Building Science

Posted on: July 07, 2008

Green Building Makes Economic Sense for the Housing Industry

By John Caulfield

To learn more about the companies mentioned in this story, go to www.builderonline.com/sustainable2008.

Pinn Brothers FineHomes has two projects underway that include San Jose, Calif.’s first LEED-certified homes with solar panels. All of the builder’s five current projects, with 273 units in various stages, will meet LEED specifications. Project manager John Moniz says Pinn’s green building is voluntary. But he also thinks it’s only a matter of time before cities impose green construction mandates. “It’s something builders will have to deal with.”

The threat of mandates and stricter codes, though, isn’t the only reason builders are considering greener or sustainable alternatives to what they’re building now. Even those who reject the proposition that the housing industry bears at least some responsibility for profligate consumption and decimation of natural resources can’t ignore how market forces are driving competitors and customers toward homes that promise a smaller carbon footprint and lower energy and water bills. One estimate projects a fivefold increase, to $60 billion, over the next two years in the value of homes built to green standards nationwide.

“There’s lots of evidence that eco-friendly homes are better built, are easier to sell, resell, or rent, and sell for more,” observes Charles Corbett, professor of operational and environmental management at UCLA’s Anderson School of Management. “When those economic benefits come into play, whether a builder is saving the planet is almost irrelevant.”

CompetitivePressure

KB Home has composed its first “sustainability report,” which will serve as its blue-print to become a leading green builder. “We’re not green yet, not even close,” admits Jeff Mezger, CEO for the Los Angeles–based builder, which ranked first among 13 public builders in a recent survey of their green building practices. “But we’re headed there.”

Kevin Morrow, manager of the NAHB’s Green Building program, thinks the housing industry is at “a tipping point.” Through April, more than 1,500 builders had signed up to use the green scoring tool on the program’s Web site. In Colorado, around 225 builders follow the guidelines of HBA of Metro Denver’s Built Green Colorado. Last year, those builders started 12 percent of the state’s new homes, estimates Kim Calomino, the program’s director.

“The housing industry needs [green building] for its own sustainability,” says Matt Belcher, whose Belcher Homes in St. Louis is managing a development called Rock Hill Trails where it’s building energy-efficient and conservation features—including geothermal systems and rainwater recapture cisterns—into its homes. McStain Communities in Louisville, Colo., is among nine builders participating in a water efficiency evaluation of appliances and fixtures with the EPA and Denver Water Board. McStain’s CEO, Eric Wittenberg, refers to himself as a “sustainability evangelist.”

McStain’s Bradburn Village in Westminster, Colo., offers solar panels as standard, another sign that solar is the sizzle in green marketing. Woodside Homes is installing solar systems in 1,487 homes in Sacramento, Calif., partly financed by that city’s Municipal Utility District. Scott Hoisinger, Woodside’s regional president in Northern California, says his company “is looking at other ways to make our houses greener” with radiant-barrier sheathing, energy-efficient windows and appliances, and by working with trade partners to reduce jobsite waste.

The U.S. Department of Energy recently approved an energy-efficient community that Pulte Homes will develop with GE, Nevada Power, and the University of Nevada–Las Vegas. But the builder is also making its homes there more efficient in basic ways, such as equipping them with tankless water heaters, says Walter Cuculic, the division’s director of strategic marketing. As builders move toward green, they can’t ignore cost while home prices are dropping. Woodside, for one, is absorbing about $10,000 of the cost of eco products it’s adding.

But builders must also better promote the benefits of green and sustainable homes, especially to appraisers and realtors, who often don’t even allow check-off boxes for Energy Star–rated homes. Green Built North Texas’ pilot program produced 14 homes that could be heated or cooled for $50 per month, versus $150 for conventional houses. “That’s $36,000 savings over 30 years at today’s energy costs,” says Dan Fette, a builder and the program’s chairman. Green Built had to conduct classes for appraisers before they’d recognize the value of those houses.

ConsumerInterest Grows

Consumers have had their consciousness raised about the relationship between consumption and how they live by the shocks of oil trading above $130 a barrel, gas selling for $4.50 a gallon, and water shortages in the South and West. But is that awareness creating a body of home buyers for whom efficiency tops their preferences?

Not yet, says Fette, who gleaned from the NAHB’s recent Green Building conference in New Orleans that green builders might be ahead of the demand curve. But green isn’t just “eco bling for celebrities” either, says Michelle Moore, senior vice president with the U.S. Green Building Council; it’s gone mainstream, thanks to alarms being sounded about global warming.

