Green Luxury Goods? The Economics 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. However, further analysis reveals that this premium is primarily driven by wealthy households that exhibit a higher willingness-to-pay for eco-labelled condominiums, both as a total amount and as a fraction of the total sales price. We therefore conclude that eco-labels are perceived as a luxury good in the Japanese housing market rather than a way to save money on lower utility bills.