Cost vs. benefit

A lesson of the week, and one that should likely have been clearer sooner to someone who's immersed himself in housing's business and cultural ecosystem for more than a decade. One of the biggest barriers to progress on housing, be it affordable, market rate, sustainable, you name it, is an accounting challenge.

Put simply, if there's a "true" cost that lurks behind the face-value expenditures and outgo for projects and operations, and we refuse to identify that true cost, we have an accounting problem, don't we?

Likewise, if there's a "true" value, masked by going-rate revenue for a trade of a deliverable for money, and we hesitate to recognize that true value in our accounting methodology, that, too, is a problem.

Amory Lovins

Progress happens, as it has been happening at a torturously slow pace, when people, organizations, leaders, investors, stakeholders, and communities begin to unhide true costs and true values and bring them forward as more practical, less fantastical accounting methods. American physicist, environmental scientist, engineer, and author Amory Lovins, chairman and chief scientist at the Rocky Mountain Institute, suggests that, to recognize notions like true cost and true benefit, it takes "rearranging mental furniture" as a way to see what's under our noses all the time.

This week, Lovins told this story of a pioneering home in Davis, Calif., that achieved nearly net-Zero energy use, and required no power from the grid to stay cool in the summer and warm in the winter. Open or close the windows, and that would be all that is required to achieve room comfort in the house.

Now, that's true value.

Thing is, when the owners planned to put the house up for sale, they were confronted with this fact: they were going to have to install a window air conditioner to make the home salable.

Now, how many processes, and how many products, and how many tradable units in construction operations, real estate, and home sales carry the equivalent of that air conditioner to validate the moment of perceived value in a deal?

In how many instances does our business require the acceptance of masked costs, or concession to discount value, in order for transactions and deals to move forward?

People, thus far consigned to the fringes of housing's development, finance, and construction ecosystem, must work in these margin areas with relentless focus on breaking through myth, and legacy, hardwired practices that heap waste and restrict progress to a trickle.

Former U.S. Congressman from Illinois, Marty Russo addresses AHF Live! conference in Chicago.
Former U.S. Congressman from Illinois, Marty Russo addresses AHF Live! conference in Chicago.

During yesterday's proceedings at the AHF Live "Break New Ground" conference in Chicago, former Illinois Congressman Marty Russo--now a lobbyist on Capitol Hill--offered three simple-to-conceive-but-hard-to-do strategies for people who are trying to make a case for true cost and true value accounting in decisions ranging from what a market-rate single-family home can be offered for in a growing economic center, to what levels and formats of public and private resources should be allocated for American populations who need supportive housing, to what benchmarks of progress are practical in critical efforts to reduce housing's draw on finite and diminishing resources.

The point is this, Congressman Russo suggests. Shoot for influence, not for power. Power, he says, is overrated, and will remain an eternally intractable source of frustration. Influence, whether it's among politicos who are constantly seeking election or re-election, or among corporate executives whose masters are boards of directors and quarterly earnings statements, or big vague generational cohorts that marketing consultants describe as homogenous consumer behavior segments, comes three ways.

  • Make relationships
  • Use facts to support your case
  • Know your "ask," and, don't leave the room until you make your "ask"

Now, these tips may strike one as obvious. But in an industry where somebody in a Net Zero home has to put in an A/C unit to sell it, maybe the obvious is where we need to level-set.
First cost, and it's equivalent first value are mere masks. And they can be destructive and regressive. In our housing construction management operations, and in our decisions around allocating resources for land, materials, labor, and community infrastructure, true cost and true value are accounting precepts whose day has yet to come.

Congressman Russo's plainspoken tips--relationships, facts, and the "ask"--are a way for us to make progress toward decision-making around true cost and true value. Lives, societies, and maybe more, are in the balance.