

The study, led by Matthew Kahn of UCLA and Nils Kok of UC Berkeley, analyzed the values of the more than 1.6 million homes sold in California between 2007 and 2012. Their results suggest that a home with a green label averages a 9 percent higher sale value than its counterparts.

"The big question for homeowners and investors, is whether constructing a green home actually pays," Kok said in a phone-in media conference. "If we think about the financial benefits of a green label financially, it far outweighs the cost for developers."

Green labels, which are given by outside agencies based on a home's efficiency score, could have large implications for the Palo Alto area, by means of what Kok dubbed "the Prius effect."

During their research, the team controlled for as many variables as possible within the housing market. This meant factors such as location, vintage, size and major amenities such as a pool or beautiful view. One of these factors, location, wound up playing a large role in their findings.

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As the old real estate phrase "location, location, location" would suggest, the area surrounding a home can play a major role in its worth. For the study, the environmental culture of the area became the key factor.

Kok and his team sought to identify and control for areas of high environmental awareness by studying the annual number of hybrid-vehicle registrations. What they discovered is that in areas with a large number of hybrid-vehicle registrations each year, a green home label is actually worth much more than the average 9 percent.

While Kok did not specifically name Palo Alto, a 2009 study also conducted by Kok's associate, Kahn, showed that California's hybrid registrations were disproportionately concentrated in the San Francisco Bay Area.

"Buyers in areas with a strong environmental ideology were willing to pay more for a green label than buyers in areas with less of an environmental ideology," Kok said.

The study's synopsis went further, offering a possible explanation behind the results. "This correlation suggests that some homeowners may attribute value to qualities associated with owning a green home, such as pride or perceived status."

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Whatever the motivating factor, these results suggest that homes in Santa Clara or San Mateo counties with a green label could receive a more than 10 percent boost in value.

Furthermore, Kok and Kahn identified that during the course of their research, the value of a green label increased, meaning that a green label raised a home's value more in 2012 than it did in 2007.

"The value of these green labels seems to (have) gone up in the recent years," Kok said. "Part of this seems to be driven by energy savings, but certainly consumers are paying for more than just energy savings alone."

Energy savings proved to be a major contributing factor in the regions without large numbers of hybrid registrations, which still put more value on a green label. The researchers found that climate, specifically areas with hot summers, displayed an increased value in green-labeled homes similar to areas within the "Prius effect."

While energy savings could have been a contributing factor to the value of green-labeled homes in hot areas, Kok pointed out that the average utility savings homeowners receive by making their homes green will not pay back the costs of energy-efficient construction. According to the researchers, this suggests that homeowners do not build green homes for energy savings alone, but rather ideological reasons.

The research team also laid out the value of a green label in dollar amounts. To start, the researchers used the average sales price of a non-labeled home in California, $400,000. Applying the average value of 9 percent, a green label would provide a boost in value of $34,800.

Next, the team compared that to the cost of building a home with a green label.

"If we think about construction costs for a more efficient home," Kok said. "We know anecdotally, that if you construct a home that is about 35 percent more efficient, the cost to get to that level is about $10,000."

By comparing those two numbers, Kok and his team suggested that for the average home, a green label would increase its value by around $25,000.

However, most homes in the Palo Alto area are not what one would consider an average home.

According to Multiple Listing Service data published by Realtor Michael Talis, of Coldwell Banker, Los Altos, the average sales price of a Palo Alto home sold in August was $2,014,540. Applying the 9 percent boost from a green label would, theoretically, add an additional $181,308 in value. And that is not factoring for the "Prius effect."

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Does it pay to go green?

Study suggests a 'Prius effect' drives value farther up

by / Palo Alto Weekly

Uploaded: Wed, Oct 10, 2012, 1:22 pm

Making your home a little more green can do more than just score points with Mother Nature. It also might put some more green in your pocketbook, a University of California team of researchers suggest.

The study, led by Matthew Kahn of UCLA and Nils Kok of UC Berkeley, analyzed the values of the more than 1.6 million homes sold in California between 2007 and 2012. Their results suggest that a home with a green label averages a 9 percent higher sale value than its counterparts.

"The big question for homeowners and investors, is whether constructing a green home actually pays," Kok said in a phone-in media conference. "If we think about the financial benefits of a green label financially, it far outweighs the cost for developers."

Green labels, which are given by outside agencies based on a home's efficiency score, could have large implications for the Palo Alto area, by means of what Kok dubbed "the Prius effect."

During their research, the team controlled for as many variables as possible within the housing market. This meant factors such as location, vintage, size and major amenities such as a pool or beautiful view. One of these factors, location, wound up playing a large role in their findings.

As the old real estate phrase "location, location, location" would suggest, the area surrounding a home can play a major role in its worth. For the study, the environmental culture of the area became the key factor.

Kok and his team sought to identify and control for areas of high environmental awareness by studying the annual number of hybrid-vehicle registrations. What they discovered is that in areas with a large number of hybrid-vehicle registrations each year, a green home label is actually worth much more than the average 9 percent.

While Kok did not specifically name Palo Alto, a 2009 study also conducted by Kok's associate, Kahn, showed that California's hybrid registrations were disproportionately concentrated in the San Francisco Bay Area.

"Buyers in areas with a strong environmental ideology were willing to pay more for a green label than buyers in areas with less of an environmental ideology," Kok said.

The study's synopsis went further, offering a possible explanation behind the results. "This correlation suggests that some homeowners may attribute value to qualities associated with owning a green home, such as pride or perceived status."

Whatever the motivating factor, these results suggest that homes in Santa Clara or San Mateo counties with a green label could receive a more than 10 percent boost in value.

Furthermore, Kok and Kahn identified that during the course of their research, the value of a green label increased, meaning that a green label raised a home's value more in 2012 than it did in 2007.

"The value of these green labels seems to (have) gone up in the recent years," Kok said. "Part of this seems to be driven by energy savings, but certainly consumers are paying for more than just energy savings alone."

Energy savings proved to be a major contributing factor in the regions without large numbers of hybrid registrations, which still put more value on a green label. The researchers found that climate, specifically areas with hot summers, displayed an increased value in green-labeled homes similar to areas within the "Prius effect."

While energy savings could have been a contributing factor to the value of green-labeled homes in hot areas, Kok pointed out that the average utility savings homeowners receive by making their homes green will not pay back the costs of energy-efficient construction. According to the researchers, this suggests that homeowners do not build green homes for energy savings alone, but rather ideological reasons.

The research team also laid out the value of a green label in dollar amounts. To start, the researchers used the average sales price of a non-labeled home in California, $400,000. Applying the average value of 9 percent, a green label would provide a boost in value of $34,800.

Next, the team compared that to the cost of building a home with a green label.

"If we think about construction costs for a more efficient home," Kok said. "We know anecdotally, that if you construct a home that is about 35 percent more efficient, the cost to get to that level is about $10,000."

By comparing those two numbers, Kok and his team suggested that for the average home, a green label would increase its value by around $25,000.

However, most homes in the Palo Alto area are not what one would consider an average home.

According to Multiple Listing Service data published by Realtor Michael Talis, of Coldwell Banker, Los Altos, the average sales price of a Palo Alto home sold in August was $2,014,540. Applying the 9 percent boost from a green label would, theoretically, add an additional $181,308 in value. And that is not factoring for the "Prius effect."

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