Housing market capitalization of energy-saving durable good investments

Technical Report · Wed Jul 01 04:00:00 EDT 1981

OSTI ID:6471833

Johnson, R C

Rising energy prices provide an economic incentive to substitute capital for fuel in production processes, where the extent of substitution that is feasible is constrained by existing technologies. In the residential sector, such capital-fuel substitution depends upon the willingness of builders and homeowners to invest in the durable goods that make the house energy conserving. Since these durable goods become permanently attached to the dwelling unit and since ownership is likely to change over the lifetime of the house, the incentive to carry out an investment in energy conservation depends critically upon the efficiency of the housing market in capitalizing the financial benefits of future fuel savings. In this study of the Knoxville housing market during 1978, an hedonic price equation of the form P = f(U, X) was estimated, where P is the sale price of the house, U is the annual utility (fuel) bill, and X is a vector of structural, locational, and neighborhood attributes. The estimated hedonic price index reveals that, holding other influences constant, the marginal effect of a one-dollar savings in the annual fuel bill is to increase the sale price of the house by approximately $21. Estimates of implicit market discount rates, under various assumptions about fuel escalation rates and remaining lifetimes of the houses, indicate that the housing market performed in a manner consistent with a social discount rate of about 10 percent. The results of the study do not show whether or not investment in energy conservation is proceeding at a socially optimum rate, only that the housing market, in this location and period of time, did operate efficiently in capitalizing the investments.

• Research Organization: Oak Ridge National Lab., TN (USA)
• DOE Contract Number: W-7405-ENG-26
• OSTI ID: 6471833
• Report Number(s): ORNL/CON-74; ON: DE81027543
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
291000 -- Energy Planning & Policy-- Conservation
32 ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION
320100* -- Energy Conservation
Consumption
& Utilization-- Buildings
BUILDINGS
CAPITAL
CONSUMER PRODUCTS
DATA
EFFICIENCY
ENERGY CONSERVATION
ENERGY EFFICIENCY
FINANCIAL INCENTIVES
HOUSES
INFORMATION
INTEREST RATE
INVESTMENT
MARKET
NORTH AMERICA
PRICES
RESIDENTIAL BUILDINGS
SOUTHEAST REGION
TENNESSEE
USA