Heat Pumps' Impact on Housing Prices and Implications for Policy Instruments to Facilitate Electrification and Deep Decarbonization Xingchi Shen a , Pengfei Liu b , Yueming Qiu a , Anand Patwardhan a , Parth Vaishnav c a University of Maryland College Park; b University of Rhode Island; c Carnegie Mellon University * Thanks to generous funding from the Sloan Foundation .
Electrification and Deep Decarbonization Stabilizing Earth’s temperature will require that we stop burning fossil fuels. It is more economical and technologically easier to sequester emissions from large sources such as electric power plants. It is much harder to capture emissions from small distributed sources such as the natural gas furnaces used to heat homes and offices. The energy source of household heating systems in the U.S. Source: U.S. Department of Energy, Buildings Energy Data Book 2011
Heat Pump National, state-level and city-level decarbonization plans have relied on the diffusion of heat pumps: The Dutch government’s plan to electrify buildings and fully phase out fossil (“natural”) gas by 2050 The Irish government’s Climate Action Plan The Finland government’s carbon neutral target by 2035 Massachusetts, USA 2019-2021 Three-Year Energy Efficiency Plan Air source heat pumps Geothermal heat pumps Water source heat pumps
The Density of Heat Pump (n/ million people) by County Level in the United States in 08-05-2018 Data source: Zillow Database
Heat Pump Installation House Value Incentive of Adoption
Objective 1 Objective 2 Objective 3 Research Objectives we provide the first we explore the we compare the price nation-wide and relationship between the premium with the regional-specific price premium and social and private residents’ environmental estimations of price benefits of a switch to premiums resulted awareness. a heat pump and the from heat pump cost of installing a installations. heat pump.
Zillow Data 4TB of data for more than 150 million homes in 51 states from Zillow. Assessment Data Transaction Data The data includes property assessment Our dataset includes information for more than information such as property characteristics, 374 million detailed public transaction records installed heating technology, property across over 2,750 counties for residential and addresses, and prior assessor valuations of commercial properties since early 1900s. approximately 200 million parcels in over 3,100counties, via six independent property assessments
Empirical Approach: DID • Treated group: houses that installed a heat pump and were sold at least twice before and after the installation. • Control group: houses keeping using one specific heating system (Coal, Gas, Gravity, Hot Water, None, Oil, Radiant, Steam, Wood Burning, etc.) and were sold at least twice during a similar time window. • Time span: all the transaction records in our analysis is from 2000 to 2018 . • Exact matching on counties: We match treated houses and control houses that are in the same counties. • Rule out the influence of remodeling: remove the houses that were remodeled after year 2000 (a very small share of total sample) from our sample. • We obtain 14,211 houses in the treatment group and 440,168 houses in the control group across the country covering 23 states . • AL, AR, AZ, CO, CT, DE, FL, GA, KY, MD, MI, MN, NC, NE, NV, OH, OK, OR, PA, SC, SD, VA, WA
Empirical Approach: Two-Way Fixed Effects Model 𝐽𝑜 𝑍 𝑗𝑑𝑢 = 𝛾𝐸 𝑗𝑢 + 𝛽𝑆 𝑗𝑢 + 𝜒 𝑗 + 𝜏 𝑑 ∙ 𝜘 𝑢 + 𝜈 𝑢 + 𝜁 𝑗𝑑𝑢 In 𝑍 𝑗𝑑𝑢 is the log of the sales price of house i in time t . (unit: 2018$) 𝐸 𝑗𝑢 is the treatment variable. 𝑆 𝑗𝑢 is the building age since it was built or remodeled (whichever is later). 𝜒 𝑗 is individual fixed effects. 𝜏 𝑑 ∙ 𝜘 𝑢 is county-by-year fixed effects. 𝜈 𝑢 is month-of-year fixed effects. 𝜁 𝑗𝑑𝑢 is an idiosyncratic error term. We cluster our standard errors at the house level.
