The Rise of Eco - Labels in the Japanese Housing Market

This paper aims to extend the existing evidence on the investment value of green buildings to international markets, specifically the residential market in Japan. Using a unique transaction database of condominiums in the Tokyo metropolitan area and a hedonic analytical framework, we find that green buildings command a small but significant premium on both the asking and transaction prices. This finding is consistent with results from other countries. As far as we are aware, this is also the first study of green buildings' economic value based on a hedonic model incorporating buyer characteristics. * University of Cambridge, Dept of Land Economy, [email protected], ** Reitaku University Sustainability research in real estate has reached a critical juncture. The seminal studies (Miller, Spivey, Florance, 2008, Fuerst and McAllister, 2011, Eichholtz, Kok and Quigley, 2010, 2011, Reichardt, Fuerst and Zietz, 2012 to name just a few) provided first valuable insights into the pricing of sustainable real estate. However, these studies are also characterised by important limitations. Firstly, they typically focus on specific sectors, in specific countries and over specific timeframes which means that their results may not be readily generalisable to other sectors, places and time periods. This is particularly relevant as the majority of studies were conducted using data from the US office market, possibly because of data availability. Secondly, these studies rely on a very small number of data sources (notably from the CoStar Group) which provide a great wealth of information on property characteristics but are rather limited regarding the environmental performance and general sustainability indicators. Perhaps surprisingly, the residential sector has attracted a much smaller number of academic studies in this topic area, despite its large size and obvious relevance for both the general economy and sustainable development. The reasons for this lack of empirical evidence are not clear. Larger fragmentation of investors and a lower fraction of professional or institutional investment in the market driving the discourse around 'green value' may be a contributing factor. Also, housing markets are highly regulated and prone to inefficiencies in many countries which makes it more difficult to measure the contribution of sustainability and energy efficiency to prices and rents. 'Green' financial instruments are also still not used widely in the residential sector which makes capitalization into the lump-sum house price the