LEED certification boosts the resale price of a Toronto condo anywhere from five to 14 per cent, according to a special TD Economics report released May 12. The report also found that the green building status had a mixed impact on a unit’s monthly maintenance fees and the number of days a unit sits on the market before selling.
The report’s findings build on the so far scant research linking LEED certification to market outcomes. The report also comes as green building status gains traction in residential construction, with about one in every 15 new condo developments in Toronto earning LEED certification.
TD Economics used hedonic regression to capture the value of as many condo and building features as possible to get an apples-to-apples comparison of 4,000 sales transactions that occurred between 2006 and 2014. The sales capture units in 36 condos (some LEED-certified, some not) developed by 18 different builders and spread across five neighbourhood clusters.
Resale condo units in LEED Silver-certified buildings fetch a 5.7 to 6.2-per-cent premium over units in non-certified buildings, suggests TD Economics’ analysis. Resale condo units in LEED Gold-certified buildings fetch a 12.2 to 14.9-per-cent premium over units in non-certified buildings.
Economist Brian DePratto, the report’s author, flags one important limitation of the analysis:
“Due to limited data availability, we are unable to state whether the estimated premium for LEED units is accruing to re-sellers of condo, or if it is captured by the condo developers the initial sales period,” he wrote. “It is possible that developers may charge more for these types of units during initial dales, and that the premium is just a reflection of higher initial costs.”
The analysis found that LEED certification’s impact on the number of days it takes to sell a condo unit was statistically insignificant, at between 0.06 and 0.12 extra days on the market compared to units in non-certified buildings.
The analysis also found that LEED certification had a statistically insignificant or even upward impact on a condo building’s maintenance fees. Gold status meant around 0.5 per cent lower fees, on average. Silver status actually meant 4.5 to 4.7 per cent higher fees, on average.
“The efficiency features typically included in these designs should tend to reduce overall building operating costs … which would be expected to be passed on in the form of reduced fees,” wrote DePratto.
The counterintuitive result merits more research, he said, offering one potential explanation:
“A condo board may choose to keep fees low initially, which could lead to significant repair charges later due to an underfunded reserve fund, regardless of the efficiency characteristics of the building,” he wrote. “A low maintenance fee may not necessarily be an indicator of a better performing building.”