House price premium induced by Heat Pumps DID Data National Wide Model 1 2 3 4 Coef. Of D (ATT, Price Premium) 0.0511 0.0349 0.0625 0.0708 P-vaule 0.000 0.000 0.000 0.000 Obs 853,142 634,952 634,952 853,142 Robust Std Err 0.00697 0.00965 0.01025 0.01104 95% CI 0.03745 0.01599 0.04246 0.04917 95% CI 0.0647 0.0538 0.08266 0.09245 R-sq (overall) 0.0483 0.0573 0.0027 0.0180 Groups/Houses 440,764 378,267 378,267 440,764 Building age control Yes Yes Yes Yes Other time-variant control No Yes Yes No Yes Yes Yes Yes Month-of-Year fixed effects Year fixed effects Yes Yes No No State-by-Year fixed effects No No Yes No County-by-Year fixed effects No No No Yes
House price premium induced by Heat Pumps Robustness Check Data National Wide Cross-sectional (post-treatment) data in conjunction with Nearest-Neighbor Matching Model 1 2 3 4 Coef. Of D (ATT) 0.1709 0.0278 0.2632 0.1501 • DID approach relies on intertemporal price P-vaule 0.000 0.000 0.000 0.000 variation; however, the estimates would be Obs 414,420 301,065 414,420 301,065 biased if the hedonic gradient shifts over time Robust Std Err 0.00364 0.00432 0.00357 0.0042 (Kuminoff & Pope, 2014; Muehlenbachs et al., 95% CI 0.16379 0.01933 0.25620 0.14177 2015). 95% CI 0.17810 0.03629 0.2702 0.15845 • Exact matching on city and transaction year R-sq (overall) 0.0053 0.0723 0.2603 0.3026 Groups/Houses 414,420 301,065 414,420 301,065 • Propensity score matching on house features House features control No Yes No Yes Year fixed effects No No Yes Yes • Run OLS model City fixed effects No No Yes Yes
The Lower Bound of House Price Premium Energy Star qualified windows 32.82% Nation-wide average house sales price in ZTRAX data (2018$) 242407 Nation-wide Overall Price Premium (%) 7.08% Energy Star qualified water heating 44.91% Nation-wide Overall Price Premium (2018$) 17162.42 Energy Star qualified lightbulbs 46.16% clothes washer 1700 Energy Star qualified refrigerator 52.26% dishwasher 2890 The average price of Energy Star qualified clothes dryer 44.23% clothes dryer 600 energy star qualified Energy Star qualified dishwasher refrigerator 700 39.76% appliances water heating 700 Energy Star qualified clothes washer 48.06% windows 700 Solar water heating 0.27% The total value of energy efficiency appliances 7290 Solar panel 1.60% Lower bound of overall price premium (2018$) 9872.42 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% Lower bound of overall price premium (%) 4.07% The Percentage of Homes with Other Energy Efficient Measures in The Computation of Lower Bound of Overall Price Premium Heat Pump-Equipped Homes in the U.S. in 2015 Source: 2015 Residential Energy Consumption Survey Data
The Distribution of House Price Premium Sample size under the DID specification treated houses control houses New England 28 848 164 29072 Middle Atlantic East North Central 97 28038 West North Central 111 47541 South Atlantic 11912 156387 East South Central 132 3501 44 22917 West South Central Mountain 52 50825 Pacific 1671 101039 Estimates using DID approach Division Coef. Of D P-vaule Obs South Atlantic 0.064 0.000 266,585 Pacific 0.052 0.064 174,910
Correlation between price premium and environmental awareness 𝐽𝑜 𝑍 𝑗𝑡𝑢 2 + 𝛾𝑊 = 𝛽𝐸 𝑗𝑢 + 𝜄 1 𝐸 𝑗𝑢 ∙ 𝐹 𝑗𝑢 + 𝜄 2 𝐸 𝑗𝑢 ∙ 𝐹 𝑗𝑢 𝑗𝑢 + 𝜒 𝑗 + 𝜏 𝑡 ∙ 𝜘 𝑢 + 𝜈 𝑢 + 𝜁 𝑗𝑡𝑢 ሿ 𝜖𝐹[𝑍 𝑗𝑢 |𝐹 𝑗𝑢 , 𝐸 𝑗𝑢 , 𝑊 𝑗𝑢 , 𝜒 𝑗 , 𝜏 𝑡 ∙ 𝜘 𝑢 , 𝜈 𝑢 𝜖𝐸 𝑗𝑢 2 = 𝛽 + 𝜄 1 ∙ 𝐹 𝑗𝑢 + 𝜄 2 ∙ 𝐹 𝑗𝑢 𝐹 𝑗𝑢 : the variable of interest, which would exert a marginal effect on the treatment effect. Fig. An inverted “U” shaped relationship between local residents’ environmental awareness (the percentage (%) of people who believe global warming is happening) and the price premium induced by heat pumps.
Compare price premium with benefit/cost of switching to heat pumps Fig a. Lifetime fuel costs savings or extra Fig b. The distribution of price premium of houses with expenditures associated with a switch to heat pumps heat pump Data Source: Vaishnav et al., 2018.
Compare price premium with benefit/cost of switching to heat pumps Toal Net Benefit 1710 Lifetime Avoided Environmental Damage -90 Lifetime Fuel Cost Saving 1800 Pacific Cost of Installing A Heat Pump 8000* Lower Bound of Price Premium 8200 Upper Bound of Price Premium 15400 Toal Net Benefit 280 Lifetime Avoided Environmental Damage -920 South Atlantic Lifetime Fuel Cost Saving 1200 Cost of Installing A Heat Pump 8000* 8900 Lower Bound of Price Premium Upper Bound of Price Premium 16200 -2000 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 *Note: the cost of installing a heat pump depends on the size of home and type of heat pump. The cost of installing an air- source heat pump ranges from 4000 to 8000 dollars, while a geothermal heat pump costs extra thousands of dollars since it requires underground installation. (unit: Dollars in 2018).
Policy Implication Information Program Property Tax Base Regional Investment
Thanks for listening This research is supported by Alfred P. Sloan Foundation
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