Literature Review

2.1 The relationship between green building’s quantity and sales price

Fuerst and McAllister (2011) offered the theoretical framework for the market expected response to green features. In the initial period of promotion, the price of the green building exceeds the price of non-green building. But by the requirement and the active promotion from the government, the price of green building will go back to the fundamental. As shown in Exhibit 1, the demand curves of the Green building and non-Green building are given by DG and DNG respectively, and the supply curves are given by SG and SNG. Assume that the green and non-green are almost perfectly substituted; an increase in demand of green properties will result in decrease in demand for non-green properties. The demand increase for green properties will result in a price increase from PNG to PG and the short run inelasticity in supply results in a premium (PG－PNG) for green properties. This leads to the first research expectation that green features will result in residential transaction price premiums.

If the government has any policy to promote green building by law, demand for green properties shifts further to the right in Exhibit 1, from DG to DM. The short-term supply makes SG right shift to SM, resulting in an upward shift in prices to PM, and the equilibrium increment of the quantity is QM. The price of green properties in a promotion of green building will experience a price premium of (PM －PG) above the green properties and a price premium of (PM －PG) above non-green properties, and (PM－ PNG) is the premium due to the promotion program. In the long run, the supply of the green properties will increase to SM', reducing the price of green properties to the level of PG, and the equilibrium

increment of the quantity is QM', moving the equilibrium price back to the initial (PG－PNG). Back to cases in Taiwan, the present stage here should be described that we do have the supply of the green building, but aren’t compelled to move to PG from PNG. Though the promotion has been in law for years, the price effect seems to make it a distance from PNG.

Resource: Fuerst and McAllister (2011：53)

Figure 1 Short-run effect of introducing certification into the market

2.2 The Green impact on Housing Rent/ Housing Price 2.2.1 Green Premium

The green premium mainly comes from low operating and maintenance cost. Steven (2002) indicates that the Green building can lower down the cost from the life-cycle. Moreover, the features of high-valued green buildings even recover the cost in 3-5 years. The capability to get capital back from return is due to the incentives of lower operating expenses, savings from energy and resources, certification, and subsidies. There are many papers on this realm of the price or rent impacts of green buildings, and most of them focus on commercial properties. Eichholtz et al.( 2010a, 2010b) used hedonic regression to analyze the premium among green buildings, and found that certified buildings receive rent and effective rent premiums at 3.5% and 10%

respectively, and 16.8% premiums on sales price. The afterwards research on sustainability and dynamic analysis also found that certified building could raise the rent, effective rent and sales price at 1.8%, 4.7% and 13.3%.

Reichardt et al.(2012) moved on to analyze the rent of certified office buildings in the US. This paper shows that both Energy Star and LEED have the dynamic impacts on the rent, which means that earlier the building got certified, higher the rent premium was. Harrison and Seiler (2011) also found that the buildings with Energy Star or LEED could raise their rent by 6-7%. Dermissi (2009) showed empirical evidence that buildings certified with LEED could raise its sales price at 18%；

Pivo (2010) also found that Energy Star-certified buildings could raise their rent and occupancy rate by 5.2% and 1.3%. Eichholtz et al.( 2013) indicated that both Energy Star and LEED have positive impacts on rent and sales price, and the impact from two systems are subtle. For instance, the empirical evidence indicated that the Energy Star labelled building could raise its effective rent and sales price at 6.6% and 12.9%, while those labelled with LEED are at 5.9 and 11.1%.

Though Wiley et al.(2010), Fuerst and McAllister(2010) and Eicholtz et al.(2010b) found out that the buildings labelled with Energy Star or LEED could obtain the premiums on rent and sales price.

Nevertheless, their results have shown that the rent premiums gained from LEED are 15-17%, 4.5%

and 6%, while those from Energy Star are 7~9%, 3.4% and 2%. Those labelled with LEED gain the sales price premiums are $130/sqm, 25% and 11%, while those labelled with Energy Star gain

$30/sqm, 18% and 13%. It’s obvious to see that Energy Star performs better then LEED if we only consider the premium from rent or sales price. When it comes to the occupancy rate, it is higher to those labelled with LEED than those with Energy Star.(Fuerst and McAllister, 2010, 2011) As for those dual-labelled buildings, the positive impact on the rent or sales price is much more significant.

