The Capitalization of Green Labels in the California Housing Market

The residential sector accounts for 33 percent of electricity consumption in the U.S., with a total expenditure of $166 billion in 2010. Increasing the energy efficiency of the durable housing stock can thus provide significant cost savings for consumers. One promising trend is the rise of homes labeled by a third party as “green” or energy efficient. This paper documents evidence on the effects of providing information about the energy efficiency and “sustainability” of structures in affecting consumer choice. We conduct a hedonic pricing analysis of all single-family home sales in California over the time period 2007 to 2012, and find that homes labeled with a green label transact at a small premium relative to otherwise comparable, non-labeled homes. We show evidence of spatial variation in this capitalization such that both environmental ideology and local climatic conditions play a role in explaining the variation in the green premium across geographies.