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Reports
are emerging in every sector of the building industry that show New
Energy and Energy Efficiency features do much more than reduce utility
bills. They increase market value.
Buyers are coming to
understand this and demand for homes and buildings with green features
is growing. As a result of increasing demand for green building
features, statistics show the sector was one of the few bright spots
for the construction industry in 2009. Well-documented findings, like those about the Pacific Northwest residential real estate market in Certified Home Performance: Assessing the Market Impacts of Third Party Certification on Residential Properties,
by Ann Griffin of the Earth Advantage Institute, are the basis for a
prediction about emerging green building trends from Sean Penrith of Earth Advantage.
In
Griffin’s investigative research, a sample of third-party certified
homes in the Portland and Seattle metropolitan areas was selected.
Certified homes in the Seattle metro area sold at a price premium of
9.6% when compared to comparable noncertified counterparts. Certified
homes in the Portland metro area sold at a 3%-to-5% price premium. In
addition, certified homes were on the market 18 days less than
noncertified homes. Griffin’s paper includes references to a variety of
market studies with comparable findings.
Penrith
says that because of such fundamental economic facts there are 10
trends that will lead green building in 2010 and expand on its ability
to incorporate New Energy and principles of Energy Efficiency:
1. The smart grid and connected home.
2. Energy labeling for homes and office buildings.
3. Building information modeling (BIM) software.
4. Buy-in to green building by the financial community.
5. “Rightsizing” of homes.
6. Eco-districts.
7. Water conservation.
8. Carbon Calculation.
9. Net Zero Buildings.
10. Sustainable building education.
click to enlarge
This
is exciting news in and of itself but it is part of a much bigger
trend. Polls show broad support nationwide among all demographics and
both political parties for New Energy. Few have found a way to use this
overwhelming majority to move the recalcitrants in Congress but many
are working on it.
Washington, D.C., is likely to see green building in 2010.
Typical of polls taken over the last year. (click to enlarge)
COMMENTARY
The
Griffin study of the market performance of third-party certified
sustainable homes starts with a fundamental assertion: “Certified homes
are worth more.” It goes on to provide the evidence that this assertion
is true.
It also deconstructs the several important issues inside the assertion.
It
concludes by describing the work that remains to fully understand the
implications and dimensions of the assertion, including a collaboration
among residential appraisers, real estate brokers, homebuilders, and
sustainable building advocates to better understand and explain the
multiple issues involved in home valuation.
click to enlarge
Market
sales information does not account for performance-based cost savings
or resident health and broader environmental benefits from
sustainability. Earth Advantage Institute set out to do comparable
property analysis and test the hypothesis that certified homes would
demonstrate better market performance in terms of sales price and time
on market than comparable, noncertified homes.
Specific research in the Griffin paper:
(1)
a study of residential property comparables (certified vs. comparable
non-certified homes, determined by a certified appraiser);
(2) surveys and interviews with home builders;
(3) interviews with residential appraisers;
(4) surveys of residents of certified homes;
(5) a study of marketing and consumer education impacts on home sales;
(6) residential property case studies (published separately); and
(7) commercial property case studies (published separately).
click to enlarge
The
Portland study: 92 certified homes built between 2000 and 2008, with a
majority sold in 2006 and 2007; 340 comparable homes, each certified
home matched with 3 or 4 comparables.
Conclusions:
(1) Certified homes sold 18 days faster than noncertified homes.
(2)
Certified homes sold for 3% to 5% more than noncertified homes. In a
statistical analysis with a 95% level of confidence, the overall price
difference was found to be 4.2%.
The Seattle study: 68 certified homes, 207 comparables; an analysis included of market performance in terms of the sales price.
Conclusions:
(1) The expected percentage change for sales price was found to be 9.6% more for the third-party sustainable certified homes.
(2)
The certified homes did not sell faster, and stayed on the market an
average of 5 days longer (or 40% more time on the market).
