“Fix it with Green:” The Valuation Impact of Green Retrofits on Residential Transaction Price

Abstract

There is a modest amount of research on the valuation impact of green housing features, but research on renovations or remodeling, which include green features called “green retrofits,” cannot be found. The analysis in this paper uses consistent controls and methods to investigate the valuation implication of green retrofits on residential transaction prices. We find that renovated properties in the sample of residential transaction prices are sold at price levels 5.8% higher on average than properties that are not renovated, all else equal. However, green retrofits sell for 9.9% higher on average than non-renovated properties, and green retrofits sell for about 12.7% higher on average than non-green renovated properties. It appears that investment in residential green building features is capitalized in housing prices. We find that green retrofitted properties spend fewer days on the market compared to other transactions.

Keywords:

• green retrofit
• green building features
• hedonic pricing model
• Fannie Mae

Notes

1 We use textual analysis to capture this from the remarks sections of the Multiple Listing Service’s dataset. We acknowledge that our classification might suffer from possible shortcomings. Some properties not marketed as green may actually have renovations that include at least one green feature or vice versa. To overcome this to an extent, we use several keywords when conducting textual analysis and the list of search terms can be found in Appendix 1.

2 Coefficient after Kennedy Conversion = [exp(OLS estimator)/exp(0.5*estimated Variance of the OLS estimator)]-1

3 For more information on the HomeStyle Energy Mortgage Loan program, please see www.fanniemae.com/singlefamily/homestyle-energy. The document posted on this site is dated March 29, 2016.

4 In 2009, DOE issued a solicitation that offers $454 million in American Recovery and Reinvestment Act funds, including $390 million for a "Retrofit Ramp-Up" program, to support energy efficiency efforts throughout the country.