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Open Access Publications from the University of California

Energy Codes and the Landlord-Tenant Problem

  • Author(s): Papineau, Maya
  • et al.

This paper assesses whether commercial real estate participants are willing to pay a premium for an energy efficient building that has not received a green label. I utilize a unique dataset of detailed building-level observations and a spatial semiparametric matching framework that exploits quasi-experimental state-by-year variation in the implementation of mandatory building energy codes, to estimate selling price and rent premiums for a more stringent code. I find that buildings constructed under a more stringent energy code are associated with rent and selling price premiums of approximately 2.7% and 10%, respectively, compared to buildings constructed just before the code came into effect. When tenants pay directly for utilities, buildings constructed under an energy code are associated with 5.7% higher rents. These premiums are consistent with complete capitalization of estimated building-level savings, and therefore cast doubt on the existence of an energy efficiency gap resulting from adverse selection between landlords and tenants.

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