What Will Motivate More People to Make Their Homes More Energy Efficient?
Researchers find that certain kinds of financial incentives are more effective than others
Researchers find that certain kinds of financial incentives are more effective than others
How do you get people to reduce their home’s carbon footprint?
The U.S. government hopes the answer is to appeal to their pocketbooks. As part of the Inflation Reduction Act, the government is rolling out increased federal tax credits and rebates to help offset the cost of energy-efficient upgrades such as electric heat pumps and added insulation, and adoption of clean-energy technologies such as rooftop solar.
But recent research suggests that some financial incentives might be more effective than others when it comes to getting middle- and lower-income consumers to make energy upgrades. Researchers also have found that social pressure can be effective: Consumers notice what their neighbours do, and energy providers might be able to leverage that to get people to make changes, researchers say.
Here is a closer look at what researchers have found that does and doesn’t work:
One concern about many clean-energy tax credits is that historically they have disproportionately benefited the rich. Researchers say wealthier people are more likely to live in single-family homes, where it is easier to install things like rooftop solar and charge electric cars. It also could be that lower-income families have much lower taxes and thus benefit less from these kinds of tax breaks. So for many households, tax credits don’t talk.
But recent research from Lucas Davis, a professor at the University of California, Berkeley’s Haas School of Business, suggests that one of the enhanced energy tax credits in the Inflation Reduction Act could prove to be an exception to this rule.
In a study published this year, Davis and his co-authors found that 14% of U.S. households have a heat pump as their primary heating equipment, and that adoption levels are remarkably similar across different income levels, and even between homeowners and renters. Heat pumps often cost less than installing separate heating and cooling systems. And states with low electricity prices tend to have more heat-pump users since they cost less to operate in those areas.
Those findings suggest that the federal tax credit for purchasing and installing a heat pump—which increased to $2,000 from $300—has the potential to be more widely distributed across income levels than subsidies for many other low-carbon technologies, says Davis, and consequently get more people to invest in the equipment.
Another recent study looked at residential solar-adoption trajectories and why some communities lag behind others. The authors used satellite imagery and computer vision to capture the year-over-year growth of residential solar panels in 46 states between 2006 and 2017. They then looked at what the federal, state and municipal incentives were in place when the panels were installed.
They found that performance-based incentives—payments made to solar-panel owners based on how much electricity their system generates over a certain period—were associated with higher solar adoption rates in lower-income and middle-income communities than incentives tied to property taxes or rebates paid via lower state or municipal taxes.
In some cases, consumers can benefit from both performance-based incentives and net-metering programs, where homeowners can sell back to the utility any surplus power their solar system produces on sunny days, and use those credits to offset the cost of the power they pull from the grid at night or on cloudy days, resulting in a lower electric bill.
“Performance-based incentives reduce the upfront costs of solar panels for homeowners,” says Ram Rajagopal, an associate professor at Stanford University and one of the paper’s co-authors, explaining that if solar installers collect the performance-based incentives, homeowners can lease the panels at a discounted rate and still get the benefit of saving on their monthly electric bill.
A third recent study, meanwhile, finds that net metering and high electricity are two big factors that correlate with rooftop-solar adoption across the U.S. The authors conclude that anticipated electricity-cost savings could stimulate further solar deployment, especially in areas where people are skeptical about global warming, and should be incorporated into promotional campaigns.
Taken together, the recent studies suggest that when it comes to solar adoption, incentives that provide an immediate financial benefit—say, lower upfront installation costs and savings on electricity bills—could be more motivating to low- and middle-income households than tax credits they have to wait to collect.
Researchers also are examining whether social networks and connections can be leveraged to convince more households to make energy upgrades.
“Social norms and interactions affect people’s behaviour, and alternative energy is no exception,” says Kenneth Gillingham, a professor of economics and senior associate dean at Yale School of the Environment, whose work suggests solar-panel adoptions tend to happen in regional or geographic clusters.
Among Gillingham’s findings are that households are more likely to install solar panels if they can see their neighbours’ solar panels from the road. A forthcoming study of his finds that solar-panel installers are likely to reduce prices for customers whose homes are in centralised locations, since their installation is likely to encourage others to follow suit.
Researchers also are studying if the neighbour effect can be used to recruit households in lower-income communities for state and municipal programs that offer free home-energy audits or subsidised solar-panel installations.
The administrators of such programs often struggle to identify which households are eligible. And potential customers often lack key information, are turned off by the paperwork or don’t trust program providers, says Kim Wolske, a research associate professor at the University of Chicago’s Harris School of Public Policy.
“Even when the energy upgrades are free, past research suggests it can be difficult to recruit lower-income households,” she says.