Fuerst and McAllister(2010) indicates that those dual-labelled buildings’ rent premium is 9~10%, and sales premium is 28~29%；Fuerst et al.(2012) then found that premium on sales price is 11%.

Besides focusing on Energy Star and LEED, there are researches from other green certificate systems. Chegut et al.(2010) showed the average rent premium of the office building is 16-20% if the building is certified by BREEAM (Building Research Establishment Environmental Assessment Methodology) in UK. Chegut et al.(2012) found out that rent and green labels are in positive correlation, the rent premium of the building with BREEAM labelled is 30.5%, and the premium of sales price is 38%. Newell et al.(2011) analyzed the commercial building certified by NABERS(National Australian Built Environment Rating System) in Australia, the result showed that those buildings could raise rent and sales price up 0.3% and 1.9% respectively. Fuerst et al.(2012) also pointed out that it could perform better and receive positive premium if the building obtains the EPC (Energy Performance Certificates) from EU.

On residential buildings, Aroul and Hanzs(2012) found out that Green buildings receive 2%

premium on sales price. And when disaggregated into mandatory and voluntary green transactions, the respective premiums are 5% and 1%. Deng et al. (2012) examined the average green premium on rent and sales price are 4-6% and 14-21% respectively. Many studies support the idea that the green certificated buildings would make the house price higher. (Australian Bureau of Statistics, 2007; Fuerst et al., 2013) It comes with different levels of premium according to different level of green levels. Brounen and Kok (2011) indicated that, compared to buildings rated D, the premium estimated for A, B and C are 10%, 5.5% and 2.5% respectively. And for dwellings rated E, F and G, the estimated discounts are 0.5%, 2.5% and 5% respectively. Kok and Kahn (2012) found that the label of Energy Star puts positive impact on house price. However, impact from LEED is not significant. Miller et al.(2008) also shows that the green buildings hold no significant premium on sales price.

2.2.1 Green Noise

The main obstacles to promote green building are high cost in the initial stage, tenants’ cognitive deficits of green, as well as insufficient education, knowledge and research. In addition, developers with no relative experience in green building know not much about green’s risk, cost, benefit and value. Many would perhaps assume negative impact on the sales price. Leopoldsberger (2011) examined the appraisal of the cost-saving buildings in German. The result showed that both maintenance cost and energy cost are significantly negatively correlated to rent, which indirectly pointed out that the green effect from maintenance and energy-saving do not necessarily have the positive impact on rent. Fuerst and McAllister(2011) examined the effect of EPC rating on market value and market rent by 708 commercial properties in UK, including 23 BREEAM certified. They found no significant effect of EPC rating on market rent and market value, and there was significantly negative impact at the 10% level for BREEAM certified building.

Yoshida and Sugiura(2012) analyzed how the green label affect the sales price of the residential buildings in Tokyo. They obtain a total sample of 34862 sales of condominiums, concluding 1472 samples evaluated under Tokyo Green Building program. The empirical result pointed out green-labelled buildings exist a 5% discount on the price. They tried to explain this phenomenon and came up with the inference that the discount is the refection of the extra expense on the maintenance. Precisely speaking, besides the design for reducing heat island effect and longer building economic life that could lower renewal cost which reduce the discount; other green features like planting, green building materials, and the water circulation will make the sales price discounted due to extra maintenance cost and capital investment.

McAllister(2013) reviewed 29 literatures for green building. Most used hedonic regression to analyze the green impact on price, and commercial property is the main objects. Chen (2011) interviewed 120 Taiwanese appraisers and indicated that 87% of the appraisers agreed that green label would theoretically have positive impact on the sales price, 66% of the appraisers are conceived positive impact will be shown on the market, and most of them consider the impact to be around 10% of the price. There is a lack of empirical study in Taiwan on this subject due to lack of transparency for green related information. Therefore, we focus on a closed area to have a field survey to obtain data of green label and green features. This is the first empirical study to analyze the impact of both EEWH label and green features on sales price in Taiwan.

