Tuesday, March 1, 2016

Green luxury goods? The economics of eco-labels in the Japanese housing market

•  The pricing of green labels is analysed using a large sample of condominium transactions in the Tokyo housing market.
•  A significant price premium for the green label is found during the study period (controlling for other characteristics).
•  Higher income households exhibit a higher willingness to pay for green features.

Using a unique transaction database of condominiums in the Tokyo metropolitan area and a hedonic analytical framework, we find that eco-labelled buildings command a small but significant premium on both the asking and transaction prices. This finding is consistent with results from other countries but in contrast to these studies, the present analysis also incorporates buyer characteristics which provide further information on the sources of demand for eco-labelled real estate. A separate estimation by subgroups reveals that the price premium is primarily driven by wealthier households that exhibit a higher willingness-to-pay for eco-labelled condominiums, both as a total amount and as a fraction of the total sales price. Less affluent households are also shown to pay higher prices for the eco label but the effect is less pronounced. The results indicate that capitalised utility bill savings are likely to account for a large proportion of the observed premium but the higher premium paid by affluent households suggests that more intangible benefits of living in a green building may also play a role.
An early study by Dian and Miranowski (1989)[4] showed that increasing energy efficiency increases housing prices. Banfi et al. (2005)[1] have published research findings indicating that rental housing tenants are prepared to pay up to 13% higher rent for buildings that have adopted energy-saving measures. Similarly, Fuerst et al (2013)[11] found a price effect of higher energy performance in the British housing market for a large sample of sales transactions in the 1995-2011 time period, indicating a 14% premium of the highest band of the Energy Performance Certificate (EPC) over the lowest band. They also find that this effect tends to be larger for terraced dwellings and flats compared to detached and semi-detached houses. Earlier, Brounen and Kok (2011)[2] had examined the relationship between EPC ratings and sale price for 31,993 residential sale prices in 2008-9 in the Netherlands and report significant premiums for more energy-efficient buildings. Although their dataset contains a large number of control variables, the adoption rate of EPCs in the Dutch housing market was relatively low at the time (7-25% depending on the year) which may limit their findings. Similarly, Zheng and Kahn (2008)[28] and Zheng, Kahn and Deng (2012)[29] find significant price premia for ’green’ properties in the Chinese housing market and a study by Deng, Li and Quigley (2012)[3] finds substantial economic returns to green buildings in Singapore. Kok and Kahn (2012)[16] as well as Hyland et al (2013)[13] arrive at similar conclusions for the Californian and the Irish housing market respectively.
The average asking price has a value of 45.49 million yen, the average value for the actual transaction price was approximately 1.5 million yen lower, at 43.91 million....

The baseline estimation (Model 1) reveals that the average asking price for a condominium with a green label (two or three stars out of three) is 6% higher compared to a similar condominium without a label. In other words, the developers of condominiums with superior environmental performance offered them at a marginally but significantly higher price. However, the actual achieved transaction prices are more relevant to our central research hypothesis about the existence of a green premium. The general transaction price variable indicates that transaction prices were on average 3.5% lower than asking prices in the observed period 2001-2011. Green-labelled properties transacted with another marginal discount of 0.9%, with the green transaction price being 4.3% less than the asking price for labelled properties. The total green premium actually observed in the residential sales market therefore reduces to 1.6% (6%3.5%0.9%). Although relatively small in magnitude, this price premium is statistically significant.
Tokyo green-life apartment building:  

The effects of announcement of green policies on equity portfolios: Evidence from the United Kingdom

Purpose  – This paper aims to investigate the impact of 75 announcements of environmental policies on British equities over the period 2003 to 2012. In particular, the research has the following specific objectives: finding out whether there is wealth creation/destruction for investors as a result of the announcements of green policies and identifying changes in risk structure following the introduction of green policies.

Design/methodology/approach  – Using event study methodology and non-parametric tests, the authors attempt to find out whether announcements of environmental/sustainability policies are value constructive or destructive for equity investors. The CAPM is fitted with interaction variables to measure the change in systematic risk following announcements.

Findings – The results show that the UK market is particularly sensitive to domestic, international and nuclear announcements. Cumulative abnormal returns in the range of 30-40 per cent were recorded in certain sectors. Consistent with the emerging literature, the authors observe that environmental policies induce changes in the systematic risk of businesses, both in the short run and the long run.

