Fisher Center for Real Estate and Urban Economics

U.S. buildings consume almost 39% of the total U.S. energy usage, and appear inefficient compared to the available technology and the efficiency of European structures. Government building codes, disclosure requirements, and fiscal subsidies have been the primary instruments used to stimulate the adoption of energy-efficient technology, but have significant limitations. In this paper, we instead look at market mechanisms to stimulate voluntary private sector energy-efficient investments. We argue that the failure of commercial mortgage lenders to take energy-efficiency into account is primarily the result of insufficient information to connect high and volatile energy prices to mortgage default. As a first step in rectifying this failing, we use a Monte Carlo methodology, based on stochastic energy prices, to provide quantitative measures—both expected values and the range of variability—of the impact of energy prices on measures of possible mortgage default.