Green federal tax credits impact on US housing prices

• DOI: https://doi.org/10.1108/IJHMA-10-2019-0104
• Date: 13 January 2020
• Pages: 553-564
• Published date: 13 January 2020
• Author: Billie Ann Brotman
• Subject Matter: Property management & built environment,Real estate & property,Housing markets

Green federal tax credits impact

on US housing prices

Billie Ann Brotman

Department of Economics, Finance and Quantitative Analysis,

Coles College of Business, Kennesaw State University, Kennesaw, Georgia, USA

Abstract

Purpose –The purpose of this study is to investigate whether increases in homeowner green amenities

occurred because of income tax credits to the degree that changes in housing prices are measurable. Are

higher incomes,lower mortgage rates and green income-taxcredits impacting housing price changes?

Design/methodology/approach –The paper uses the least-squares regression model with natural log

specifications.The log of income and a dummy variable, which was assigned to the Energy PolicyAct (2005)

and the American Recovery and ReinvestmentAct (2009) coverage dates are used as independent variables.

Two regressionmodels were examined using monthly housingprice data from January 1990 through the year

2018. The first regression model useda single dummy variable for credits available under the Policy Act of

2005 and the Recovery Act of 2009. The second regression model consideredthe credits granted under these

two laws separately. Disposable income per capita impacts demands for housing while green upgrade

expendituresaffect the cost of housing.

Findings –The laws set low creditlimits of $500 followed by $1,500 but because of the multipliereffect, the

spending appears to have magnified and beenmuch higher. The credit availability variables have positive

coefficientsand were significant at 1 per cent. This implies that single-familyhousing prices were sensitive to

the existence of residential energy property income-taxcredits. The R

2

results were 0.93 or above for both

models.

Research limitations/implications –The data used was aggregated and publicly available online.

Many studies use aggregated macroeconomic data when modeling housing prices using the exogenous

variable of disposableincome but there is no substitute for examining individual homes by locationand their

sales price to see under what conditions green income-tax credits have the most impact. There could be

demographicissues that are missed when using aggregatedinformation.

Practical implications –Spending on heating/cooling systems, dual pane windows and other green

amenities keeps the housingstock modernized and housing prices steady or rising. An additional benefitis

that spending motivated by self-interest can simulate householdconsumption spending. Houses deteriorate

due to wear and tear. Physical-repairable depreciation represents a situation where maintenance funds are

continuously needingto be spent. Repairs and upgrades to the structure of the property keep its price stable

by stopping the physicaldepreciation that would otherwise occur with the passage of time.

Social implications –The paper provides support forthe idea that residential green amenity upgrades

positively impact the value of a house. These green-amenity upgrades, which other research studies have

suggested shouldbe included explicitly in the appraisalprocess, are a major characteristic of a propertywhen

a price estimate is being done.Housing being sold should have a section on the information sheetnoting the

property green upgradesthat exist and an energy efficiency score should be assigned to eachhouse listed for

sale.

Originality/value –There are few (if any) academic research papers studying the impact of green tax

credits availableunder the Energy Policy Act (2005) and under the American Recovery and ReinvestmentAct

(2009). The degree to whichgreen income-tax credits stimulate spending on housing has not beenaddressed

by researchers. This paper is an initial research attempt to quantify whether these legislative efforts

measurablyencouraged homeowners to adopt newer, greenertechnologies.

Keywords Sustainability, Housing prices, Valuation, Housing policy, Housing taxation,

Green tax credit

Paper type Research paper

Green federal

tax credits

553

Received4 October 2019

Revised16 November 2019

9 December2019

Accepted16 December 2019

InternationalJournal of Housing

Marketsand Analysis

Vol.13 No. 4, 2020

pp. 553-564

© Emerald Publishing Limited

1753-8270

DOI 10.1108/IJHMA-10-2019-0104

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