August 13, 2009

By Arun Barman, Research Economist

With several major energy-related bills on Capitol Hill as well as a growing trend throughout the country to "green" living and technology, looking at energy efficiency in the housing market is of growing interest to REALTORS® and consumers. Since residential housing accounts for about a fifth of energy consumption in the U.S., understanding environmentally efficient features is becoming increasingly important to understanding the real estate market.

According to the 2008 NAR Profile of Home Buyers and Sellers, home buyers see environmentally friendly features as important considerations when buying a home. Survey results show (see the table below) 89 percent saw heating and cooling costs as important, 80 percent saw commuting costs as important, 73 percent say energy efficient appliances as important, and 70 percent view a home’s energy efficient use of lighting as an important consideration when buying a home. Buyers of new homes were even more concerned with energy efficient appliances and lighting than buyers of existing homes.

There is a growing interest in green home features. While some consumers may seek newer homes with environmentally friendly features, it is also possible for existing homes to be upgraded to help reduce energy costs and perhaps increase the marketability of these homes. However, it is important to understand that the U.S. housing stock is vast and diverse. One important distinction is the regional variations in homes. Things like climate, population density, disaster protection, and age of homes make for very different types of homes and consumption patterns across regions and states. The table below from the 2005 Residential Energy Consumption Survey (from the Department of Energy) shows Btu (British thermal unit) consumption per household across regions and among the four most populous states (New York, Florida, Texas, and California).  The Northeast and Midwest consume more energy per household, due in large part to heating consumption.  The West and South use less heat, but the South consumes more air-conditioning.

The number of dollars spent per household shows similar regional differences. The Northeast leads the country with an estimated $2,319 dollars spent per household per year. Comparatively, in the Midwest the annual figure is $1,786, followed by $1,758 in the South, and $1,491 in the West. The South spends the most on air-conditioning at $406 dollars per year, compared to only $154 in the Midwest. In the Northeast, households typically spend $969 per year on heating, while in the West the typical bill is only $333 per year. Water heating, refrigerators, and other appliances and lighting had less regional variation in terms of consumer costs.

The task of retrofitting existing homes with newer energy efficient upgrades varies significantly by region. The following table, based on HUD’s Energy Efficient Rehab Advisor website, shows the most cost effective ways to retrofit a house by region. The first column shows the costs of making the retrofit, followed by the estimated savings per year. The payback period in the final column is an estimate of how long it would take until the savings in energy cost from having the upgrade offsets the added cost of the retrofit. This is a valuable resource for REALTORS® and consumers as it shows the costs and benefits for certain retrofit projects. Those with shorter payback periods will allow homeowners to see immediate returns on their investments. Programmable thermostats, heating system tune-ups, and sealing duct leaks ranked very high in payback in many regions. A few items like windows and skylight improvements varied greatly by region. Some projects had payback periods in the 6 to 10 year range, which might make some consumers hesitant depending on their expected tenure. According the NAR’s Profile of Home Buyer and Sellers, the median tenure of sellers was about 6 years, making some retrofits less likely to benefit the current homeowner.  However, information is still lacking on the value added (in terms of home selling price) of retrofits when a home is sold.

In addition to the benefits from lower costs from improved energy efficiency, there are also some federal and local tax breaks to incentivize green improvements. The American Recovery and Reinvestment Act of 2009 provides stimulus money for making energy efficient upgrades to homes. Homeowners can receive tax credits of up to $1500 on a variety of energy efficient modifications through 2010 and up to 30 percent for some solar, wind and geothermal projects through 2016. More details can be found by clicking here.

Many states and municipalities also have their own tax breaks. The Database of State Incentives for Renewables & Efficiency (DSIRE) website can help you search for tax breaks in your area.

For REALTORS seeking to increase their knowledge and credentials in green and energy efficiency areas of the housing market, NAR offers a Green Designation.

 

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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