Continuing the topic from the last post, I noticed that many solar installers quote the results of a US study published in The Appraisal Journal: for every $1 reduction in annual utility bills, the value of your home increases by about $20. After some digging, I found it online. The original study is “Evidence of Rational Market Valuations for Home Energy Efficiency” (PDF) and it has a follow-up “More Evidence of Rational Market Valuations for Home Energy Efficiency” (PDF).
Now, those studies are pretty dry and I only skimmed them, so I cannot have an educated opinion. I only have a few observations:
- on the bright side, one of the premises of the study seems to be net metering; as we’ve seen, microFIT is much better, albeit for only 20 years
- the studies date to 1998/1999, so they may be outdated
- the studies are US-specific. I don’t know if their premises are applicable to Canada. I saw some references to after-tax mortgage rates and such. As some of you probably know,our southern neighbors can deduct mortgage interest from their taxes. This may or may not make a big difference.
- as the recent couple of years have proved, the US and Canadian real-estate markets can behave differently
If I understand it right, their reasoning seems to be that is that if $1,000/year is NOT spent on energy bills, that amount is available to be spent on a larger mortgage payment (presumably for the increased cost of the house due to energy-related improvements) without any effect to the cost of living. The amount of mortgage that can be supported by those $1,000 depends on mortgage rates. Thus for their 5% long-time average considered, results an improvement of $20000, or a 1:20 ratio.
The study tries to give an answer for the US market in the ’90s. Is the answer valid for 2010 or 2020’s Ontario? I don’t know. I fully agree with their position that “in a rational, competitive market, the value of energy efficiency, like the value of any other housing characteristic, should reflect its marginal value to home buyers.” However, the important question is if the market is really rational. If it is, how come US had such a real-estate bubble?
I didn’t sell my house yet, so I don’t have a first hand experience with buyers. However, when I was one of them and bought my house I didn’t ask for the utility bills. Instead, I thoroughly evaluated the neighborhood, the schools, the nearby shops and so on. But that’s only my limited experience… or maybe inexperience.
Another report, newer (2004) and directly related to the solar PV installations, can be found here. Its target market is California, where the electricity rates are way higher than in Ontario, starting at 11c/kWh and going up to 22c/kWh, thus making the solar power more attractive. Even though some parts (especially the financial ones) will certainly not apply to Ontario, I recommend it to anyone considering solar PV. In only 4 pages, the presentation touches many facets of the problem and it’s not trying to hide under the carpet the uncomfortable questions. It even has a reference to an article on the Toronto market. Here’s an interesting quote: “Toronto real estate appraiser Alan Wood finds that while homeowners are willing to invest solar, most are unwilling to purchase a more expensive home custom-built for this purpose. Wood further states that market appeal and resale value are lowered when the energy-conserving home looks noticeably different from most others”.
However, it may be one man’s opinion only, and it’s surely dated. It only shows I’m not the only one considering the issue and having the same concerns. In the end, you should decide for yourself. Don’t let me or anyone else make the decision for you! And, even if you don’t read the studies, at least forward them to your real-estate agent when you’ll sell your house. Then hope your buyer is rational