Energy efficient homes – do they sell for more?

26 March 2018

A number of people have asked me about the financial return on more energy efficient homes. So we pulled together research from around the world to understand the impact of third party verification. I hope it is of interest.

We have listed peer reviewed studies here – full reports are below. You may have other examples, I’d be interested to hear about them if you do.

Australia, 2018 research found homes considered to be sustainable sell for 10 per cent more and 13 days faster than non-sustainable properties,

Ireland, 2013 research found that homes with a higher Building Energy Rating (BER) could receive a price premium of up to 9.3%. The study also found that rental prices could increase up to 3.9% for homes with high BER.

California, 2012 research supported by the San Francisco Department of the Environment conducted by Nils Kok and Matthew Kahn studied the impact of green housing labels on sale prices. Homes with green labels by LEED for Homes, GreenPoint Rated and Energy Star sold for an average price premium of 9% ($34,800) more than the price of a comparable house nearby.

Seattle, 2009 research found that certified homes in Portland sold for 3%-5% more than non-certified homes and homes in Seattle sold for 9.6% more. It also found that certified homes sold faster, on average 18 days less, than non-certified homes in Portland.

Australia, Australian Capital Territory research, 2007, found that the Energy Efficiency Requirements (EER) had a positive association with house prices and that an average house price could increase approximately $4,500 when increasing the EER star by 0.5.

Canberra, 1999 research recorded the price, location and energy rating of homes advertised for sale in the ACT for four years. It was found that a 5 star energy rated home sold on average for 33% more than a 1 star home and a renovation cost of less than $2,000 could improve the performance of homes by more than 1 star.

There is some great research set out in these papers. The results of the research show that the property market values energy efficiency and can benefit from the disclosure of energy efficiency of homes. We all stand to gain:

Property owners gain by knowing that a good EER could bring a higher sale price, and this creates an incentive to property owners to invest in improving the energy efficiency of their home. This can be particularly appealing as the cost involved in making an energy improvement may be significantly less than the increased capital value of the property resulting from the improvement.

For example, the ACT study found that, if the energy performance of a house improves by 1 star level, on average, its market value will increase by about 3 per cent. Therefore, if a property owner installs R4 ceiling insulation at an approximate cost of AUD$1,200 they will, on average, improve the energy performance of a poorly insulated home by at least 1 star. This means that a detached house sold in 2005 for AUD$365,000 could fetch an additional AUD$8,979 with only a 1 star improvement in energy rating.

Consumers For the consumer, disclosure of EER assists with purchaser knowledge, particularly as buying a house with a better EER means reduced operational energy costs as well as greater thermal comfort, physical health, and the satisfaction associated with doing something positive for the environment.

Real estate industry For the real estate industry, EER disclosure creates a more efficient market – because all players have information about a property’s energy efficiency, they can better determine the value of the property.

For example, if a person buying a house knows from the disclosed energy efficiency rating that a building is more energy efficient than other houses, they may be willing to pay more for the property because the additional cost will be offset by expected savings in lower energy bills. Or they may choose to pay less for homes with a low rating, at the same time recognising that the ongoing energy costs to stay comfortable will be greater.

Building industry EER disclosure benefits the building industry and encourages new residential buildings to be created above the minimum energy performance requirements.

What are we doing in New Zealand?

It is worth noting that many of the benefits are not captured by the above research. Homestar homes, the accreditation methodology for new build homes in New Zealand, are healthier, easier to heat and save occupants around $500 per year.

There is also less construction waste, more sustainable materials and less surface water run-off. These benefits are also not captured in the above research.

I hope the above was of use I welcome comments. Homestar V4 has made verification 20-60% less administration time than the previous version. The standard is just as robust. Volume certification is now available. Usefully the NZGBC is, at present, able to assess your plans and tell you how close to Homestar six star you are

Want to read more? Full reports on the research studies can be found:

Australia - Green Lemons? Energy efficiency disclosure and house prices and Sustainable homes sell faster and for more money, three-year research project proves

Ireland - The value of domestic building energy efficiency

California - The value of green labels in the California housing market

Seattle - Certified Home Performance: Assessing the Market Impacts of Third party Certification on Residential Properties

ACT- Energy efficiency rating and house prices