2.2.3 EEWH in Taiwan

According to "Plan of Green building and Residential Environment", issued by EEWH established in 1999, include nine categories:

a. Biodiversity: increasing the ecological quality of green space on large sites, such as: natural banks and community green network system;

b. Greenery: global warming mitigation and green landscaping, such as: atrium garden, balcony garden, or green walls;

c. On-site Water Retention: the capacity of the site to retain, store and filter rainwater by direct infiltration, pervious pavement, and green roof;

d. Energy Saving: reduce the large daily consumption by using sun shading design and energy saving lights;

e. CO2 Reduction: reduce the amount of carbon dioxide emitted from production and transportation of construction materials by improving the design of building structure, such as:

expose AC pipework and use of light steel frame partitioning;

f. Construction Waste Reduction: the use of renewable resources, such as: recycled building materials and dry walls;

g. Indoor Environment: divided into the following four areas- acoustic environment, lighting, ventilation and interior finishing. Example such as: use of natural and green interior finishing materials, maintain clean indoor air, use of ecology coating, and noise and vibration control;

h. Water Resource: active reuse of rainwater and non-drinking water, such as: water-efficient appliance and incorporate water recycling system;

i. Sewage and Garbage Improvements: including garbage room, refrigerating, freezing or pre-compression treatment facilities for garbage, and rain and sewage diversion.

Green label is rank as “Diamond”, “Gold”, “Silver”, “Bronze” and “Qualified”. However green label is non-mandatory registration, we could not get enough ranked samples to have an empirical study. Therefore we put it together and set a dummy variable to discuss whether green labelled or not. Moreover, we want to analyze more on price effect of green building in Taiwan. To deeper investigate green on sales price, we also analysis the price effect of green features as Yoshida &

Sugiura(2012). We refer to the above catagories to choose green features variables, such as atrium garden, balcony garden and green roof, pervious paving, infiltration ponds, sun visors, energy saving lights, reuse of rainwater, refrigerating, freezing or pre-compression treatment facilities for garbage, drainage pipeline, exposed electrical, gas and communication lines, and the use of light steel frame partitioning.

Our hypothesis is as following,

1. “Green label” is capitalized into housing prices.

2. “Green features” are capitalized into housing prices.

3.Methodology 3.1 The Model

Hedonic regression model was adapted to analyze the effect of Green Building features as most literatures (Aroul and Hansz, 2012；Chegut et al., 2012). Besides normal building attributes, Green label is added as shown in Model (1) and Green features is added in Model (2). After trial and error, we find linear regression suits better for this study.

In the equations, α0 is the constant term, εi is assumed to be the residuals that comply with normal distribution, and the expected value of the error term is 0. The dependent variable is sales price.

Independent variables Xji are the jth physical characteristics of i^th sample. The variables include transaction year, transaction floor, building size, age and shape. In the model, GFgi indicates dummy variable where value equals 1 when g^th feature implemented and 0 when it is not.

3.2 The data

This paper selected the Taipei University designated area for spatial extent. The region is relatively concentrated and the projects have higher likelihood for implementing green features. 359 transactions are recorded at the Interior Ministry from 2008 to 2012. The average sales price is 811.74 million, with standard deviation of 411.17 million and range between minimum of 2.2 million and maximum of 34 million. Average building size is 42.9 pings (1526 sqft) with minimum of 14 pings (498 sqft) and maximum of 108 pings (3842 sqft); standard deviation is 15.08 pings (536.5 sqft). The average building age is 3.23 years with standard deviation of 1.89 years. It is a new building development area.

Our information on Green label is cases approved by Taiwan Architecture and Building Center. 46 cases, or 12.74% of our data pool, are licensed Green label transactions.

As for the "green" impact on sales price, since design is more convenient for tenants and most literatures show positive effects, our expectation of its impact is positive. The impact of green feature depends on the maintenance and management of long-term benefits. We expect a negative impact in atrium garden, balcony garden, permeable paving, green roof, garbage room and refrigerated garbage storage device due to high maintenance frequency and cost. The feature with low maintenance frequency and cost, infiltration ponds, sun visors, energy saving lights, exposed pipework, light steel frame partitioning, recycled building materials, natural interior finishing materials and water-efficient appliance is expected to have a positive impact on the sales price. The statistical result of green feature in 51 cases is as Exhibit 1. The top three were atrium garden, garbage room and energy saving lights.

Exhibit 1 Statistical result of green feature in cases and samples Green feature  Cases with