Originality/value – To the best of authors’ knowledge, the literature does not provide any answer as to how the risk and return of British equity portfolios change following the announcement of green policies in the aftermath of the Kyoto Protocol on climate change. Furthermore, the literature does not differentiate among various categories of announcements (domestic, international and nuclear). Therefore, this paper bridges the gap in the literature on these two grounds.

by Vikash Ramiah, Thomas Morris, Imad Moosa, Michael Gangemi and Louise Puican all of the School of Economics, Finance and Marketing, RMIT University, Melbourne, Australia 
Managerial Auditing Journal http://www.emeraldinsight.com/loi/maj
Publisher: Emerald Group Publishing Limited http://www.emeraldinsight.com
Volume 31, Issue 2; pages 138 - 155
Special Issue - Accounting for a sustainable future; Editors: Dr. Gillian Vesty and Dr. Steven Dellaportas
Keywords: Systematic risk, Event study, Abnormal returns, Diamond risk, Environmental regulation, Green policies

Welfare effects of mining externalities: a combined travel cost and contingent behaviour study

This paper applied the combination of travel cost method and contingent behaviour method to estimate the change in the recreational use value of the tourism site as a result of the adjacent mine implementation. The externalities considered were the visibility of the mine to the highest peaks of the area, traffic and noise effects, impacts on endangered aquatic species, and impacts on recreational possibilities. The data, containing five observations from each respondent, were analysed with the negative binomial count data model. The results show the sensitivity of visitors to the geographical scope and magnitude of mining externalities and to the visibility of the mine to the highest peaks. Moreover, the number of intended visits to the area correlates with gender, age, and recreational activities. Compared to an average visitor of the site, anglers, paddlers, and overnight hikers were subject to larger losses in welfare. Alternative scenarios on future mining externalities correspond to 29%–86% reductions in annual number of trips, corresponding to an annual welfare loss of 196–577€ for an average tourist.
by Anna-Kaisa Kosenius & Paula Horne both of Pellervo Economic Research PTT, Eerikinkatu 28A, FI-00180 Helsinki, Finland
Journal of Environmental Economics and Policy http://www.tandfonline.com/loi/teep20#.VtMnMdCzDC8
Publishing online: November 7, 2015
Keywords: Contingent behaviour, travel cost method, mining, externalities, national parks, recreation, nature-based tourism,  environmental valuation
An earlier version of the paper is currently available free of charge at http://www.webmeets.com/files/papers/eaere/2015/750/eaere2015%20mining%20externalities.pdf

Variations in the Implicit Pricing of Energy Performance by Dwelling Type and Tenure: A Study of Wales

This paper investigates the price effect of EPC ratings on the residential dwelling prices in Wales. It examines the capitalisation of energy efficiency ratings into house prices using two approaches. The first adopts a cross-sectional framework to investigate the effect of EPC band (and EPC rating) on a large sample of dwelling transactions. The second approach is based on a repeat-sales methodology to examine the impact of EPC band and rating on house price appreciation. The results show that, controlling for other price influencing dwelling characteristics, EPC band does affect house prices. This observed influence of EPC on price may not be a result of energy performance alone; the effect may be due to non-energy related benefits associated with certain types, specifications and ages of dwellings or there may be unobserved quality differences unrelated to energy performance such as better quality fittings and materials. An analysis of the private rental segment reveals that, in contrast to the general market, low-EPC rated properties were not traded at a significant discount. This suggests a lower implicit price for energy efficiency when the owner is not responsible for covering the cost of energy in a dwelling.
Turning to the variable of interest, EPC rating, and using band D as the ‘hold-out’ category, the pattern of price effects is consistent with a positive relationship between energy performance rating and sale price. For the whole sample model there are significant positive premiums for dwellings in bands A and B (11.3%) or C (2.1%) compared to dwellings in band D. For dwellings in EPC bands lower than D there are statistically significant discounts; -2.1% for band E dwellings, -4.7% for band F dwellings and -7.2% for dwellings in band G. The price impact varies depending on the type of property: a terraced dwelling rated B has sold for approximately 17.1% more per square metre than a terraced dwelling EPC rated D. The comparable figure for a semi-detached dwelling is 8.2%.  Relative to the other dwelling types detached dwellings are likely to display the greatest degree of heterogeneity, particularly in rural areas. Recognising this, detached dwellings were categorised as urban or rural. Table 2 shows that the price impact is more marked and for urban dwellings in bands E and F than for rural dwellings in the same bands. This might be a result of purchasers willing to pay
higher prices for rural dwellings (perhaps because of their character and setting) regardless of their energy performance. In the last column in Table 3 the results of the estimation when energy efficiency score, rather than band, is used as the independent variable are displayed. The expected positive relationship between energy efficiency and dwelling sale price is also found.

Picture 2 
These estimated price premiums are much higher than for the comparable study conducted in England (Fuerst et al, 2015). One reason for this effect is the lower average house price in Wales. The findings for Wales are very similar to the results for the North East region of England where significant positive premiums were estimated for dwellings in bands A and B (14.4%) or C (2.7%) compared to dwellings in band D and statistically significant discounts for dwellings in band E (-2.5%) and F (-6.0%).