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The Economic Value of the Green Building

  • The values of real estates with high environmental values must be easy to understand for the various market participants including inhabitants, owners, developers and investors in order to be evaluated highly in the market. But there are not so many research results on economic analysis of market values with high environment performance. Are real estates with high environmental values evaluated highly in the market?
  • In the "Workshop on the Style of the Property Market with Emphasis on Environmental Values" in 2009, economic analysis using two methods have been carried out from two points of view: how the economic value of green property reflected on its marlet price, and how users are evaluating it.

Analysis cases related to the economic values of domestic green properties

Two economic analysis methods, the hedonic approach and Contingent Valuation Method (CVM), have been used to analyse how the added values of enviroment-conscious properties (green properties) are evaluated in the Japanese market.

Economic analysis using offer prices of newly built condominiums (economic analysis by hedonic approach)

The offer prizes of newly built condominiums as the resukts of the analysis by hedonic approach are higher by a few percents when compared with the results of the presentation of environmental performance of condominiums of Tokyo or municipal CASBEE (e.g. Yokohama City, Kawasaki City).

Figure 1. The resukts of the analysis by hedonic approach

Items of the analysis by hedonic approach Estimation result (tentative)
Price of condominiums: (A) Condominiums the results of the presentation of environmental performance of condominiums of Tokyo and (B) those that are not onjectives of reporting A is larger than B
by 5.9 percents.
Price of condominiums in Yokohama City or Kawasaki City : (A) Condominiums the results of municipal CASBEEand (B) those that are not onjectives of reporting A is larger than B
by 2.9 percents.
Price of condominiums in Osaka City, Kyoto City or Kobe City : (A) Condominiums the results of municipal CASBEE and (B) those that are not onjectives of reporting A is larger than B
by 0.4 percents.

Measurement of the prices that people plannig to purchase housing and office workers are willing to pay (analysis by CVM)pdf

The analysis of the property users (people plannig to purchase housing and office workers) by Contingent Valuation Method (CVM) was carried out by measuring their value judgment using prices they are willing to pay. The results show that they are willing to pay a certain amount of money for obtaining certification of environmental performance, reduction of carbon dioxide at home, maintenance of biodiversity, improvement of green landscape and reduction of environmental load. It can be inferred that the added values of green properties are evaluated highly.

Figure 2. The resukts of the analysis by CVM

Items of the analysis by CVM Items for estimation of prices people are willing to pay Measurement results of prices people are willing to pay
Housing
(People planning to purchase home)
1. Reduction of carbon dioxide at home Additional amount of money people are willing to pay for newly built condominiums that reduces 25 percents of carbon oxide per tenant when compared with that in 1990 (assuming that the utility costs are decreased by 1.2 million Yen in twenty years) Price people are willing to pay is ca. 1.95 million Yen (price people are willing to pay for carbon dioxide reduction is ca. 750 thousands Yen connsidering the decrease in utility costs)
2. Improvement of biodiversity in residential zones Additional amount of money people are willing to pay for newly built condominiums with devices for maintaining biodiversity (percentage to the price of condominiums to be bought) Ca. 9.3 percents of the price of the house that each respondent is planning to buy
3. Certification system of environmental performance of housing Additional amount of money people are willing to pay for newly built condominiums with good environmental performance and environmental performance certification by third-party certification organization (percentage to the price of condominiums to be bought) Ca. 6.7 percents of the price of the house that each respondent is planning to buy
4. Maintenance and improvement of housing landscape Amount of money to be paid monthly for maintaining and managing green that contributes to the improvement of landscape when the regional agreement on promoting landscape improvement is reached (taking the situation after purchase into consideration) (twenty years from now on) ca. 4,400 Yen per month
Office
(Office workers)
5. Reduction of environmental loads of office buildings Amount of money to be paid monthly by people working in buildings with high performance on reduction of environmetal loads (carbon oxide reduction by 25 percents when compared with that in 1990) ca. 2,100 Yen per month
6. Certification system of environmental performance of office buildings Amount of money to be paid monthly by people working in buildings with environmental performance certification by third-party certification organization (ten years from now on) ca. 1,900 Yen per month

Notes)
The analysis by the hedonic approach is based on: Jiro Yoshida & Chihiro Shimizu, "The impact of green buildings on prices of real estates: Case study of newly built condominiums in Japan", CSIS Discussion Paper (University of Toko), No. 106 (http://www.csis.u-tokyo.ac.jp/dp/106.pdf). We have used the data that contain both prices and environmental performance evaluation results. For prices of condominiums, we used the data of MRC on prices of newly built condominiums (offer prices). The results of the presentation of environmental performance of condominiums of Tokyo are published by the Tokyo City, ad that of the municipal CASBEE by Yokohama City and Kawasaki City. Estimation of prices they are willing to pay is based on: Koichi Kuriyama, "Using CVM Version 3.1with Excel" (http://homepage1.nifty.com/kkuri/).

DATA

Overseas case study of analysis of economic values of green buildings

A case study in USA is analyzing the market values of buildigs that have obtained LEED and Energy STAR certification ("‘Doing Well by Doing Good?’ Green Office Buildings," John M. Quigley et al.).

‘Doing Well by Doing Good?’ Green Office Buildings (Quigley et al., August 2009)

Overview of "‘Doing Well by Doing Good?’ Green Office Buildings"
  • The characteristics and rental rates (rents) of properties that have obtained LEED and Energy STAR certification are compared with those of general buildings registered in commercial databases. The data cosists of 694 certified gren properties and 7,489 nongreen (general) buildings that are within 1/4 miles (400m) from one of the green buildings.
  • Analysis is based on the regression model of least-square method.
  • It is shown that the rents of green buildings are higher than those of the general buildings in the neighborhood by ca. two percents.
  • The effective rents (rents adjusted based on occupancy rate) of green buildings are higher than those of the general buildings in the neighborhood by ca. six percents.
  • The profits gained by converting 7,489 nongreen buildings to green ones throughout their whole life cycle is estimated to be more than five million dollars based on the calculation using the current rates of capitalization.