In a recent study, Wolske and her co-authors asked 7,680 low-income homeowners who recently received free installation of solar panels if they could refer other potential customers.
To identify the best approach, the authors divided homeowners into three groups. The control group received a postcard saying they could get $200 for every referral that signed up for solar panels. The second group received that same offer plus a $1 thank-you gift, designed to remind them of the value of the installed solar panels (about $20,000) and to encourage them to return the kindness by referring another homeowner. The third group received the $200 offer, the $1 gift and a form where three referrals could be made along with a stamped and addressed envelope.
The researchers found that homeowners in the third group, who received the stamped and addressed envelope, were 7.5 times as likely to make referrals than the control group, and those referrals were 5.2 times as likely to result in a new solar contract.
Energy providers, meanwhile, are testing whether they can nudge homeowners to make energy-efficiency improvements by comparing their energy use with that of neighbours.
Not only do such home-energy reports coax people into changing their behaviour—say, turning off unused lights or turning down the heat—they also encourage people to make energy-efficient updates in their home, like buying Energy Star appliances, research shows.
A study published in 2022 found that energy consumption in homes that received a home-energy report remained low even after utilities stopped sending the reports and the owners sold the home, suggesting that the long-lasting benefits of these programs come from energy-efficient upgrades.
Another study in Southern California looked at the effect of sending home-energy reports and an additional nudge, called a peak energy report. Peak energy reports are automated phone calls or emails, reminding energy customers to reduce energy consumption during peak hours when demand for electricity exceeds supply.
The researchers found that when customers received both the home energy report and the peak-energy nudge, they reduced their electricity consumption on average by about 6.8%. Customers who received just one of the nudges also reduced their consumption but less so.
“Comparing customers provides a reference for energy usage and taps into their social consciousness,” says Robert Metcalfe, an associate professor of economics at the University of Southern California and author of the two studies on nudges.
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The US housing market remains under pressure as high mortgage rates continue to weigh on affordability and demand. Industry leaders say 2026 has been one of the toughest years for home sales, with slower price growth, weaker mortgage activity, and fewer buyers entering the market. However, experts say reduced competition and more price cuts could create opportunities for well-prepared buyers.
The typically busy spring season for the housing market was a dud, and the summer isn’t looking much brighter.
Housing services companies like Zillow Group and Rocket RKT +3.78% were loud and clear last week on earnings calls: Rocket CEO Varun Krishna called the quarter through June “one of the toughest spring housing markets in years.”
Jeremy Hofmann, Zillow’s chief financial officer, said on a conference call that the company predicted earlier this year that the market for mortgages would be flat. “We actually now think it’s going to be down low-to-mid-single digits,” he said.
The rest of 2026 will remain challenging for mortgage origination volume, says KBW analyst Bose George. The question now is what happens in 2027. “If mortgage rates remain [around] 6.75%, I think that’s going to be challenging even for next year,” he says.
But what’s bad news for mortgage companies could be a positive for bargain hunters. Buyers can expect prices to grow more slowly—or mildly decline—with less competition as long as mortgage rates remain unpredictable.
Mortgage rates at the beginning of the year were solidly below year-ago levels, notes Zillow senior economist Kara Ng. But they surpassed last year’s levels recently, she adds, referencing Freddie Mac’s weekly survey of 30-year fixed mortgage rates. Last week’s reading, at 6.69%, was higher than year-ago levels for the first time in 2026.
“From the affordability point of view, it’s going to get more challenging in the second half of the year,” she says. “And when affordability gets more challenging, that impacts sales and home price appreciation.”
Mortgage application data tracked by the Mortgage Bankers Association has cooled since the beginning of the year. The trade group expects that the number of mortgage originations in the remaining two quarters will lag behind last year’s levels, after exceeding 2025 levels in the first half.
Rocket’s early-stage data—which the company told Barron’s it derives from its brokerage Redfin, demand for its mortgage products, and signs in its servicing portfolio that a homeowner is preparing to refinance or move—“leads us to expect the third quarter mortgage market to be smaller than the second,” Chief Financial Officer Brian Brown, said on the company’s call. He added that such an occurrence is “something the industry has not seen since 2022.”
Prices will be about flat nationally, Ng says. Zillow’s most recent forecast, which shows how values are expected to change in the year ending June 2027, show them dropping in roughly half of the 100 largest U.S. metros for which data is available.
Buyers aren’t rushing in at a time when mortgage costs are rising and unpredictable. But those with the right combination of patience and cash could stand to benefit. “If you are financially qualified to buy a starter home, you are facing less competition and you’re more likely to get a price cut,” Ng says.