Higher energy prices: Windfall gains for homeowners?

The rapid rise of energy fuel prices in recent years has stimulated household interest in the cost of heating, cooling, and lighting houses. The obvious response implied by government policy and some government programs emphasizes an evaluation of houses, at least partially, on the basis of the reported fuel bills. The more fundamental issue, however, is establishing the potential for reducing energy consumption by improving home energy efficiency. The distribution of this potential throughout the housing stock implies that homeowners should gain or lose house value according to market perception of the retrofit potential rather than fuel bills per se. Houses which require few expenditures per unit of energy saved annually should increase in value at the expense of houses which require major expenditures. The ability to improve housing in response to higher energy prices probably correlates weakly but negatively with household income; lower income households could gain the most per dollar invested in home energy improvements. The hypotheses presented in this paper identify a number of issues that require empirical validation yet challenge conventional views on the basis of currently available data.