Association for Public Policy Analysis & Management

In order to achieve cost-effective deep decarbonization of the economy, the government should promote the electrification of most fossil fuel-burning applications such as space heating. The primary source of fuel for space heating currently is carbon-emitting natural gas in the U.S.. Deep decarbonization requires both cleaner electricity grid and electrification of space heating. Heat-pumps offer a feasible and energy efficient way for the electrification of space heating and have been identified by policy makers as a crucial technology for decarbonization. Despite of the important role of heat pumps, in most U.S. regions the penetration of heat pumps is still low. Policy makers need to adopt effective policy instruments to promote the diffusion of this important decarbonization technology. This study provides the first empirical evidence of the impact of heat-pump adoption on housing prices based on a nation-wide Zillow panel dataset including over 150 million residential properties in the U.S.. We find a positive price premium brought by heat pumps, which can be useful for the government to apply an informational program to promote the installations of heat-pumps and facilitate electrification to reach deep decarbonization.

The main empirical approach is a Difference-In-Differences (DID) method in conjunction with Coarsen Exact Matching (CEM), while controlling for a rich set of building characteristics including energy related technologies and remodeling. We also adopt multiple machine learning methods as robustness checks. First, we provide a nation-wide and regional-specific estimations of price premiums resulted from heat pump installations. Second, we examine the heterogeneity of the price premiums by investigating influencing factors. Third, we compare the price premium with estimated installation cost, environmental benefit and bill saving brought by heat pumps.

Our estimated average treatment effect on the treated is 7.44% nation-wide, meaning a positive price premium brought by heat pumps. We also find that regional personal income and population density exert negative and positive effects on the price premium, respectively. In terms of geographical heterogeneity, we find that the distribution of price premium is severely imbalanced across regions. Pacific and South Atlantic enjoy a highly significant positive price premium (6.4% and 11%), while other regions remain ambiguous, which is consistent with the geographical distribution of estimated net benefits (avoided environmental damage and energy bill saving) of switching to heat pumps with the current electricity grid. More importantly, we find that the price premium of homes with heat pumps is much larger than the heat-pump installation cost, which could be valuable for homeowners when deciding whether to install heat pumps. A significant positive price premium reduces the consumer risk of not being able to recover their investments when selling their houses.

Our results show that it is useful for policymakers to encourage the heat pump installation through an informational or educational program which provides information about the positive price premium, and potential environmental benefits brought by heat pumps. In addition, our results are useful for local fiscal authorities to calculate the property tax base. Our finding of geographical heterogeneity indicates different implications for policymakers in different regions.