The Environmental Impact of Easy Lending

Professor Manuel Adelino and Professor David T. Robinson studied the link between easy credit, bigger houses, and greenhouse gas emissions 

October 25, 2023
Energy & Environment, Finance
Environmental Impact of Easy Credit_Manuel Adelino, David T. Robinson_Duke University's Fuqua School of Business

Housing contributes to about 20 percent of the United States’ greenhouse gas emissions. To put that in context, if the American housing stock were a country by itself, it would be among the world’s largest sources of emissions—only behind a handful of countries like China, India, Russia, Brazil and the other 80% of the United States that isn’t housing.

New research from finance professors Manuel Adelino and David T. Robinson of Duke University’s Fuqua School of Business examines the link between easy mortgage lending and the energy efficiency of U.S. housing. Their work appears as a National Bureau of Economic Research (NBER) working paper entitled, “The Environmental Cost of Easy Credit: The Housing Channel.”

As finance scholars, Robinson and Adelino wondered if mortgage credit availability had contributed to the environmental impact of housing by affecting the characteristics of the new houses being built.

The researchers considered three broad housing characteristics: size, quality and durability. More durable homes last longer but take more resources to build, so the environmental impact of durability is unclear, Adelino said. Higher-quality homes may or may not consume more energy, he said, depending on whether they incorporate energy saving features into their quality upgrades—some do, but many do not. But the effect of house size on energy use is clear. “Bigger houses unambiguously use more energy,” Adelino said.

“In the last 60-70 years, U.S. homes have become about 50 percent larger,” he said. “The energy consumption of homes increased by approximately 15 percent purely because of a house-size effect.”

The researchers studied U.S. housing data from the last six decades, focusing on three moments when financial policies affected access to mortgages:

1) The bank deregulation of the 1960s through the 1990s;

2) The restrictions on inter-state banking enacted by some states at the end of the 1990s;

3) The housing boom of 2001-2006, driven by the rise of mortgage-backed securities.

“We were able to isolate the effect of more generous mortgage conditions on new houses in certain zip codes, compared with zip codes unaffected by easier credit,” Robinson said.

Overall, the researchers found, easier availability of credit is responsible for about one-third of the home-size expansion through the decades.

This result is surprising, Adelino said, because you would expect that easier credit benefited lower-income, less wealthy people who weren’t receiving credit before—people who would build smaller houses, not larger homes.

“But that’s not what we found,” Adelino said. “The net effect is that when credit becomes easier, homes get larger.”

However, the researchers believe restricting the availability of mortgages would not be a viable solution and could create greater housing inequity.

“You don't want to restrict credit to people,” Adelino said. “And you don't want to change monetary policy. Those instruments are too blunt.”

Adelino said government policies such as carbon taxes and incentives could be key in mitigating the environmental impact of larger houses.

“You can impose a tax on larger homes,” Adelino said. “Or you can provide fiscal benefits for smaller homes. You might even want to incentivize homes inside urban centers, because urban living is more energy efficient than suburban living.”

Robinson also noted that many housing decisions are made by homebuilders before the buyer gets a chance to influence the outcome, suggesting policy interventions could try to align the incentives of the builders with energy-saving features of new houses.

“Most people make housing decisions based on a lot of different factors simultaneously—the quality of schools, proximity to work, neighborhood amenities,” Robinson said. ”But houses last for so long that every little, tiny choice that has a climate impact could make a huge difference over the long run.”


This story may not be republished without permission from Duke University's Fuqua School of Business. Please contact for additional information.

Contact Info

For more information contact our media relations team at