URI researcher: Energy-efficient heat pump technology increases the value of homes in the U.S.

Policies should incentivize use of technology to reduce carbon emissions

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KINGSTON, R.I. – October 26, 2020 – A University of Rhode Island economist and colleagues from the University of Maryland and Carnegie Mellon University have found that the installation of heat pumps in American households not only offers an energy-efficient source of electrified heating and cooling but also increases home values in the U.S. by $10,400 to $17,000 on average.

They believe that reducing the carbon emissions necessary to avoid irreversible global damage will require policies that consider electrifying important aspects of the economy – from vehicles to furnaces. Heat pumps are an energy-efficient technology that may replace furnaces or boilers as well as provide air conditioning, especially as the demand for cooling increases with record high temperatures every year.

Their study was published last week in the journal Nature Energy.

“Our results are consistent with existing studies on the effect of energy-efficient technologies on housing prices,” said Pengfei Liu, URI assistant professor of natural resource economics and co-lead author of the study. “We hope public awareness of the potential resale benefits can encourage more adoptions of heat pump and other energy-efficient technologies, such as solar panels, to reduce fossil fuel consumption.”

“A key message to policymakers and homeowners is that investing in heat pumps is a good investment,” added Lucy (Yueming) Qiu, co-lead author of the study and associate professor at the University of Maryland. “Similar to where we are seeing increased resale value in American households with residential solar, our findings indicate that heat pumps can have the same effect due to increased premiums—placing a higher value on energy-efficient technologies in homes.”

The study also examined what factors drive an individual to purchase a house with heat pumps and found that the more environmentally conscious, middle class, or those living in mild-climate regions are more likely to pay the higher premiums for an energy-efficient home.

“The electricity sector is now the largest source of emissions in the U.S., and it is clear that a comprehensive climate policy must examine all aspects that contribute to emissions, including individual household electricity use,” said Liu. “Because of this research, we now know that people are willing to pay more for a house with energy-efficient technology, therefore policymakers should leverage this to incentivize the adoption of heat pumps and ultimately drive down emissions across the U.S.”

The researchers said that the findings of their study can help steer policy towards closing what they call the “energy efficiency gap” — the gap between projected investment in energy-efficient technology and actual investment — by encouraging the installation of heat pump technology. At the same time, they said, it can reduce emissions in the electricity sector and increase the value of the average American household by as much as 7 percent.

The researchers examined the sales price of about 500,000 houses in 23 states across the U.S. between 2000 and 2018, based on the Zillow Transaction and Assessment Database. They used several econometric models to compare houses with heat pumps and similar houses without heat pumps. Housing price premiums varied significantly across regions, with premiums the highest in the Pacific and South Atlantic regions.

Among their other findings, the study revealed that the price premium gained through the installation of heat pumps is larger than the cost of that installation, which can be an additional incentive.

This research was funded by the Alfred P. Sloan Foundation.