Getting fair credit for energy-saving and green features from lenders and real estate appraisers has long been a sore point for builders specializing in high-performance houses, and new research from Europe suggests a lack of enthusiasm in the marketplace isn’t limited to the U.S.
Researchers at the Norwegian University of Science and Technology (NTNU) report that an energy labeling system adopted there in 2010 has had virtually no effect on tenants or buyers, according to an article posted at EurekAlert, a publication of the American Association for the Advancement of Science.
One of the reasons for adopting the labeling system, which grades houses on an A-to-G scale of energy consumption, was that it would benefit sellers as well as buyers. But it hasn’t appeared to work out that way.
“Energy labeling has zero effect on the price,” said Professor Olaf Olaussen of the NTNU Business School. “The scheme doesn’t seem to be achieving its intended purpose.”
The study is titled Energy Performance Certificates — Informing the informed or the indifferent?
Labels intended to help buyers
The idea behind Norway’s residential rating system is similar to a HERS or Energy Star rating in the U.S.: buyers shopping for a new house could compare potential purchases based on how much energy the houses were likely to use. Over time, houses with low energy consumption would save their buyers money while helping lower carbon emissions from fossil fuels, an environmental incentive.
Each graded level from A to G corresponds to a certain level of energy consumption in kilowatt-hours per square meter. It should be pretty simple for buyers to check the numbers, except that in Norway at least, “most buyers didn’t give a hoot.”
Earlier studies, particularly one in the Netherlands, had shown an energy label made a big difference in price, but something seemed off to Olaussen and his colleagues. They suspected that studies showing a positive impact from energy labeling might be because researchers were modeling sales data incorrectly. Diving deeper, he and his colleagues devised a way to compare real estate prices in Norway from 2000 to July 2010, when the rating system went into effect, and from July 2010 to 2014. They thought that would give them a better idea of how prices evolved over time.
They found houses with a price advantage after the system was adopted also had an advantage before it was adopted — the price premium, in other words, had to due to something other than energy efficiency. That could have been whether the house was in a neighborhood friendly for children, good views, or close to shopping and other features that made it attractive.
“That is, the price premium of the energy label seems to be present even before it was implemented,” the NTNU study said. “This strongly indicates that the energy label captures something else than the label itself.”
Sales model may have something to do with it
One factor could be the way houses are marketed in Norway. Unlike in the U.S. and many other markets, houses are sold in a bidding process among potential buyers who attend an open house and leave their names and phone numbers if they’re interested in making an offer. When the bidding starts, it goes very quickly.
“I don’t think most people care about the energy rating when they buy a home,” Olaussen said. “Other factors play a role, especially in a market like ours [in Norway], with fast bidding rounds. Then you’re not thinking about whether ‘this property has an A-rating and I can afford a little more.’”
The report notes that the impact of labeling might be different in markets where sellers start with a fixed price and arrive at a sale price by haggling with a buyer. But “studies from Europe aren’t indicating that,” the EurekAlert report said. “They match the results from NTNU.”
Norwegian researchers are currently studying whether the price of electricity changes the way energy ratings are viewed by buyers.
There may be a number of reasons why homeowners want to invest in energy efficiency, Olaussen said, but selling the house for a better price shouldn’t be one of them. “Hence, on the basis of our data, we conclude that the energy label itself seems to have a slightly negligible or no effect,” the study says.
One interesting footnote addressed the question of whether the results carry over to real estate markets in other countries.
“As one anonymous reviewer pointed out, certification systems are usually most important in situations when trust and honesty are lacking,” researchers said. “Therefore, even though energy certificates do not matter in Norway, they could matter in other countries. It would therefore be useful to carry out our kind of study in other countries.”