Nils Kok

Energy Consumption and the Durable Building Stock: The Capital Vintage Paradox

with Matthew Kahn and John M. Quigley

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The durable building stock plays a key role in determining the urban sustainability of a metropolitan area. While the residential sector has been the primary focus of energy policies, commercial buildings are now responsible for most of the durable building stock’s total electricity consumption. This paper exploits a unique panel of commercial buildings to document that electricity consumption and building quality are complements, not substitutes. Technological progress may reduce the energy demand from heating, cooling and ventilation, but the behavioral response of building tenants and the large-scale adoption of appliances more than offset these savings, leading to increases in energy consumption in more recently constructed, more efficient structures. This implies that there is an exacerbated externality associated with the rising quality of the durable building stock.

The Value of Green Labels in the California Housing Market

with Matthew Kahn

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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. The modeled energy consumption of such homes is substantially lower as compared to conventional homes of the same vintage. This paper provides the first systematic evidence on the effects of green labels attesting to the energy efficiency and sustainability of homes on consumer choice. We conduct a hedonic pricing analysis of all single-family home sales in California over the time period 2007 to 2012, documenting that homes labeled with Energy Star, LEED or Greenpoint Rated, transact for a premium of nine percent relative to otherwise comparable, non-labeled homes. Given the large size of this effect, we explore its robustness and examine a number of different hypotheses, focusing on recovering heterogeneous effects. The results show that both environmental ideology and local climatic conditions play a role in explaining the variation in the green premium across geographies. Some press coverage: Washington Post LA Times USA Today Daily Herald   NPR Marketplace

The Economics of Green Building

with Piet Eichholtz and John Quigley, 2013, Review of Economics and Statistics 95(1)

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This paper analyzes the economics of “green” building. First, we analyze a panel of office buildings “certified” by independent rating agencies, finding that large recent increases in the supply of green buildings and the unprecedented volatility in property markets have not significantly affected the relative returns to green buildings. Second, we analyze a large cross section of office buildings, demonstrating that economic premiums in rent and asset values are substantial. Third, we relate the economic premiums for green buildings to their sustainability, confirming that the attributes rated for both thermal efficiency and sustainability contribute to premiums in rents and asset values. Even among green buildings, increased energy efficiency is fully capitalized into rents and asset values. The Economics of Green Building View more presentations from nilskok

The Impact of Energy Labels and Accessibility on Office Rents

with Maarten Jennen,  Energy Policy

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Energy consumption in the commercial property sector offers an important opportunity for conserving resources. In this study, we evaluate the financial implications of two elements of “sustainability” – energy efficiency and accessibility – in the market for commercial real estate. An empirical analysis of some 1,100 leasing transactions in the Netherlands over the 2005-2010 period shows that buildings designated as inefficient (with an EU energy performance certificate D or worse) command rental levels that are some 6.5 percent lower as compared to energy efficient, but otherwise similar buildings (labeled A, B or C). Furthermore, this study shows that office buildings in multi-functional areas, with access to public transport and facilities, achieve rental premiums over mono-functional office districts. For policymakers, the results documented in this paper provide an indication on the effectiveness of the EU energy performance certificate as a market signal in the commercial property sector. The findings documented here are also relevant for investors in European office markets, as the importance of energy efficiency and locational diversification is bound to increase following stricter environmental regulation and changing tenant preferences.

Doing Well by Doing Good: Green Office Buildings

with Piet Eichholtz and John Quigley, 2010, American Economic Review, 100(5)

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This paper provides the first credible evidence on the economic value of the certification of “green buildings” -- derived from impersonal market transactions rather than engineering estimates. Our analysis of clusters of certified green buildings and nearby comparables establishes that buildings with “green ratings” command ubstantially higher rents and selling prices than otherwise identical buildings. Moreover, variations in the premium for green office buildings are systematically related to their energy-saving characteristics. An increase in the energy efficiency of a green building is associated with a substantial increase in selling price – over and above the premium for a labeled building. Further evidence suggests that the intangible effects of the label itself may also play a role in determining the values of green buildings in the marketplace.

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Portfolio Greenness and the Financial Performance of REITs

with Erkan Yonder and Piet Eichholtz, Journal of International Money and Finance, 2012

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This paper investigates the effects of the energy efficiency and sustainability of commercial properties on the operating and stock performance of a sample of US REITs, providing insight into the net benefits of green buildings. We match data on LEED and Energy Star certified buildings with detailed information on REIT portfolios and calculate the share of green properties for each REIT over the 2000-2011 period. We estimate a two-stage regression model and document that the greenness of REITs is positively related to three measures of operating performance – return on assets, return on equity and the ratio of funds from operations to total revenue. We also document that there is no significant relationship between the greenness of property portfolios and abnormal stock returns, suggesting that stock prices already reflect the higher cash flows deriving from investments in more efficient properties. However, REITs with a higher fraction of green properties display significantly lower market betas.   Slideshow "Portfolio Greenness and the Financial Performance of REITs" View more presentations from nilskok

Supply, Demand, and the Value of Green Buildings

with Andrea Chegut and Piet Eichholtz, forthcoming in Urban Studies

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Download the (just-released) RICS Report here!   Attention to “sustainability” and energy efficiency rating schemes in the commercial property sector has increased rapidly during the past decade. In the UK, commercial properties have been certified under the BREEAM rating scheme since 1999, offering fertile ground to investigate the economic dynamics of “green” certification in the commercial property market. In this paper, we document that over the 2000-2009 period, the expanding supply of “green” buildings within a given London neighborhood had a positive impact on rents and prices in general, but reduced rents and prices for environmentally-certified real estate. The results suggest that there is a gentrification effect from “green” buildings. However, each additional “green” building decreases premiums for a certified building in the rental and transaction markets by one percent and four percent, respectively. In addition, controls for lease contract features, like contract length and the rent-free period, modify the impact of certification on rental prices.

