Understanding Housing Supply under Stringent Energy-efficiency Regulations

Abstract

Massachusetts's commitment to a 50% emissions reduction by 2030 and net-zero emissions by 2050 is reflected in the Green Communities Act of 2008, which requires the adoption of the Stretch Energy Code for every municipality that is designated as a Green Community. This appendix to the base building code adds more stringent energy-efficiency requirements, such as including the HERS Index rating system in every new residential construction. Despite their obvious environmental benefits, more stringent energy-efficiency building regulations can also lead to increased construction costs and negatively impact housing production and affordability. In this study, I investigate the tension in the housing supply resulting from the adoption of the Stretch Energy Code by analyzing municipalities' staggered designation as Green Communities to identify the causal mechanisms behind quantity and price effects in the residential real estate market. The results indicate that more energy-efficient properties command a positive sales price premium and that the Stretch Code adoption is associated with a decrease in the housing quantity and an increase in the average housing prices.