Energy-efficient homes and mortgage risk: crossing the chasm at last?

A topic of recent interest is energy-efficient houses. In the last twenty years, the US market has witnessed growth in the adoption of energy efficiency via various building technologies, design schemes, and eco-labels by developers, homebuilders, and homebuyers. Although housing and real estate scholars have begun explorations of the factors associated with the diffusion of energy efficiency, the subject has yet to be explored from the perspective of a critical stakeholder—the mortgage lender. This paper distinguishes itself from the extant literature in several ways. First, using a diffusion of innovation intellectual framework, the authors explore the role of the lender as an innovation gatekeeper. Second, as a review article, the authors summarize several key papers from the underwriting, credit scoring, and finance literature to help frame a number of market frictions that could mute further diffusion of energy efficiency in housing. Finally, the authors analyze these frictions and offer both market and public policy suggestions that may help overcome these frictions and increase opportunities for both private competitive advantage and market transparency.