Click here for larger image.Photo: Geolf McCormack
Selling new houses in 2011 means having your keister kicked by the old lady down the street.
And the couple with the kids across the road. And the schoolteacher two doors up. The truth is that builders are being outsold by their friends and neighbors: Only one in 13 homes sold in today's market is new.
Existing homes—or “used” homes, in current industry parlance—often compete effectively against or even beat new homes on location and price—arguably the two biggest drivers of a purchase decision. On another potential driver, however—cost of ownership—builders can prevail in almost every case. By virtue of current building codes, a new home is roughly 30 percent more energy efficient than a comparable existing home.
In the current extreme low-volume market, that energy advantage is one of builders' most powerful tools in gaining an edge on the existing-home seller. Recognizing this unique selling advantage, many builders are packaging up the things they are already doing to communicate the super practical notion that an energy-efficient home equals dollars saved—every month.
However, other builders see the sales opportunity another way. If they can push the energy envelope beyond what is required by code, further driving down buyers' monthly energy costs and maybe even earning some kind of third-party validation through a program like Energy Star, they have a truly unique value proposition, not only versus existing homes but less-efficient new homes as well.
On paper, that is. Getting to those higher levels of energy performance takes time, money, and, well, energy. Most builders remain unsure that the effort will pay off in additional sales or better absorptions. Buyers, still hampered by economic uncertainty and tight credit standards, have less to spend. When given a choice between practical, energy-saving products like a radiant barrier or better insulation and sexy stuff like granite countertops or hardwood floors, most buyers still will choose the latter.
But what if they didn't have to choose between spending their option dollars on the features they really want today and the features they really need over the long haul?
That, of course, would entail building to energy-efficient standards and making those standards, well, standard. That would force builders to learn how to amortize the additional costs of building a higher-performance home. The way to do that is to build to a level of energy efficiency where the cost to the homeowner in terms of additional monthly mortgage costs is, if not totally off set, at least significantly off set by the money the homeowner would save on monthly energy bills.
It may sound daunting, but it's not impossible. According to data from the Leading Builders of America (LBA), a Washington, D.C.-based lobby group that supports the interests of high-volume home builders, there is a sweet spot in energy efficiency. While the exact inflection point where costs meet energy benefits varies market to market based on climate zone, a broad-brush look at the nation shows that when homes are roughly 30 percent more energy efficient than required by 2006 building code, most homeowners gain significant monthly energy savings without incurring prohibitive mortgage costs.
Moreover, regulators are also eyeing that target level of improved efficiency. The 2012 International Energy Conservation Code has yet to reach final approval, but as of October, building code officials had voted to incorporate a series of energy-efficiency mandates that would require homes to be as much as 30 percent more efficient than the standards outlined in the 2006 energy code.