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Energy-efficient homes and mortgage risk: crossing the chasm at last?

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Abstract

A topic of recent interest is energy-efficient houses. In the last twenty years, the US market has witnessed growth in the adoption of energy efficiency via various building technologies, design schemes, and eco-labels by developers, homebuilders, and homebuyers. Although housing and real estate scholars have begun explorations of the factors associated with the diffusion of energy efficiency, the subject has yet to be explored from the perspective of a critical stakeholder—the mortgage lender. This paper distinguishes itself from the extant literature in several ways. First, using a diffusion of innovation intellectual framework, the authors explore the role of the lender as an innovation gatekeeper. Second, as a review article, the authors summarize several key papers from the underwriting, credit scoring, and finance literature to help frame a number of market frictions that could mute further diffusion of energy efficiency in housing. Finally, the authors analyze these frictions and offer both market and public policy suggestions that may help overcome these frictions and increase opportunities for both private competitive advantage and market transparency.

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Notes

  1. In this paper, the terms green, energy-efficient, and high-performance housing are equivalent and will be used to describe any new home in which technologies are installed that have the capacity to create operational efficiencies such as reduced energy consumption and reduced water consumption.

  2. More efficient home could be framed as a less risky home in the context of volatile energy prices. However, low crude prices (such as 2014/2015) dampen the impact of locational efficiency for a home owner.

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Authors and Affiliations

  1. College of Architecture, Planning, and Landscape Architecture, University of Arizona, 1040 N. Olive Road (A303G), Tucson, AZ, 85719, USA

    Andrew R. Sanderford

  2. McIntire School of Commerce, University of Virginia, Charlottesville, VA, 22904, USA

    George A. Overstreet

  3. Department of Systems and Information Engineering, University of Virginia, Charlottesville, VA, 22904, USA

    Peter A. Beling

  4. Department of Finance and Tax and The African Collaboration for Quantitative Finance and Risk Research, University of Cape Town, Rondebosch, 7700, South Africa

    Kanshukan Rajaratnam

Authors
  1. Andrew R. Sanderford
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  2. George A. Overstreet
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  4. Kanshukan Rajaratnam
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Correspondence to Andrew R. Sanderford.

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Sanderford, A.R., Overstreet, G.A., Beling, P.A. et al. Energy-efficient homes and mortgage risk: crossing the chasm at last?. Environ Syst Decis 35, 157–168 (2015). https://doi.org/10.1007/s10669-015-9535-8

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