Shades of Green

Has there ever been a less accurate statement than “one size fits all”? To my way of thinking, you certainly don't have to be the proverbial rocket scientist to figure out that no matter what the circumstances, a single prescriptive and universal rule is going to be a lot less effective than one tailored to specific conditions.

Yet one-size-fits-all prescriptive mandates are exactly what some communities are contemplating in their efforts to promote green building—homes that conserve energy, water, and a host of other resources.

To provide a more practical, flexible, and less costly approach to achieve the same goals, the NAHB is in the process of creating the National Green Building Program that will serve as a template for voluntary, market-driven green building all over the country. Because this initiative is so important to our association and our industry, we have taken the unprecedented action of appointing one of the NAHB's senior officers, Bob Jones, to oversee this project for the next five years.

The new program will be based on the National Green Building Guidelines, a model for residential construction and renovation written by builders, architects, environmentalists, and product experts. The guidelines are already the foundation of more than 20 green building programs created by state and local HBAs throughout the country.

The guidelines are also the basis of the National Green Building Standard, which will be released in early 2008. This standard is the result of a cooperative effort between the NAHB and the International Code Council. The NAHB will have a later version of the program based on this standard.

The beauty of the national program that is now under development is that home builders and buyers can be assured that their home is truly green, whether they live in Seattle or Savannah, Ga., in a condo or a ranch house, and whether they're renovating or buying new.

It's also the next logical step for the NAHB as a leader in the green building movement. Our members have built nearly 100,000 green homes in voluntary programs launched by HBAs all over the country. Each of these homes is unique and responds to local geography, climate, and consumer preferences. With an affordable national program, we will provide home buyers with green homes even where no local program is in place.

Like the Model Green Home Building Guidelines and the National Green Building Standard, the National Green Building Program takes into account a home's lot development, use of resources, energy and water efficiency, indoor environmental quality, durability, and ease of maintenance.

The program will be housed at the NAHB Research Center, which is the nation's top testing and research facility on housing construction and development issues.

The NAHB Research Center also serves as the secretariat for the Residential Green Building Standard development process. The standards process is certified by the American National Standards Institute, for which the Research Center is an accredited developer.

The National Green Building Program will include an interactive, Web-based certification system as well as other tools and resources for builders and certifiers, and a national registry of green builders and green homes. Existing local programs that meet quality assurance benchmarks and performance criteria can become part of the national program—without costly additional certification fees.

When it comes to residential building and remodeling, NAHB members are leading the way to creating a green-built nation.

Brian C. Catalde
PRESIDENT, NAHB WASHINGTON, D.C.

Even as the housing market correction continues to exert downward pressure on new-home prices, localities continue to push forward with new fees and regulations that will further erode housing affordability, according to a new study released by the NAHB. The report on the impact of government regulation on housing shows that each $1,000 increase in the cost of a new median-priced home forces 217,000 prospective buyers out of the marketplace. Based on national mortgage underwriting standards and incorporating the latest data from the U.S. Census Bureau, the report contains detailed results for more than 300 metro areas. The analysis found that every $819 rise in fees paid at the beginning of the construction process—such as an increase in the price of a construction permit, a tap fee, a proffer, or an impact fee—adds an additional $1,000 to the final price of the home. “The study shows that even modest impact fees can have a dramatic effect on housing affordability,” says Jerry Howard, executive vice president and CEO of the NAHB. “Local governments need to understand that higher regulatory costs frequently push up the price of housing beyond the means of many teachers, firefighters, police officers, and other moderate-income workers.”

In July, the NAHB informed Congress of its members' consistent efforts over the past decade to promote and develop energy-efficient and environmentally friendly construction techniques for the mainstream home builder. “More than 100,000 homes have been built and certified by voluntary, builder-supported green building programs around the country since the mid-1990s,” Bob Jones, vice president and secretary of the NAHB and a home builder from Bloomfield Hills, Mich., said in testimony before the House Small Business Committee. Congress can foster private sector innovation in green construction for the millions of homes that are waiting to be built, Jones said, by keeping the market free of mandates, allocating funds for providing education and training in green construction on a broader scale, and extending and expanding federal tax credits that passed as part of the Energy Policy Act of 2005.

Baby boomers will see their family structures change as their parents age, according to experts who spoke at the NAHB's “Building for Boomers and Beyond: 50+ Housing Symposium 2007.” Speaking at the Symposium in Denver last month, builders, architects, and trend-spotters indicated that boomer lifestyle changes will continue to influence the home building industry for the foreseeable future. “Boomers will drive housing for at least the next 20 years,” said closing session speaker Tim Sullivan, president of Sullivan Group Real Estate Advisors in San Diego. According to the NAHB's current economic and housing forecast, housing units sold to or occupied by 55+ households will account for more than 370,000 housing starts in 2007.

