(Note: This entry was originally published on August 28, 2015.)
I’ve been looking into residential solar panels lately: trying to figure out how much it would cost, whether it’s better to purchase or lease, how difficult it is to go through the permitting process, and what the net benefit of the panels would be in terms of energy and cost savings.
And then I heard another resident of my city tell about his experience with installing solar panels on his home. Not long after his system had been set up, one of his neighbors decided to sell their home. My associate happened to be outside one day when the realtor was stopping by, and after taking one look at his home, and seeing the solar panels mounted on his roof, she asked him if he was interested in selling his own home.
So this got me thinking – does the presence of a solar panel system increase a home’s selling price? There’s not a whole lot of literature on the subject, but a couple of studies out of California have indicated that there is indeed a positive impact on home prices. Hoen et al. (2013) estimate that solar panels generate a premium of roughly $5.50 per watt installed, while another study by Dastrup et al. (2012) find that solar panels generate about 3.5% in premium. I wondered – do homes in my area enjoy the same solar premium?
I began by figuring out which homes in my city – Irving, TX, in the heart of the DFW metroplex – currently had solar panels installed. A request to the city for permit data showed that several dozen residential property owners had applied for and been granted permits for the installation of solar panels. A majority (38) of these homes had been issued a “Final” permit, indicating the installations were complete. After consulting Google Earth, I was able to confirm that 31 homes had solar panel systems of varying sizes installed as of early 2015, and that they were dispersed throughout the city (rather than clustered in particular neighborhoods).
The next step was to gather data on all aspects of homes that have an impact on sales price. As a proxy for sales price, I turned to appraised value, which was readily accessible. The Dallas County Appraisal District collects data on a wide ranger of property features, which are then used to determined the property’s value for the purpose of tax assessments. From the appraisal district, I collected data on the following variables: age, size (in square feet), the number of storeys, bedrooms, baths (half/full), pools, central air, brick exterior, wet bars, sprinkler systems, outdoor decks, and the school district. The final variable is the presence of solar panels, measured with a dummy variable – equal to 0 if the home has no panels, and equal to 1 if the home has panels. (Note: This case study does not account for the size of solar panel systems, in terms of wattage or financial investment.) Between 2010 and 2015, the number of homes with solar panels increased, from zero to thirty-eight, with most of the increase occurring in the last year.
With 31 homes confirmed to have solar panels by 2015, and 6 years of data, the final sample was 223 home-year observations. The next step was to use what economists call a hedonic price, or hedonic regression, model. This model allows us to isolate the impact of any particular feature on the home’s overall price. For example, results of this case study show that additional bathroom lead to a 5.4% increase in value, a pool adds about 8% in value, and each additional year of age decreases value by about 1%. (Most of the results obtained in this case study appeared to be on par with those found in other, larger studies.)
Of most interest is the impact of the solar panels. In this sample, the presence of solar panels leads, on average, to an increase of just over 4.7%, and the effect is highly significant (at the 1% level of confidence). By 2015, all of the homes in this sample had solar panels present, so to double check the results, I expanded the sample size to include a ‘sibling’ home for each of the 31 solar homes to serve as a control group. This expanded the overall sample to 443 home-year observations. Doing so led to a smaller premium, dropping from 4.7% to about 3.8%, although still significant at the 5% level of confidence.
What does this mean for homeowners? It suggests that solar panels have a significant impact on a home’s perceived value, and eventually its sell price. As the anecdote noted above makes clear, those in the business of selling homes have an eye out for new or non-traditional features. In addition to the traditional aspects of a home – age, size, location, physical attributes – homeowners must now consider a wider range of features when buying or selling a home. And for homeowners interested in installing solar panels in order to reap energy cost savings, they can rest assured that at least some of their investment will be capitalized into the price of their home should they choose to sell it in the future.
What does this mean for “solar communities” as a whole? If the presence of solar panels is in fact reflected in appraisal values, it suggests a boost to the local tax base, as more and more homeowners choose to invest in solar. But beyond the increase in home values and tax revenues, an increase in the presence of residential solar panels within a community will lead to a decrease in demand for traditionally-generated electricity. With a decrease in the draw on the regional grid, communities can expect fewer temporary blackouts during seasons of increased electricity usage, or, they can devote the energy and costs savings to other economy activity. Overall, it seems that solar investment can be a win for everyone.
There are a number of caveats to be made about this analysis but the most important has to do with the short time-frame of this particular case study. There were no homes in Irving, TX, with installed solar panels prior to 2011. Since that time, it does not appear as if any of the homes where solar panels were installed have been sold. In other words, it remains to be seen whether the observed increase in appraised value translates into an increase in future sales price. But so far, the results look promising, in terms of the financial, economic, and environmental benefits.