Residents
living in third-party certified and self-certified homes gain more than
just market value. They also benefit from the longevity of the home,
more efficient energy use and improved indoor air quality. 90% of
third-party certified home residents say they would choose it over a
noncertified home and would pay more. 80% would pay as much as 5% more.
click to enlarge
Summary of the key findings in the Griffin residential property analysis:
(1)
Sustainable third-party certified homes sell faster. They stayed on the
market an average of 18 days less in the Portland metro area in 2007-08;
(2)
Certified homes sell for more than noncertified homes. In the Seattle
metro area, they sold for 9.6% more; in the Portland metro area, they
sold for 4.2% more;
(3) Certified homes sold for 11% more than
noncertified homes between May 1, 2007 and April 30, 2008 in the
Portland metropolitan market;
(4) Newly constructed green-certified
homes in King County, WA, for the 9-month period ending May 31, 2008
sold for 4% more. Per square foot, certified homes sold for 37% more;
(5)
Home builders (98%) believe that third-party verification adds value
and are concerned that current residential appraisal practices fail to
recognize the positive benefits of certification;
(6) The home
buying public needs to better understand the value and significance of
certified sustainable homes. Home builders who build Earth Advantage
and Built Green homes say homebuyers need to learn to appreciate the
quality and value (long-term durability, high quality materials,
improved indoor air quality, increased energy efficiency) of
sustainable homes;
(7) Home values should incorporate performance
measures. Example: Long-term reductions in utility bills and repair
costs should be a considered in the appraisal price;
(8) More
dynamic appraisal models are needed. Sustainable building advocates,
home builder associations, residential appraisers, realtors, and
financial institutions ned to collaborate on mechanisms for recording
sustainable improvements in a home and monitoring those improvements’
ongoing performances; and
(9) Certified homes perform better if
the home buyer understands the quality and systems of the home and
displays it to prospective buyers.
Two 2009 highlights of green building:
(1) the Oregon Sustainability Center,
which may be one of the first “living” office buildings; and (2) the
market share for certified sustainable new homes rose in greater
Portland and Seattle, despite the down economy.
Artist's rendering of the Oregon Sustainability Center. (click to enlarge)
Notes on the trends expected to emerge in 2010 because of the growing recognition of the value of green building:
(1) The smart grid and connected home.
Spurred
by funding from the Obama administration through the Recovery Act and
budget measures supporting New Energy (NE), Energy Efficiency (EE) and
the advanced transmission requirements they introduce, utilities are
investing in localized pilot projects that (1) upgrade the grid, (2)
streamline power generation and (3) more efficiently store and/or
distribute electricity. The biggest activity is in homes because
venture capital shifted last year, with the economic downturn, to
“smart” technology.
Because much of venture capital comes from
success in the IT boom, the development of “smart” systems to manage
energy is an obvious evolution to ET (energy technology) in the pursuit
of more efficiently providing IT with the huge doses of energy it
needs. In the process, it will streamline energy consumption in
residences and commercial buildings.
The developments include
custom and web-based display panels (“energy dashboards”) that show
real-time home energy use, even real-time energy use, appliance by
appliance. These will give residents and occupants more control of
their consumption of energy and cannot help but change energy use
habits toward conservation in the same way that the Toyota Prius
dashboard had led to modified driving habits. Homes and buildings could
be rated with an Energy Performance Score.
Smart grid growth is expected to be big. (click to enlarge)
(2) Energy labeling for homes and office buildings.
The
ability to quantify the efficiency of homes and buildings means it can
be used to understand the value of New Energy and Energy Efficiency
upgrades (like a car’s mpg). Momentum is building among energy agencies
and legislators to label homes and buildings and allow buyers to
compare them. A publicly available score on the
Multiple Listing Service (MLS) would surely transform the value of NE and EE improvements and drive adoption.
Pre-
and post- upgrade energy audits already show the capacity of NE and EE
and will likely be used to demonstrate the effectiveness of Recovery
Act spending. Many states, including Oregon, Washington and California
in the West, have written energy performance into recent legislation
that approaches the concept of labeling.
The EU has a multidimensional home efficiency rating system. (click to enlarge)
(3) Building information modeling (BIM) software.
Seeing
an opportunity to expand their reach, IT entrepreneurs backed largely
by Silicon Valley-based VC money have been evolving ever more
remarkable computer-aided design (CAD) software for building design
with increasingly accurate energy consumption modeling. This is
expected to be another way that home and building performance can be
quantified. BIM software is already finding its way to a wider audience
of designers and builders.
(4) Buy-in to green building by the financial community.
Lenders
and insurers already see the value and are working green building into
their packaging. New loan products and insurance packages are emerging
that offer better rates to owners and residents of green buildings that
can demonstrate with new tools that their homes and buildings are more
efficient and healthier.
