Energy Efficiency & Building Technology

• Determining the Market Valuation of Energy Efficiency in Homes
• Marketing the ENERGY STAR Program to Promote Energy Efficiency
• Advancing Quality and Energy Efficiency in the U.S. Housing Stock with the Partnership for Advancing Technology in Housing Program

Challenge Solution Benefit

Challenge
The U.S. Environmental Protection Agency (EPA), aiming to induce homebuyers to purchase energy-efficient homes, sought to demonstrate the substantial economic benefits of these homes and, consequently, the soundness of homebuyer decisions to invest in them. To this end, EPA's ENERGY STAR Homes program engaged ICF International to determine whether and how a home's energy efficiency could affect its market value.

Solution
EPA believed this question could be answered through the identification and review of published research studies examining the effect of energy efficiency on home value. Our researchers discovered, however, that most of these studies were small-sample, single-location studies from the late 1970s. In response, ICF International proposed conducting an original analysis of over 40,000 American Housing Survey (AHS) data observations to provide stronger, more recent evidence. Previously published research suggested that market values for energy-efficient homes reflect a rational trade-off between homebuyers' fuel savings and their after-tax mortgage interest costs. ICF International used the AHS data to explicitly test the "rational market hypothesis."

After controlling for factors such as the number of rooms and location of the house, our researchers produced a regression analysis using a hedonic pricing model. Our team used these statistical results to conclude that home value increases by $20 for every $1 reduction in annual utility bills, consistent with after-tax mortgage interest rates of about five percent from 1991 through 1996. What this indicates is that people will pay up to $20 more for a house for every $1 in yearly fuel bill savings due to energy efficiency. The extra $20 will cost them an extra $1 per year in after-tax mortgage interest costs (assuming a mortgage rate of about 7% and a mortgage interest tax deduction that allows about 2% of that 7% to be offset by lower income taxes), but this extra tax dollar is then offset by the $1 in fuel savings. The analysis also implies that buyers can end up with extra cash in their pockets if they can pay less than $20 more for every $1 of yearly fuel bill reductions. On average, the real estate market is recognizing this trade-off as people bid up the price of energy-efficient homes relative to less-efficient homes.

Benefit

• EPA received documented analysis demonstrating the benefits of energy-efficient homes and the soundness of homebuyer investment in these homes. Results of the ICF International analysis were peer-reviewed and published in The Appraisal Journal: "Evidence of Rational Market Valuations for Home Energy Efficiency," October 1998.
• ICF International was contracted to conduct follow-up research to assess the value of energy-efficient windows. We provided EPA with an analysis of whether fuel savings associated with energy-efficient windows can substantially explain reported market values for window replacement. Results of this analysis were also published in The Appraisal Journal: "More Evidence of Rational Market Values for Home Energy Efficiency," October 1999.

View our Research & Analysis page for more information.

Challenge Solution Benefit

Challenge
Rather than use government regulation or subsidies, the U.S. Environmental Protection Agency (EPA) sought to promote energy efficiency through voluntary compliance and improvement of the markets promoting energy-efficient technologies. Although energy-efficient housing can reduce the cost of homeownership (while also helping the environment), consumer acceptance of energy-efficient products was not building as quickly as desired. EPA therefore wanted to know what it would take to motivate homebuilders to more readily develop and homebuyers to purchase energy-efficient housing.

Solution
ICF International took a holistic approach to identify barriers to consumer and industry acceptance of energy-efficient homes. Our team first researched the needs and preferences of builders, lenders, buyers, inspectors, appraisers, and real estate agents in the home building and buying process. Based on our analysis, we identified factors that were hindering market acceptance of energy efficiency in housing. With these findings, we then identified approaches that could lessen these barriers and correct the negative market signals consumers were receiving. Based on our research, ICF International did the following:

• Refined publicity campaigns to raise awareness of energy efficiency in homes
• Developed and distributed software marketing tools
• Designed and prepared training for builders
• Published research in refereed journals
• Provided technical assistance to builders who wanted to start developing energy-efficient housing

Benefit

• Market acceptance of energy-efficient housing continues to grow.
• Public awareness of the benefits of energy-efficient purchases has been enhanced.
• Research results substantiating the benefits of energy-efficient homes is available to (and is now being used by a variety of organizations promoting energy-efficiency).

Challenge Solution Benefit

Challenge
The PATH Program is a voluntary initiative led by the U.S. Department of Housing and Urban Development (HUD). This initiative seeks to accelerate the creation and use of technology to improve the quality, durability, environmental performance, energy efficiency, and affordability of the U.S. housing stock. With an ambitious task and a constrained timetable, PATH needed assistance in implementing and monitoring the program.

Solution
ICF International was engaged to develop the PATH strategy, implement tactics for achieving PATH goals, and facilitate coordination of PATH partners. Our work has included managing a strategic analysis, a program evaluation, and operation analyses for PATH. Our focus is the energy efficiency, durability, and safety for new and existing housing, as well as the potential benefits of coordinating strategies with HUD's lead-hazard reduction efforts, the U.S. Environmental Protection Agency's ENERGY STAR Homes, and the U.S. Department of Energy's weatherization assistance. We have also developed a database that tracks housing upgrade funding amounts for each jurisdiction and sources and strategies for promoting integrated efforts in target markets. To support and implement the strategic plan, HUD also asked ICF International to develop baseline data and measurement criteria for evaluating progress toward each PATH goal.

Benefit

• PATH now has research and an analysis of representative national data to characterize baseline and interim performance measures. These performance measures will be used to examine progress toward PATH goals.
• PATH has a detailed strategic action plan for achieving its overall program goals as well as a plan to achieve specific goals in existing homes.
• PATH was able to achieve consensus about program goals and priorities across a diverse group of public and private partners.