Solar Home Price Premium

http://www.futureofcapitalism.com/2011/07/solar-home-price-premium

"Understanding the Solar Home Price Premium: Electricity Generation and 'Green' Social Status" is the title of a new working paper from the National Bureau of Economic Research, written by two economists from the University of California, Los Angeles and two from the University of California, San Diego. Highlights:

Judged on strictly efficiency criteria (foregone electricity expenditure per dollar of investment), solar panels may be a bad investment. Borenstein (2008) finds that the cost of a solar photovoltaic system is about 80 percent greater than the value of the electricity it will produce.

Solar panels bundle both investment opportunities (the net present value of the flow of electricity they generate) and conspicuous consumption opportunities (that it is common knowledge that your home is "green"). ...Because the presence of solar panels on most roofs is readily apparent, the solar home owner knows that others in the same community know that the home owner has solar panels. This community level re-enforcement may further increase the demand for this green product. This "observability" is likely to be even more valued in an environmentalist community (i.e a Berkeley) than in a community that dismisses climate change concerns.

The economists don't really get into the balancing or unintended consequence effect, but they do note that "compared to homes sold without solar, those sold with solar are bigger, have more bedrooms and bathrooms, and are more likely to have a view and a pool, among various other characteristics... Neighborhoods where solar panels have been installed are richer, whiter, more educated, have more registered Democrats, and have larger homes than the 103 of 478 census tracts where no solar was installed." Again, they don't get into this, but it raises the public policy question of whether solar subsidies are then essentially reverse-Robin Hoods, because these subsidies tax the people in smaller homes and poorer neighborhoods to subsidize the bigger homes (that, other things held equal, consume more energy) of the richer people.

The authors also observe "a positive relationship between the capitalization rate and Prius penetration, Green party registration share, Democrat registration share, median income, and education, as well as a negative relationship between capitalization and truck ownership." In other words, your investment in a solar panel is worth more, in terms of resale value, if your home is in a neighborhood with a lot of Democrats and Toyota Priuses than if it is in a neighborhood with a lot of pickup trucks.

by Ira Stoll  |  Jul 11, 2011 at 10:01 am Related Topics:  Energy, Income Inequality, Reverse Robin-Hood receive the latest by email: subscribe to the free futureofcapitalism.com mailing list