An adjunct of the approach is that it
makes owners more responsible for care and maintenance and less
inclined to indiscrimately or irresponsibly cut costs.
Why wouldn't they buy in? (click to enlarge)
(5) “Rightsizing” of homes.
With
rising awareness of efficiencies and falling real estate valuations, a
bigger space no longer means greater equity. Real estate values are not
expected to rise quickly and energy prices are. And the Federal Reserve
is likely to raise interest rates by mid-year to control inflation,
which will have a dampening effect on the real estate market. For all
these reasons, builders are planning on smaller new and upgrade
projects.
(6) Eco-districts.
Walkable, low impact
communities in urban and suburban settings is gaining momentum coast to
coast. Portland is encouraging greener communities designed for walking
and biking. California’s SB 375 would reward communities for
sustainable growth. These movements are backed as much by conservatives
who want the nation to reduce its dependence on foreign oil as by
environmentalists.
(7) Water conservation.
Even more
than energy – and largely due to modernity’s profligacy with cheap
fossil fuel energy in the last century that has led to global climate
change – water is almost certainly going to be the essential resource
in the coming years.
Residential water use is more than half of
the publicly supplied water consumption in the United States. In an
effort to control that, the EPA’s WaterSense specification for new
homes, finalized in December of 2009, requires water use reductions of
20%. Compliance verification groups will likely be trained to
WaterSense standards.
Europe’s mandatory energy labeling
includes water efficiency documentation and U.S. performance scores are
also expected to include it.
click to enlarge
(8) Carbon Calculation.
The
first step toward controlling the 40% of U.S. greenhouse gas emissions
(GhGs) that come from buildings’ use of energy is the measurement and
documentation of each building’s role in the consumption. That does not
begin when a light switch is thrown. It begins with the GhGs generated
in the production of the building materials.
Lifecycle
analysis (LCA) of building products by third party technical teams is
underway. Some are working with state and federal authorities to
educate and develop effective carbon offset policies (including
monetized credits to make favorable methods profitable). How far this
trend develops depends on whether the Obama administration’s energy and
climate legislation, and the cap™ mechanism contained in it, becomes
law.
(9) Net Zero Buildings.
Definition of a net zero
building: A building that generates more energy than it uses. Time
frame for measurement: One year. Variables: size, EE, NE.
The very influential Architecture 2030 Challenge
calls for all buildings in the U.S. to be net zero in 2030. The goal is
already within reach. The technologies exist. Oregon has several net
zero homes, and the planned Oregon Sustainability Center will be a net
zero office building.
(10) Sustainable building education.
Builders
are beginning to learn and understand. Homebuyers, homeowners and
building owners are educating them. Demand, especially in progressive
cities, will continue to drive the process. It will sweep up the entire
chain of building industry-associated professionals (real estate,
finance, insurance). The result will be a growing appreciation of the
profitability of green building from the designer and builder to the
appraiser, the bank, the insurer and the owner.
click to enlarge
QUOTES
-
From the conclusion to the Griffin study: "Residential appraisers, real
estate brokers, and financial institutions will benefit from a greater
understanding of sustainable home construction and home value by
improving their ability to work with third-party certified buildings.
Increased professional training and understanding of sustainable home
practices will lead to more accurate value assessments of sustainable
homes...Residential builders and sustainable building advocates must
continue their dialog with appraisers, real estate professionals, and
relevant financial institutions in order to facilitate this improved
knowledge transfer..."
- Jim Harris, Financial Post, December 15, 2009:
"What is the future of energy? is a critical question. The three
fastest-growing sources of power in the future will be: negawatts,
smart systems and clean power...Negawatts...is a term coined by Amory
Lovins to signify electricity that isn't needed to be produced due to
energy efficiency. Mr. Lovins is one of the world's leading energy
efficiency experts -- and coined the term when he saw a typo in a
report -- "negawatt" instead of "megawatt." Every kilowatt hour (kWh)
that I save through energy efficiency is a kWh that someone else
somewhere else on the grid can use. It's the cheapest form of power
generation. A negawatt strategy can apply to: 1) how electricity is
produced; and 2) how it is consumed..." posted by Herman K. Trabish
Top Ten Green Building Trends To Watch In 2010
Sean Penrith, January 8, 2010 (Earth Advantage Institute)
