REAL ESTATE DEVELOPMENT:
In less than one page, what is the major take-away from the Hansz etal paper on green issues. Again, do not get caught up in the math. What is the practice evidence/application? Is there a difference with commerical properties?
This is a Pass/Fail assignment. A pass will be recorded as a 1 and a fail as a 0.
Submission form:
1. Basic outline/purpose of article
2. Findings
3. Limit
4. Application
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T h e Va l u e o f ‘ ‘ G r e e n : ’ ’ E v i d e n c e f r o m t h e
F i r s t M a n d a t o r y R e s i d e n t i a l G r e e n
B u i l d i n g P r o g r a m
A u t h o r s Ramya R. Aroul and J. Andrew Hansz
A b s t r a c t There has been recent interest in green building and development
practices and research. Resulting from growing environmental
awareness and concerns, mandatory residential green building
programs have been implemented nationally at the municipal
level and Texas has passed legislation to create a statewide
program. However, the impact of greenness on residential
property values has not been rigorously evaluated. This study
examines residential transaction prices in two cities and finds
a statistically significant premium associated with ‘‘green’’
properties. Additionally, there is evidence of a larger premium
associated with green properties located in Frisco, Texas, which
has the nation’s first mandatory residential green building
program.
Interest in green building is growing. Indeed, the intensity of interest expressed
y many sectors of the real estate and the land development industry is a sign of
acceptance of green investment and acknowledgement of the need for green
uilding and development practices. There is also concern regarding quality
improvement of new home construction from both environmental and
sustainability perspectives. With allocation of $5 billion towards weatherizing
homes by the American Recovery and Reinvestment Act (ARRA), significant
esources will be channeled into green development projects (Committee on
Appropriations, XXXXXXXXXXThis investment combined with green building programs
will further accelerate the American green revolution.
Since zoning, building codes, and most development regulations are enacted and
enforced through municipal police powers, local governments are at the forefront
in developing and updating green ordinances and policies. Nationwide, a few
communities have taken leadership roles and have implemented formal mandatory
green building best management practices programs.1 See Exhibit 1 for an
overview of selected mandatory green building programs.
Even though smaller municipalities developed the earliest green building policies,
the increasing acceptance of green building practices is reflected in the adoption
2 8 � A r o u l a n d H a n s z
Exhibi t 1 � A Survey of Mandatory Green Building Programs
Jurisdiction State Program Year Enacted/Revised
Frisco TX Residential 2001/2007
Boulder CO Residential 2001/2008
Marin County CA Residential 2001/2008
Austin TX Residential and Commercial 2003
Aspen/Pitkin County CO Residential and Commercial 2003/2008
Pleasanton CA Residential and Commercial 2003/2006
Arlington County VA Residential and Commercial 2004
Pasadena CA Residential and Commercial 2006/2008
Long Beach CA Residential and Commercial 2006
Santa Cruz CA Residential and Commercial 2006
Montgomery County MD Residential and Commercial 2006
Boston MA Residential and Commercial 2007
of policies by cities, counties, and states. For example, the State of Texas has
ecently adopted legislation to adopt a statewide mandatory green building
program to begin January 2012 for single-family residential dwellings.2
A mandatory green building program is a coordinated, systems approach to green
development rather than a component-by-component approach to building (Bynum
and Rubino, XXXXXXXXXXSince all builders are mandated to follow green building
practices in a mandatory program, the community will experience dramatic shifts
in sustainable construction practices and an accelerated implementation of green
development.
Existing green research has focused on commercial buildings and the impact of
voluntary third-party green rating systems. As discussed in the literature review,
there has been some evidence that quantifies the economic benefits of green
commercial buildings; however, limited research exists on the real estate market’s
esponse to residential green development and building practices. In addition, the
market may recognize price premiums for the coordinated systems required of
mandatory green building policies. Prior research on green building codes
addressed the impact of mandatory household energy and water consumption
egulations and did not address green valuation influences or green building
programs.
This leads to two research questions. First, do single-family residential markets
eflect and capitalize green investment practices in transaction prices? And second,
does the market recognize the coordinated and mandatory aspects of a municipal
T h e V a l u e o f ‘ ‘ G r e e n ’ ’ � 2 9
J R E R � V o l . 3 4 � N o . 1 – XXXXXXXXXX
green development program? These questions are of interest to homeowners,
developers, investors,
okers, appraisers, policy makers, and researchers.
This study investigates the price effects of green on residential transaction prices
in two similar Texas cities: Frisco and McKinney. Frisco has implemented the
country’s first mandatory residential green building program and McKinney has
no green mandates, although properties with green features have been voluntarily
developed.
