A new study published in the Journal of Structured Finance (free summary available here) using data from California homes found that Property-Assessed Clean Energy (PACE) homes are selling for a premium over homes not using PACE.
Results of study from the paper’s summary are below:
- PACE Homes Sold at a Premium of $199-$8,882 over Comparable nonPACE Homes Even After Taking Into Account the Financing Costs of the Project: Every methodology and data point in the analysis showed a positive PACE premium at resale, ranging from $199 to $8,882. The home price index methodology showed PACE premiums of $199-$8,882. The methodology comparing PACE to a random sample of similarly-situated non-PACE homes showed a PACE premium of $5,010. The multivariate regression methodology showed a PACE premium of $4,042.
- Nearly $7,000 PACE Premium for Homes Purchased from Foreclosure: Distressed sales that subsequently got a PACE improvement actually produced a higher home value premium (our sample showed a $6,824 PACE premium).
- PACE Home Energy Renovations Recover More than 100% of Cost, while Other Home Improvements Do Not Come Close to Recovering Their Investment Costs: Analysis from the RemodelMax and the National Association of Realtors has shown that investments in other home improvements such as kitchen and bathroom modeling on average recovered at resale 58-66% of their investment cost.
- Results May Be Conservative and Underestimate PACE Premium. We may be underestimating value of PACE improvements upon resale for two reasons:
- Deferred Maintenance: The majority of homeowners who utilize PACE decide to upgrade when the original equipment malfunctions or breaks. If the improvement did not occur, the home value may well have been lower, and thus the PACE premium could be significantly higher in these cases.
- Energy efficient improvements are a relatively recent phenomenon: Homebuyers may not fully capitalize the present discounted value of lower energy costs into the resale price, if they are unsure how long they will last. Over time, we may observe higher capitalization rates.
Identifying the value of energy efficiency to support market-driven energy efficiency investments by contractors, residents, realtors and building professionals is a hot topic. For more information, check out:
- San Francisco’s Oct 2015 assessment of its commercial buildings ordinance (done in partnership with Urban Land Institute), which analyzes savings generated by the ordinance, and finds energy savings potential of $170 million.
- A new video from EPA’s ENERGYSTAR interviewing business leaders – and a public school – on why they choose ENERGYSTAR certification.
- This New Buildings Institute Seattle summit summary on getting to outcome-based building performance includes best practices and needs to better connect with industry.
- This fact sheet on assessing the value of green buildings shares how and why green improvements and green labeling add value to buildings.
- This study from UCLA and UC Berkeley shows that green homes sell for higher values.
- Rollout of DOE Home Energy Score scoring under Berkeley’s new BESO ordinance is using transparency on the value of energy savings to drive market transformation.