Time for Green Building Codes?

California is talking about creating a “green” building code. I will put aside the question of whether a green building code is a good idea in the long run. If there is going to be a green building code, is now the time to start (rather than wait until after the recession)? Is California the place to start?

Note that real estate prices have been much lower during this recession than before, especially in California. The low real estate prices (more specifically, the underwater mortgages associated with them) are responsible for a large fraction of our economy’s poor performance of late.

Also note that a green building code raises the cost of building new structures (if green building were costless, then there’s no need for a government mandate!), and perhaps adding on to existing ones.

Existing structures compete with new structures in the marketplace, so introducing a green building code would raise the value of existing structures by raising the cost of building new ones. It will mean less construction output (and less living in a region with a green building code), which will depress land prices. It will even depress the value of land that has an existing useful structure, although the green code would increase the combined value of that parcel of land and its structure.

There will be less construction output, but possibly more construction input, depending the price elasticity of the demand for living in the region. Thus, a green building code would not necessarily reduce construction employment.

By raising the value of property with existing and useful structures, this could help alleviate one of the major problems in our economy (one offset is that some properties do not have a useful structure, and a green code would put mortgages on them even further under water), especially in California (less so in Nevada or Arizona, were the percentage of mortgaged properties with existing structures may be lower). So now may be the time for a green building code in California.

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About Casey B. Mulligan 76 Articles

Affiliation: University of Chicago

Casey B. Mulligan is a Professor in the Department of Economics. Mulligan first joined the University of Chicago in 1991 as a graduate student, and received his Ph.D. in Economics from the University of Chicago in 1993.

He has also served as a Visiting Professor teaching public economics at Harvard University, Clemson University, and Irving B. Harris Graduate School of Public Policy Studies at the University of Chicago.

Mulligan is author of the 1997 book Parental Priorities and Economic Inequality, which studies economic models of, and statistical evidence on, the intergenerational transmission of economic status. His recent research is concerned with capital and labor taxation, with particular emphasis on tax incidence and positive theories of public policy. His recent work includes Market Responses to the Panic of 2008 (a book-in-process with Chicago graduate student Luke Threinen) and published articles such as “Selection, Investment, and Women’s Relative Wages,” “Deadweight Costs and the Size of Government,” “Do Democracies have Different Public Policies than Nondemocracies?,” “The Extent of the Market and the Supply of Regulation,” “What do Aggregate Consumption Euler Equations Say about the Capital Income Tax Burden?,” and “Public Policies as Specification Errors.” Mulligan has reported on some of these results in the Chicago Tribune, the Chicago Sun-Times, the Wall Street Journal, and the New York Times.

He is affiliated with a number of professional organizations, including the National Bureau of Economic Research, the George J. Stigler Center for the Study of the Economy and the State, and the Population Research Center. He is also the recipient of numerous awards and fellowships, including those from the National Science Foundation, the Alfred P. Sloan Foundation, the Smith- Richardson Foundation, and the John M. Olin Foundation.

Visit: Supply and Demand (in that order)

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