The findings of this study reveal a positive and statistically significant effect on
the transaction prices of green residential properties. Furthermore, there appears
to be a modestly stronger price premium associated with green transaction prices
of residential properties associated with the mandatory green building program.
The next section provides background on the study setting, including an overview
of Frisco’s mandatory green building program. This section is followed by a
eview of the extant literature leading to research hypotheses. Next, sample data
are described, including the selection criteria used to identify green transactions,
and the empirical models are developed as well. Finally, the statistical results are
presented, followed by a discussion of the findings and conclusion.
� S e t t i n g
For comparison, the cities of Frisco and McKinney, Texas were selected because
these adjacent cities are similar in terms of demographics, employment, and
housing market activity. The Frisco-McKinney area is one of the fastest developing
egions of the Dallas-Fort Worth Metroplex. Land that once was dedicated to the
production of wheat and livestock feed is now demanded for new homes, schools,
offices, and parks. The populations of both cities have been growing at steady
ates for the past two decades, creating stable and steady housing demand
(Exhibit 2).
To manage housing growth and promote sustainability, Frisco implemented a
esidential green building program in May 2001. A primary difference between
these two cities is Frisco’s mandatory green building program, as McKinney does
not have any green municipal initiative. Therefore, the Frisco-McKinney pairing
provides a natural experimental setting for the study of residential transaction
prices, green features, and the nation’s first mandatory green building program.
The green development process is a paradigm shift from traditional building
practices and developers and builders can be apprehensive, at first, towards
mandatory programs. Mandatory programs require developers and builders to
deviate from customary construction practices to test new methods and materials
that could reduce development feasibility. In fact, this was the initial concern from
the local building industry when Frisco’s proposed a mandatory green building
program. In response to industry concern, Frisco implemented a performance-
ased mandatory residential green building program. A performance-based
3 0 � A r o u l a n d H a n s z
Exhibi t 2 � Demographic, Employment, and Housing Statistics: Frisco and McKinney
Demographic Frisco McKinney
Population 33,714 54,369
Median Age (years XXXXXXXXXX
Female Persons 50.50% 49.40%
Persons per Household XXXXXXXXXX
Population in Labor Force
Civilian labor force 78.90% 70.10%
Employed 77.10% 67.60%
Unemployed 1.80% 2.40%
% of civilian labor force 2.30% 3.50%
Armed forces 0.10% 0.00%
Not in labor force 21.10% 29.80%
Mean Travel Time to Work 27.3 mins. 25.4 mins.
College/Graduate School 16.40% 16.80%
Land Area (square miles) 70 58
Housing Units 13,683 19,462
1-unit, detached 75.80% 73.20%
1-unit, attached 2.40% 1.40%
2 units 1.50% 2.00%
3 or 4 units 1.30% 3.30%
5 to 9 units 3.20% 4.20%
10 to 19 units 8.50% 5.10%
20 or more units 5.30% 8.50%
Note: The source is QuickFacts from the U.S. Census Bureau 2000 (www.infoplease.com/us
census/data/ texas).
program sets minimum sustainability standards, but gives developers and builders
flexibility in how they meet green development requirements (Witt, Cantrell,
Purvis, and Johnston, 2005).
With this initiative, Frisco, Texas became the first city in the United States to
adopt a mandatory residential green building program. According to an ordinance
passed on May 2, 2001, all residential plats accepted after May 23, 2001 were
equired to meet or exceed the mandatory green building program standards. Afte
five years, the city restructured and enhanced the residential green building
program. The revised program was put into effect for all homes receiving building
permits on, or after, July 1, 2007. Frisco’s Residential Green Building Program
mandates minimum energy efficiency, water conservation, indoor air quality, and
waste recycling standards for all residential construction. Frisco’s assessment of
‘‘green’’ is consistent with the explanation given by Heekin and Meyers XXXXXXXXXX
Additional details of Frisco’s mandatory green building program are provided in
Appendix A.
http:
www.infoplease.com/us/census/data/texas
http:
www.infoplease.com/us/census/data/texas
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� L i t e r a t u r e R e v i e w a n d R e s e a r c h Q u e s t i o n s
The hedonic pricing method is based on the premise that the value of a good o
service can be decomposed into specific benefits/features. If the market recognizes
these individual characteristics, then the contributor value of these benefits
features can be quantified (Rosen, XXXXXXXXXXIn the real estate literature, hedonic
methods have been used to study a wide range of attributes including school
districts (Walden, 1990), conservation districts (Diaz, Hansz, Cypher, and
Hayunga, 2008), and age-restricted and gated communities (Allen, XXXXXXXXXXDespite
a relatively developed body of hedonic real estate literature, there appears to be
little published research examining the valuation impact of green, an attribute of
esidential development that is gaining in importance due to social, environmental