Bad indoor air is an external cost of office buildings

Markets · Apr 2026 · 7 min read · 16 sources

Doubling the minimum ventilation rate of a US office building costs under USD 40 per person per year in extra energy. In 2015, the environmental health researcher Piers MacNaughton and colleagues put the employer's gain in productivity at about USD 6,500 per person per year, in a study funded by United Technologies / Carrier, a maker of ventilation systems. The developer sets the ventilation rate, and the cost of bad air falls on other people.

Written by

Christian Huser
neuecon partners

I think a rent premium for health-certified offices and an EU legal definition of indoor environmental quality could together move part of the cost of bad indoor air to the owners of buildings.

Three white ventilation pipes against a concrete wall.

Who pays for bad indoor air

Bad indoor air is an external cost: it falls on people other than the party that causes it. I came to this view in February 2026, from 16 sources I analysed for a report for The Built Review, among them studies, market reports and the EU directive on buildings.

The developer decides the ventilation rate and chooses materials that give off gases into the air. Staff who breathe that air perform less well, at a cost to their employer. Health insurers pay for treatment, and in housing the damage to health falls on the tenant's family. The environmental health researcher Joseph Allen of the Harvard T.H. Chan School of Public Health calls this a split incentive.

Office workers scored higher in cleaner air

In a study published in 2016, Allen, MacNaughton and colleagues put 24 office workers in a lab chamber in Syracuse for six working days, without telling them which air they had on which day. With low levels of volatile organic compounds, gases that building materials and furniture give off, the workers scored 61% higher on a test of decision-making than with the high levels of a conventional office. With low levels of these gases and twice the ventilation rate, they scored 101% higher. I read these figures as a likely upper bound, because 24 workers is a small sample.

Real offices showed a smaller effect. In 2017, MacNaughton and colleagues gave the same test to workers in green-certified and non-certified office buildings, and those in green-certified buildings scored 26.4% higher. Of the three figures, I take 26.4% as the closest to daily work.

United Technologies / Carrier funded all three studies, so I treat the lab scores and the dollar figures with caution. In a second report for The Built Review, I traced MacNaughton's 2015 calculation back to the Syracuse experiment: it turns the higher test scores into a wage figure. Its doubled rate starts from the minimum of ANSI/ASHRAE Standard 62.1, the ventilation standard of the American Society of Heating, Refrigerating and Air-Conditioning Engineers. The direction of the effect has support from sources independent of any manufacturer, among them a study by the behavioural scientist Usha Satish and colleagues in 2012 and a synthesis by the indoor-environment researcher Pawel Wargocki and the indoor-climate researcher David Wyon in 2017. The psychologist Christopher Rodeheffer and colleagues gave the same test to 36 submariners in 2018 and found no effect of carbon dioxide.

The rent premium and its cause

The owner gains from better air when tenants pay more rent for it. The real estate analyst Natasha Sadikin and colleagues at MIT analysed CompStak, a database of office leases in ten US cities, in 2021. In Class A offices, the top grade in a market, tenants paid 4.4 to 7.7% more rent per square foot, net of incentives such as rent-free months, for space certified under WELL or Fitwel, two health rating schemes, than for comparable space without a certificate. Their paper is a working paper on SSRN, an online repository for research papers. I found no peer-reviewed version of it.

The real estate researchers Katharina Minkow and Franz Fuerst of the University of Cambridge found a premium of 4 to 6% for health-certified US offices in 2025. They compared each certified office with offices in the same market that had no certificate but whose other features made one about as likely. The premium held in every version of their model. Location and neighbourhood contributed more to the rent than the certificate.

I take both premiums as real, but I found no study that shows the certificate to be their cause. A higher rent for a certified building can also come from its location and quality. The real estate researcher Jeremy Gabe and the property researcher Michael Rehm showed this in 2014 for an energy label, and I apply their result to health certificates. They linked office leases in Sydney to the measured energy performance of the same buildings under NABERS, the Australian energy rating scheme, and found no difference in rent by energy performance beyond what chance could explain. Six location and quality factors, they write, "explain over 85 per cent of gross face rent prices". They read their result as "evidence against the common assumption that rent premiums at the asset scale reflect tenant willingness to pay for energy efficiency".

Two national estimates of the damage

I think the rent premium will last only if the national cost of bad indoor air is large enough for governments to act on it. In 2017, the environmental health researcher Guillaume Boulanger and colleagues estimated this cost for France, for ANSES, the French agency for food, environmental and occupational health and safety. For six pollutants and the reference year 2004, they put the cost to society at about EUR 19 billion per year, about 1% of French GDP. The six pollutants are benzene, trichloroethylene, radon, carbon monoxide, fine particles and secondhand smoke. ANSES calls the figure an illustrative order of magnitude.

In 2021, the Building Research Establishment, a British commercial research and certification body, estimated that illness caused by poor housing in England costs the National Health Service GBP 1.4 billion per year in the first year of treatment. Excess cold in homes accounted for GBP 857 million of this. With lost productivity and further costs, the Building Research Establishment put the cost to society at GBP 18.5 billion.

I think a German reform of building rules will stay below what the EU directive allows, because I found no comparable total for Germany.

Tobacco and lead paint took decades

The evidence from epidemiology, the study of disease across a population, had been uncontested for four decades when US states and the four largest cigarette makers signed the Master Settlement Agreement in 1998. The makers agreed to pay the states USD 206 billion over 25 years, mainly for the cost of treating tobacco-related disease under Medicaid, the US public health insurance for people on low incomes. The physician Steven Schroeder described the history of the settlement in 2004.

The US banned lead paint in homes in 1978, about seventy years after the first epidemiological evidence. In 2009, the economist Elise Gould calculated a benefit to society of USD 17 to 221 for each dollar spent on controlling lead paint hazards in US homes, depending on which kinds of damage the calculation counts.

The evidence on indoor air in offices is about ten years old, and the fix is cheap. Doubling the ventilation rate, as MacNaughton and colleagues priced it, costs under USD 40 per person per year in extra energy.

What the EU directive requires

In April 2024, the EU adopted the revised Energy Performance of Buildings Directive, Directive (EU) 2024/1275. It came into force on 28 May 2024. Article 2 gives the first EU legal definition of indoor environmental quality, the conditions inside a building that affect the health and comfort of the people in it. The member states had until 29 May 2026 to write the directive into national law.

The directive sets no binding minimum for indoor air in existing buildings. Article 13 requires the monitoring of indoor air only in non-residential buildings that are zero-emission buildings or have had a deep renovation, and only where this is technically and economically feasible. Under the directive, all new buildings must be zero-emission buildings by 2030 at the latest.

Owners could come to pay part of the cost

For indoor air in offices, tenants have begun to pay for the fix before the law sets a minimum. I think a rent premium for health-certified offices and an EU legal definition of indoor environmental quality could together move part of the cost of bad indoor air to the owners of buildings. An owner of an office without a certificate risks a rent below that of certified offices. For the shift to happen, the large EU states would have to write rules for indoor air into national law that go beyond the monitoring in Article 13. A study would also have to show that the certificate causes the rent premium and that the premium holds in two consecutive quarters. Neither has happened.

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