Stricter building energy codes raise home prices and limit housing supply, if not well designed
Stricter building energy codes in Massachusetts are helping promote more energy-efficient homes and reduce carbon emissions — but at a cost: higher home prices and reduced housing supply, according to a new study by MIT researchers.
The research, which analyzes detailed housing and permitting data across municipalities, highlights how crucial climate policies can inadvertently intensify housing affordability challenges if not carefully designed.
“Improving energy efficiency is essential for addressing climate change,” says Jimena Muzio, a recent graduate of MIT’s Department of Urban Studies and Planning (DUSP). “Our findings show that without complementary measures, stricter energy codes can unintentionally make some types of housing less affordable for lower- and middle-income households.”
The study, “Understanding Housing Market Responses to Stringent Energy Codes,” was published in the journal of Real Estate Economics in March. The authors are Jimena Muzio, a former Master of City Planning student at DUSP; Dongxiao Niu, a postdoctoral associate at MIT’s Center for Real Estate (MIT/CRE); Justin Steil, Associate Professor of Law and Urban Planning at DUSP; and Siqi Zheng, the STL Champion Professor of Urban and Real Estate Sustainability and faculty director of MIT/CRE.
“We were able to decompose the sources of the 4% price increase. About 46 percent is driven by higher consumer demand for energy-efficient features, but the rest reflects a supply shortage driven by added construction and compliance costs.”
– Dongxiao Niu, posdoctoral associate, MIT/CRE
Impacts on Home Values
The research focuses on Massachusetts’ Stretch Energy Code, a set of heightened energy performance standards that municipalities in the Commonwealth adopted following the state legislature’s adoption of the 2008 Green Communities Act.
By exploiting the staggered adoption of the code across municipalities, the researchers were able to rigorously assess its impacts. They found that single-family homes built under the stricter standards sold for a 4.0 percent price increase relative to conventional homes. This price increase represents both the increased cost of building single-family homes compliant with the code and their increased value with greater levels of energy-efficiency, while also raising concerns about the attainability of homeownership for some households.
Municipalities adopting the Stretch Code experienced a 5.8 percent decline in new single-family housing starts — further constricting supply in an already tight housing market.
“We were able to decompose the sources of the 4% price increase,” says Niu. “About 46 percent is driven by higher consumer demand for energy-efficient features, but the rest reflects a supply shortage driven by added construction and compliance costs.”
“There is an opportunity to integrate housing policy and land use reforms alongside these building code improvements to reduce the risk of exacerbating existing inequities in housing access.”
– Justin Steil, Associate Professor, DUSP
Policy Adjustments to Benefit All
While buyers value the long-term benefits of energy-efficient homes, such as lower utility bills and lower carbon emissions, the immediate effect of stricter codes is to increase costs upfront — pricing out some would-be homeowners.
“Increasing energy efficiency through stricter energy codes is crucial to reducing carbon emissions and these stretch energy codes are the right policies for the Commonwealth. Ideally, affordability and sustainability can be addressed together,” says Steil. “There is an opportunity to integrate housing policy and land use reforms alongside these building code improvements to reduce the risk of exacerbating existing inequities in housing access.”
“As we move toward a low-carbon future, we must ensure that sustainability policies are well designed to align with other goals, such as housing affordability. They should benefit all segments of society, not just those who can afford higher-priced homes.”
– Siqi Zheng, Director, MIT/CRE
The researchers recommend that energy code upgrades be paired with complementary strategies such as zoning reform, streamlined permitting for energy-efficient developments, expansion of green financing options, and better appraisal practices that fully account for future energy savings. Such measures can help prevent the benefits of energy efficiency from being concentrated among higher-income households, leaving others behind.
“Climate action should not come at the expense of the reduction of housing production,” says Zheng. “As we move toward a low-carbon future, we must ensure that sustainability policies are well designed to align with other goals, such as housing affordability. They should benefit all segments of society, not just those who can afford higher-priced homes.”
Reference
Muzio, Maria Jimena, Dongxiao Niu, Justin Steil, and Siqi Zheng. “Understanding housing market responses to stringent energy codes.” Real Estate Economics (2025). https://onlinelibrary.wiley.com/doi/full/10.1111/1540-6229.12530
