Research & Analysis

• Evaluating the Economic Costs and Benefits for the Lead-Based Paint Hazard Control Rule
• Determining the Market Valuation of Energy Efficiency in Homes
• Measuring Public Awareness of Lead-Based Paint Hazards Using Current Population Survey and American Housing Survey Data

Challenge Solution Benefit

Challenge
As part of the process of developing its new consolidated regulation on addressing lead-based paint in assisted housing, HUD was required to quantify the impact of the regulation. This necessitated quantifying the costs and benefits of many uncertain or unknown factors. On the cost side, it required estimating the cost of lead hazard evaluation and reduction activities—activities for which there was only a small market and therefore little cost data. On the benefit side, it meant estimating the benefit of healthier children—from fewer medical interventions to higher lifetime earnings. HUD turned to ICF International to address this complex issue by estimating costs and benefits for specific types of hazard evaluation and reduction activities.

Solution
ICF International first developed a unit benefit analysis that built on existing published research for estimating the monetary benefits of reducing blood lead levels in children. By developing a methodology for cost-benefit analysis and conducting contractor interviews, ICF International was able to document costs for lead-based paint (LBP) hazard evaluation and reduction demonstration projects and make unit cost estimates. We also calculated the incremental benefits attributable to specific hazard reduction activities in housing units. These calculations were derived from an analysis of recent research data and academic literature that correlated specific LBP hazards and blood lead levels. We next examined regulatory requirements and available survey data to determine the frequency of these unit costs and benefits. We analyzed this data with a model that calculated the total program costs and benefits for each HUD program by age of housing unit. We also analyzed the present value of fuel bill savings associated with using high-efficiency windows to replace windows with lead paint.

Benefit

• The HUD rule received the necessary clearance for its economic analysis from the Office of Management and Budget (OMB). This clearance was the result of the demonstrated net benefit of the Lead Paint Hazard Control rule when managing lead hazards in federally assisted housing. OMB clearance was required before the final rule could take effect.
• The unit cost and benefit model we developed has subsequently been used in other HUD analyses, including the cost and benefit estimates for a proposed federal strategy that aims to eliminate childhood lead poisoning by the year 2010.

View our Lead-Based Paint expertise page for more information about our lead-based paint work.

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 Building Energy Analytics and Policy page for more information.

Challenge Solution Benefit

Challenge
Some pre-1978 housing units are at risk for lead-based paint (LBP) contamination. The Lead Based Paint Disclosure rule requires that sellers, landlords, and property managers of these units inform buyers and future occupants of this risk. To further awareness of LBP health hazards, the U.S. Department of Housing and Urban Development (HUD) and the U.S. Environmental Protection Agency have sponsored a series of public awareness campaigns. HUD was required to report on the progress of LBP hazard awareness from these efforts as part of the rule-making process. HUD asked ICF International for assistance.

Solution
ICF International responded with a report that tracks LBP hazard awareness over time. Our analysis used three years of the CPS data, including the Lead Based Paint Supplement—an additional set of CPS questions that asks about LBP awareness. Our work also included a similar analysis using the AHS. We released our preliminary findings to an outside panel of experts and incorporated the panel's comments into our final report.

Benefit
As a result of ICF International's efforts on this project, HUD received the following:

• Obtained a better understanding of the level of LBP hazard awareness
• Obtained a better understanding of how awareness varies among different demographic groups
• Will understand how awareness is evolving over time
• Will know how to better target LBP awareness campaigns in the future

View our Lead-Based Paint page for more information.