Saturday, January 12, 2013

New Real Estate Research by Kahn, Kok and Quigley

My UCLA colleagues have asked me to give a research seminar on Monday.  While I don't like to function on Mondays, I do have a new paper that I'm excited about talking about.  This December 2012 draft is slightly out of date but it will show you what we are trying to do.   The commercial real estate sector is a major consumer of electricity and thus is a major contributor to creating greenhouse gas emissions.  The U.S government (for reasons I don't understand) has not updated its 2003 CBECS data.    Empiricists have trouble testing hypotheses without data!  We have created a very funky data set that allows us to test a number of interesting hypotheses.  Here are the big ideas.

Idea #1:  Building quality and energy consumption are complements and new buildings are consuming more energy over time.  This contrasts with the case of vehicle emissions where new capital is cleaner than older capital (see Kahn and Schwartz 2008) and Costa and Kahn for residential housing progress.

Idea #2:  Buildings with Full Service Lease tenants consume more electricity.  These tenants face a zero marginal cost for electricity and the law of demand holds!

Idea #3:  Buildings with a building manager on site consume less electricity.  Human capital conserves on natural capital!

Idea #4;  Buildings with more government tenants consume more power.  Beware soft budget constraints!

Idea #5:  The Rebound Effect Lurks ---- On hot days, newer buildings consume more power!   We conjecture that while such buildings have a newer HVAC system that since the price per unit of comfort is lower in such efficient buildings, such buildings' tenants respond by setting the thermostat lower and thus "rebounding".