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New Research on the Economics of Green Buildings

July 10, 2008 By Adam Hengels

There is little reliable research into the economic returns of high-performance (green) features of buildings, but Professor John Quigley plans to release his groundbreaking research on the subject this Fall.

I am very excited to learn this news, and will certainly look forward to reviewing the results. Especially if implementation could improve my own development practice.

Professor John Quigley Discovers Green Building Pays Greenbacks

Everyone’s talking about “going green,” but in the building industry, the cost of investment has been difficult to justify – until now. Haas Professor John Quigley has undertaken the first systematic analysis of environmentally sustainable construction and its economic impact on the real estate market.

In the working paper, “Doing Well by Doing Good? Green Office Buildings,” Quigley and co-authors Piet Eichholtz and Nils Kok of Maastricht University, Netherlands, determined investments in proven green building practices lead to sizable increases in a property’s market value and effective rent, the average per-square-foot rent paid.

Green-certified buildings produced an 8.5 percent increase in effective rent. The additional annual rent for going green amounts to almost $309,000, based on the average size building. Likewise, the incremental value of a green structure is an estimated $5.1 million more than an ordinary building. The study did not calculate the incremental cost of investing in green building practices.

When asked why he decided to research the economic value of green-certified buildings, Quigley, the I. Donald Terner Distinguished Professor in Affordable Housing and Urban Policy, replied, “To see if this was hype or real.” While Quigley’s work concludes the resulting profitability is real, he is continuing to research why green commercial buildings produce higher rents and market value by using engineering data from the Environmental Protection Agency (EPA).

The research focused solely on commercial property. It first identified 694 buildings, green certified by the federal government’s Energy Star program or the private LEED (Leadership in Energy and Environmental Design) standard. The control group consisted of nearly 7,500 other office buildings within a quarter-mile of the certified buildings.

Quigley was surprised at the results. “If I were an owner of commercial property, I would investigate the cost of attaining an Energy Star rating. If that is at all a reasonable investment, I would think about doing it,” he says.

His research offers quantitative evidence for builders and investors who value the social responsibility factors of green buildings but, up to now, lacked data about the financial performance of these investments. Quigley says, “Finding there is a linkage between energy and profitability of rental properties is potentially significant and leads to more extensive uses of this information.”

In July, Quigley will be attending a conference in Istanbul, Turkey, to extend his study of the economic effects of green building to Europe and the Middle East. The complete document, “Doing Well by Doing Good? Green Office Buildings,” will be available in fall 2008.

[tip of the hat to Matthew Kahn: John Quigley Goes Green for the lead]

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Filed Under: Economics, Environment Tagged With: development, energy, Environmental, green, Haas, John Quigley, leed, research

About Adam Hengels

Adam is passionate about urbanism, and founded this site in 2007, after realizing that classical liberals and urbanists actually share many objectives, despite being at odds in many spheres of the intellectual discussion. His mission is to improve the urban experience, and overcome obstacles that prevent aspiring city dwellers from living where they want. http://www.marketurbanism.com/adam-hengels/

Comments

  1. Urbanist says

    October 30, 2008 at 10:11 am

    Here is a link to another interesting study on the same topic by Franz Fuerst and Pat McAllister:

    Green Noise or Green Value? Measuring the Price Effects of Environmental Certification in Commercial Buildings
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1140409

    Their results are somewhat similar but they also analyze data from sales transactions and find significant premia in green building transactions as well.

  2. Urbanist says

    October 30, 2008 at 10:11 am

    Here is a link to another interesting study on the same topic by Franz Fuerst and Pat McAllister:

    Green Noise or Green Value? Measuring the Price Effects of Environmental Certification in Commercial Buildings
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1140409

    Their results are somewhat similar but they also analyze data from sales transactions and find significant premia in green building transactions as well.

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