Energy Literacy, Awareness, and Conservation Behavior of Residential Households

with Dirk Brounen and John M. Quigley, forthcoming Energy Economics

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The residential sector accounts for one-fifth of global energy consumption, resulting from the requirements to heat, cool, and light residential dwellings. It is therefore not surprising that energy efficiency in the residential market has gained importance in recent years. In this paper, we examine awareness, literacy and behavior of households with respect to their residential energy expenditures. Using a detailed survey of 1,721 Dutch households, we measure the extent to which consumers are aware of their energy consumption and whether they have taken measures to reduce their energy costs. Our results show that “energy literacy” and awareness among respondents is low: just 56 percent of the respondents are aware of their monthly charges for energy consumption, and 40 percent do not appropriately evaluate investment decisions in energy efficient equipment. We document that demographics and consumer attitudes towards energy conservation, but not energy literacy and awareness, have direct effects on behavior regarding heating and cooling of the home. The impact of a moderating factor, measured by thermostat settings, ultimately results in strong variation in the energy consumption of private consumers. Slideshow on this paper:  My colleague Dirk Brounen on this paper:

Residential Energy Use and Conservation: Economics and Demographics

with Dirk Brounen and John Quigley, 2012, European Economic Review

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Energy consumption in the residential sector offers an important opportunity for conserving resources. However, much of the current debate regarding energy efficiency in the housing market focuses on the physical and technical determinants of energy consumption, neglecting the role of the economic behavior of resident households. In this paper, we analyze the extent to which the use of gas and electricity is determined by the technical specifications of the dwelling as compared to the demographic characteristics of the occupying household, using a unique set of microeconomic data for a sample of more than 300,000 Dutch homes. The results show that residential gas consumption is determined principally by structural dwelling characteristics, such as the vintage, building type and quality of the home, while electricity consumption varies more directly with household composition, in particular income and family composition. Combining these results with projections on future economic and demographic trends, we find that, absent price increases for residential energy, the aging of the population and their increasing wealth will mostly offset improvements in the energy efficiency of the building stock resulting from policy interventions and natural revitalization.

The Diffusion of Energy Efficiency in Building

with Marquise McGraw and John Quigley, American Economic Review (2011)

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In this paper, we analyze the diffusion of buildings certified for energy efficiency across US property markets. Using a panel of 48 metropolitan areas (MSAs) observed over the last 15 years, we trace the diffusion of green building practices across the country. We then model the geographic patterns and dynamics of building certification, relating industry composition, changes in economic conditions, characteristics of the local commercial property market, and the presence of human capital, to the cross-sectional variation in energy-efficient building technologies and the diffusion of those technologies over time. Understanding the determinants and the rate at which energy-efficient building practices diffuse over space and time is important for designing policies to affect resource consumption in the built environment. The short version of the paper is forthcoming in the AEA Proceedings (May 2011) Download the long version of the paper here The Diffusion of Energy Efficiency in Building View more presentations from nilskok.

On the Economics of Energy Labels in the Housing Market

with Dirk Brounen, Journal of Environmental Economics and Management (2011)

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This paper reports the first evidence on the market adoption and economic implications of energy performance certificates implemented by the European Union. The results show that adoption rates are low and declining over time, coinciding with negative sentiment regarding the label in the popular media. Labels are clustered among smaller, post-war homes in neighborhoods with more difficult selling conditions. We also document that the adoption rates of energy labels have a positive relation to the number of “green” voters during the 2006 national elections. Within the sample of labeled homes, the energy label creates transparency in the energy performance of dwellings. Our analysis shows that consumers capitalize this information into the price of their prospective homes.

‘Environmental Performance: A Global View on Commercial Real Estate’

with Piet Eichholtz, Rob Bauer and Paulo Peneda.	Download
Research report on the environmental performance of public property companies and private property funds. Commissioned by APG Asset Management, PGGM Investments, and USS. More information at www.gresb.com	More information

'Who Rents Green: Ecological Responsiveness and Corporate Real Estate'

with Piet Eichholtz and John Quigley, July 2010

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This paper investigates the ecological responsiveness of firms and their motivations by analyzing the choices these firms make in occupying office space. We analyze the decisions of more than 11,000 tenants to choose office space in green buildings or in otherwise comparable, conventional buildings nearby. We find that corporations in the oil and banking industries, as well as non-profit organizations, are among the most prominent green tenants. After controlling for building quality and location, we document that firms in mining and construction and organizations in public administration, as well as organizations employing higher levels of human capital, are more likely to lease green office space. These empirical findings confirm the theoretical framework on competitiveness, legitimation, and environmental responsibility as important determinants for the ecological responsiveness of firms.

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How Green is Your Property Portfolio? The Global Real Estate Sustainability Benchmark

with Rob Bauer, Piet Eichholtz, and John Quigley, March 2011

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