Quality and Quantity

A survey reveals that the National Housing Quality Program is achieving positive business results.

It's been said that totaL quality builders are highly productive and build homes more efficiently than other builders, so it makes sense that they would also enjoy higher profits, greater customer satisfaction, and fewer defects. Results of a recent NAHB Research Center survey of National Housing Quality (NHQ) program participants emphasize that very point, underscoring the program's positive impact on productivity, profitability, and customer satisfaction ratings.

Launched in 2005, the NHQ Program certifies builders and trades striving to “build it right the first time, every time,” rather than waste time and money inspecting problems out of homes. Survey results prove that these companies have realized measurable business improvements and significant increases in productivity and profitability, as well as increased customer satisfaction as evidenced in home buyer feedback surveys. Responses from builders revealed that over 70 percent had improved their bottom lines and over 75 percent reported a reduction in callbacks.

Notably, in some markets, NHQ-certified builders have experienced a bump up in the J.D. Power rankings. Tim Lewis Communities of Sacramento, Calif., increased its rank to among the top three in customer satisfaction for the market according to the J.D. Power and Associates “2006 New Home BUILDER Customer Satisfaction Survey.”

A companion survey of NHQ-certified trade contractors reveals that the operational improvements achieved with the builder program are not one-sided. Over 80 percent reduced callbacks, 88 percent reported an increase in employee accountability, 79 percent improved relationships with builders, and over 65 percent improved their bottom lines.

For more information on the National Housing Quality program, visit www.nahbrc.org.

Resorting to Rentership

Homeownership is slipping in the U.S.

The U.S. homeownership rate increased by more than five percentage points between mid-1994 and mid-2004, and the average annual increase in the number of homeowners came to a robust 1.077 million for this 10-year period. But the homeownership rate has been slipping since mid-2004, falling by a full percentage point through mid-2007, and the average annual increase in homeowners was down to 611,000 for that three-year period. Indeed, the homeownership rate retreated by half a percentage point during the past year (mid-2006 to mid-2007) and the number of homeowners increased by a meager 56,000 for that period.

The striking erosion of growth in the number of homeowners during the past year reflects, to some degree, a slowdown in the overall rate of household formations; and this slowdown reflects, to some degree, a slowdown in population growth. But the abrupt slowdown in growth of homeowners and the recent erosion of the homeownership rate also reflect a significant shift from owning to renting among America's households.

The “rentership” rate, a mirror-image of the homeownership rate, retreated to a record low between mid-1994 and mid-2004, and the number of renter households actually fell by nearly 300,000 per year (on average) during that 10-year period. But the rentership rate has moved upward by a full percentage point over the past three years and the number of renter households has increased, on average, by 816,000 per year. Indeed, during the past year, renter households increased by a whopping 835,000, accounting for 94 percent of total household growth—a unique development in modern U.S. history.

The slippage of the homeownership rate in recent years and the abrupt slowdown in growth of the number of homeowners through mid-2007 partly reflect the surge in homeownership during the earlier boom period. But the rapid growth in renter households and the fall in the homeownership rate since mid-2004 also reflect serious erosion of home buying affordability since the early part of 2004. Indeed, at mid-2007 the National Association of Realtors' (NAR) Composite Housing Affordability Index was down to the lowest level recorded during the recessionary period of the late 1980s/early 1990s.

The stunning decline in NAR's Housing Affordability Index since early-2004 primarily reflects the huge accumulation of rapid home price gains that extended well into 2006, together with less important increases in prime mortgage interest rates—mainly on plain-vanilla ARMs linked to short-term Treasury rates.

The erosion of NAR's affordability measure since early this year actually understates the degree to which shifts in mortgage finance conditions have impacted affordability. The recent meltdown of the subprime mortgage sector has effectively removed financing tools that had been used by many less-credit-worthy home buyers during the housing boom and even in 2006, and regulatory clampdowns have constrained various “nontraditional” ARMs that had been common during the boom.

There currently are near-record numbers of both for-sale and for-rent housing units on the market, and the evolving wave of foreclosures on subprime and alt-A mortgages will be increasing the for-sale inventory and sending many home-owning households into the rental market. Furthermore, home buying affordability does not figure to rebound soon, given the evolving course of home prices, prime mortgage rates, and lending standards throughout the mortgage finance system.

Further erosion of the homeownership rate is virtually inevitable during the coming year.

David F. Seiders
CHIEF ECONOMIST, NAHB WASHINGTON, D.C.