How is rooftop solar capitalized in home prices?

Kenneth Gillingham and Asa Watten

Regional Science and Urban Economics, 2024, vol. 107, issue C

Abstract: Residential solar installations have increased 10-fold over the past decade and are becoming more common in neighborhoods around the United States. This raises the question of how solar affects housing markets. Is the investment fully capitalized in home values? We review the literature on the solar home price premium and present a model to provide a framework for understanding the empirical challenge of quantifying capitalization. We estimate a hedonic model and find that the residual value of a homeowner-owned solar system at the time of a transaction is roughly fully capitalized into home values when we use a discount rate of 15%. Third-party owned systems exhibit a much lower capitalization. We find that solar homes are more likely to have made home improvements leading to substantial bias when home improvements are omitted. We conclude with opportunities for future research.

Keywords: Rooftop solar energy; Hedonics; Housing markets (search for similar items in EconPapers)
JEL-codes: Q42 R31 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:107:y:2024:i:c:s0166046224000309

DOI: 10.1016/j.regsciurbeco.2024.104006

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