Sustainable cities and urban transformation: The economics and drivers of residential sustainability certifications

Abstract

This paper evaluates the economic impacts of sustainability certifications for urban residential buildings, analyzes real estate professionals' perceptions of their financial return, and identifies the key drivers of sustainable certification adoption. Using a case study approach, natural language processing of semi-structured interviews with real estate professionals, and valuations by professional appraisers, we show that sustainability certifications enhance both building value and profitability while requiring only a modest relative capital expenditure. The magnitude of these returns differs significantly by building type: larger assets, new constructions, and properties in prime urban locations tend to yield greater financial benefits than their smaller, older, or non-prime counterparts. Perceptions of economic benefit also differ by stakeholder group. Sell-side actors (sustainability consultants and certifiers whose revenues depend on originating or delivering certifications) are generally optimistic about the net benefits. Buy-side actors (institutional landlords, property investors, and their financial advisers who bear the cost of upgrades) are markedly more skeptical. This study provides insights for policymakers and urban planners on whether further intervention is needed to promote sustainable urban development and concludes with policy recommendations.