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Efficiency Scores Shown to Encourage Purchases of More Efficient Homes

Sep 02, 2020

Guidehouse Insights

A new study shows that providing potential home buyers with easy-to-understand energy efficiency scores could lead many to choose a more efficient home with lower energy costs. The American Council for an Energy-Efficient Economy's study found that energy efficiency information displayed as a score along a continuum (as shown in the image below) encouraged home buyers to avoid the least efficient homes (23% less) and choose more efficient ones (14% more).

Home Energy Rating System Score Displayed as a Sliding Scale

Home Energy Rating System Score Displayed as a Sliding Scale

(Source: American Council for an Energy-Efficient Economy)

This study supplements others showing the impact of energy efficiency information on property value in the housing market. A similar 2019 study by the National Association of Home Builders found that if a home can demonstrate reduced energy costs of $1,000 annually, the average home buyer would be willing to pay an additional $8,728.

In the private rental market, a German study found that energy inefficient dwellings have longer marketing periods and are less liquid than their more energy efficient counterparts. The same dynamic is arising in the US. According to the Residential Energy Services Network, in 2019, 241,909 homes in the US were newly rated by the Home Energy Rating System (HERS). In the same year, families purchasing HERS-rated homes generated over $178 million in annual energy bill savings compared to a reference case.

Significant Upside for Utilities

For utilities, more informed homeowners can drive participation in utilities’ energy efficiency programs. For example, according to a Denver pilot, recommended upgrades were more likely to occur immediately pre-sale or within a 6-month period post-sale by informed homeowners, opening a window of opportunity for utility program enrollment. Vendors are increasingly offering customized alerts that can capitalize on these opportunities, such as Opower’s video-based home energy reports.

While such programs can be helpful to many, low income homeowners could be left behind with lower ratings for older, less energy efficient dwellings. Also, according to National Renewable Energy Laboratory, upgrade cost estimates can vary greatly according to actual operating conditions and occupant behavior. These concerns can be addressed by improved targeting of utility rebates for energy saving technology, especially for lower cost and high impact envelope improvements such as insulation or weather stripping.