Buying green houses in Texas

Houses with green features like low energy consumption and better insulation should demand higher prices. And indeed, they do, but it depends on who buys the home.

Zinat Alam from the University of North Texas and his colleagues examined the sales of houses in Denton, Texas, from 2010 to 2019. The chart below shows the number of houses with green features such as Energy Star certification vs. “brown” houses and the average price premium paid for green houses. The study shows that once house prices were coerced for size, location and other features, the average premium for a green house is substantial and persistent. Green houses demand a 7.1% price premium over houses without any green features. For every additional green feature, an additional premium of 5.9% can be harvested.

Green premium of houses in Denton, Texas

Source: Alam et al. (2022)

But the interesting insight this research provides is that it tried to identify who pays that premium. Of course, the authors of the study couldn’t track down all the buyers of houses in Denton for a decade and ask them to fill out questionnaires. So they resorted to a somewhat dubious technique to infer the cultural background of the buyers from their demographic information in public records and the cultural origins of their last names. I have significant reservations about such techniques, but at least it is a first stab at what needs to be investigated more closely, in my view. What the researchers found was that people with a background in a less individualistic culture (e.g. Europeans and Asian rather than Americans) were willing to pay a higher premium for green features. Similarly, people from cultures with a tendency to avoid uncertainty and prefer structure and planability of their environment (e.g. central Europeans and Japanese) pay a higher premium for green features. So, if you have a house with many green features, the lesson seems to be to sell it to Germans or Japanese. These cultures score high on uncertainty avoidance and relatively low on individualism. So they should be willing to pay the most for these green features.