OpinionInvesting

The power of renewables and energy efficiency in real estate

How do energy efficiency improvements increase property value?
  • Energy conservation, efficient lighting and building automation are now common -- so when discussing a new home, it's important to address energy efficiency.
  • Newer buildings often have higher efficiency standards while being built, even though some of them don't posses efficiency certification.
  • On top of saving monthly costs, many energy-saving upgrades can lessen outside noise.
  • Improve efficiency first, then add solar. Lowering energy demand could just mean less panels on the roof and less money upfront.

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Energy efficient homes in Washington D.C.

Energy efficient home in Washington D.C./ Flickr user NREL Solar Decathlon

Jacob Bayer is the founder and CEO of Luminext, a Brooklyn-based energy consulting firm

Keeping real estate in top shape and maintaining its value is one of the smartest things one can do with non-liquid assets. The process doesn’t require constant attention, but it does have its challenges. Over the past two decades, renewable and efficient energy have become important in both industry and quality of life, so naturally they started to affect real estate as well. 

Where’s the value?

As an energy consultant, I often get asked whether efficiency improvements actually improve property value. The answer is not as simple as one might think, and here’s why: What we consider an efficient structure has changed a lot over the years. New buildings often have higher efficiency standards while being built, even though some of them don’t posses efficiency certification.

People changed, buildings followed

Energy Star started its efficiency program in the early 90s, when being efficient was no one’s prime concern as energy was cheap and the threat of climate change was not as evident as it is now. Both residential and commercial structures were wasting a lot of energy, but that wasn’t considered a problem.

However, Energy Star and other organizations have managed to raise public awareness over the years, helping reduce over 2.5 billion tons of greenhouse gasses since 1992. These days, energy is more expensive, building regulations are stricter, and we are moving toward an age when wasting energy will simply become unaffordable.

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Energy conservation, efficient lighting and building automation are now common — so when discussing efficiency, it’s really important to address the current age of real estate.

Built before 2006? Get it certified

A 2013 study by Resources for the Future, an independent economic research organization, determined that improving efficiency on real estate built before 2006 actually adds to its value — if you have to have the certificates to prove it. Implementing energy efficiency measures will save you on energy with or without the certificate, but if you are aiming at increasing property value, get your certificates.

Structures built after 2006 are viewed quite differently by energy consultants. Since they are already more efficient, the measures one has to take to further improve efficiency or get certification cost more and, in many cases, the ends simply don’t justify the means. From a property value perspective, the additional investment in these situations rarely pays off.

Unexpected perks

Energy efficiency improvements offer some unexpected advantages: An extra layer of thermal insulation on outer walls doubles as sound insulation. New York City is busy, and I know many who would pay extra just to remove the constant hum of the city from their ears. Adding multi-chamber windows also has a noise dampening effect. Actually, the more you invest in energy conservation, the quieter your space becomes.

Why Solar?

When it comes to renewables and real estate, the rule is more universal: Adding renewables to almost any property adds value to it. Luminext consults mostly on solar solutions, so speaking solely from a solar perspective: Adding panels to an estate increases the chances of selling at premium.

One may ask why we picked solar out of so many renewables. The answer is quite simple: convenience! There are a bunch of solar incentives available right now that make it easy to invest and get a fast return. Additionally, no other renewable resource can match the quick and easy deployment of solar solutions.

Proof

A 2015 study by the University of California, Berkley that was supported by the U.S. Department Energy determined homeowners who installed enough solar capacities to cover their monthly energy needs get higher prices when trying to sell their property. The difference in sale price can potentially be as big as the initial investment, but if you install solar and stick with it for three to five years, you’ll already have returned your initial investment via energy savings.

What about adding both?

If efficiency can increase value in some cases and renewables usually add value, can we conclude that adding both would have double the effect? Well, probably, no! Even though they individually raise a home’s market price, there is a limit to how much it can grow.

Real estate has many other factors that influence price, like location, size and age. At the end of the day, an extra bedroom might be more appealing than all these energy improvements put together. However, for those who don’t plan on selling anytime soon, improving efficiency and adding renewables might be the smartest move.

Our consultancy always recommends improving efficiency first, and then adding solar, as lowering energy demand could just mean less panels on the roof and less money upfront.