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Green Expectations: Climate Change and
Homeowner Valuation of Dwelling Sustainability
Milind Goel (solo authored)
We compile a dataset comprising seven million residential real estate transactions in the United Kingdom to examine homeowner valuation of dwelling sustainability. Homeowners pay a premium for more energy-efficient dwellings. Exploitation of the spatial, temporal, tenurial, and vintage heterogeneity in the premium shows that homeowners price the energy efficiency of their dwellings following economic principles. We propose a simple valuation model to recover the discount rates used by homeowners, which provide direct measures for rates used to discount investments in sustainable development and climate change mitigation. The rates demonstrate that homeowners accept lower returns for greener dwellings, indicating non-pecuniary incentives.
Keywords: climate finance, discount rates, green premium, household finance
Homeowners accept lower returns for greener dwellings
The figure reports the marginal net discount rates obtained from our model using a stippled black line. The y-axis corresponds to the marginal rate that homeowners use to discount energy savings obtained from a unit improvement in the sustainability rating of a dwelling with an initial rating corresponding to the x-axis. The aggregate marginal discount rate associated with a dwelling rated 40 is 6.97%, decreasing monotonically to 3.79% for a dwelling rated 80. The preference heterogeneity shows that homeowners pay an excess premium for greener dwellings. We term this difference as the green premium, which can be interpreted as the utility that homeowners derive from dwelling sustainability.
Presentations
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Society of Finance Studies (SFS) Cavalcade (co-author)
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ESG Conference at Cornell SC Johnson College of Business
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Trans-Atlantic Doctoral Conference at the London Business School
Green Expectations: Climate Change and Homeowner Valuation of Dwelling Sustainability
Milind Goel (solo authored)
Abstract
​​We compile a dataset comprising seven million residential real estate transactions in the United Kingdom to examine homeowner valuation of dwelling sustainability. Homeowners pay a premium for more energy-efficient dwellings. Exploitation of the spatial, temporal, tenurial, and vintage heterogeneity in the premium shows that homeowners price the energy efficiency of their dwellings following economic principles. We propose a simple valuation model to recover the discount rates used by homeowners, which provide direct measures for rates used to discount investments in sustainable development and climate change mitigation. The rates demonstrate that homeowners accept lower returns for greener dwellings, indicating non-pecuniary incentives.
Keywords
Insights
Presentations
-
Society of Finance Studies (SFS) Cavalcade
-
Trans-Atlantic Doctoral Conference at the London Business School
-
ESG Conference at Cornell
Green Premium
Legislator Tweets About the Green Transition
and the Returns of Green versus Brown Stocks
Environmental Tweets
Introduction
​​We compile a dataset comprising seven million residential real estate transactions in the United Kingdom to examine homeowner valuation of dwelling sustainability. Homeowners pay a premium for more energy-efficient dwellings. Exploitation of the spatial, temporal, tenurial, and vintage heterogeneity in the premium shows that homeowners price the energy efficiency of their dwellings following economic principles. We propose a simple valuation model to recover the discount rates used by homeowners, which provide direct measures for rates used to discount investments in sustainable development and climate change mitigation. The rates demonstrate that homeowners accept lower returns for greener dwellings, indicating non-pecuniary incentives.
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