Calomino worries that consumers jaded by bogus greenwashing claims “might start thinking it’s all B.S.” But others think buyers will gravitate toward green homes because “the economy can no longer grow if we rely on our energy from fossil fuels,” predicts Nat Kreamer, president of Sun Run Generation, which offers solar panels to owners of existing homes through a leasing agreement that reduces the system’s upfront cost, provides free maintenance for 18 years, and guarantees a 13.5 cent per kilowatt hour charge over the life of the contract.

Value is essential to buyers: Pulte and UCLA’s Anderson School surveyed 500 prospects, and what they found, says Cuculic, is “if you don’t have the product and location, green can be like putting lipstick on a pig.” Its own polling told Shea Homes in 2006 that the ripest targets for green homes are downsizing active adults with cash, says Rich Andreen, president of Shea’s Active Lifestyle Communities division, which last fall started building to a mixture of green guidelines.

“Consumers are interested in green but don’t know the right questions to ask,” says UCLA’s Corbett. So Green Built North Texas has launched a registry of homes that measure up to its guidelines. KB Home is placing into its design studios “education centers” that provide tips on energy efficiency, water conservation, healthy homes, and sustainable sources. “The goal is to change buyers’ behavior,” says Lisa Kalmbach, the builder’s senior vice president.

The evidence of cost savings is mounting: The city of Riverside, Calif., estimates that a solar-powered, 2,800- square-foot house could realize net savings, after tax credits and utility rebates, of $10,000 after just a few years. Certified green homes in Seattle sold quicker than non-green units and for an 11 percent premium, reported a recent Wall Street Journal story. The public’s awareness of this information should lead to a “flight to quality,” predicts Greg Kats of consulting firm Capital E.

That’s already happened at Terramor Village at Ladera Ranch in California, the country’s largest solar community, where Judi Schweitzer, a green real estate consultant specializing in market-based creative solutions, did her post-graduate work. She found that solar homes sold at a 2.3 percent premium over non-solar, resold at a 4.1 percent premium, and outsold non-solar homes by 2½ to 1 or more. She believes such absorption rates alone will push builders toward sustainability.

Carrot and Stick

Anyone pondering where green building is headedshould surf bcap-energy.com, a Web site that tracks energy statutes. The site confirms what builders already know: States are burnishing theirenvironmental credentials by passing legislation that will dictate how the built environment is shaped. McStain’s Wittenberg says solar popped onto Colorado builders’ radar last year after lawmakers required energy providers to generate 15 percent of their output from renewable sources by 2012.

But builders break out the aspirin at the prospect of every town in America enforcing its own green mandates to mollify voters’ anxieties. Mandates are self-defeating, insist builders and some green experts, if they impede new innovations from gaining acceptance. Richard Morgan, who manages Austin [Texas] Energy’s Green Building Program, thinks “green mandate” is an oxymoron anyway, because “that’s when it stops being green building, which is about the exploration of the possible and the industry’s future.”

Yet, he’s comfortable with Austin Energy’s energy codes because of its “collaborative relationship with builders.” Industry-government cooperation, in fact, is no longer rare. Laurence Kornfield, San Francisco’s chief building inspector, recalls little friction in the 18 months it took to craft a bill that would make that city’s building codes among the country’s greenest. “The builders on the task force were doing most of this anyway.”

By Oct. 1, 2011, all construction in Dallas must be certifiable under LEED or Green Built North Texas standards, although third-party certification won’t be required, says Zaida Basora, assistant director of public works. (At first, Green Built North Texas’ program had 38 mandated elements. But after 18 months, it added more electives, “to get more builders to think green,” explains Fette.)

Dallas doesn’t offer com-pliance incentives, although green building has been made more lucrative elsewhere. Enterprise Green Communities, which has donated $570 million to build 11,000 affordable green homes, offers developers $1,000 per unit if they take an integrated design approach, says Trisha Miller, the program’s deputy director. In Cincinnati, structures that meet LEED standards receive tax abatements for 15 years, up to $500,000. If the house is built or remodeled to LEED Platinum, “the cap comes off,” says Mike Holcomb, a local home energy rater.

New Mexico cushions its green mandates with “attractive incentives,” says Brad Hill, executive director of the New Mexico Foundation for Building, a verifier for the state’s Sustainable Building tax credit, which ranges from $9,000 to $22,450 depending on the house’s size and which standard it’s certified to. Hall and David Mann, the Foundation’s housing program director, think the “next frontier” could be incentives for greener land use.

Where legislative mandates go after that is anyone’s guess, but they seem likely to become ubiquitous.— J.C.

Single-Family Builder 56%

Custom Home Builder 63%

Multifamily 64%

Remodeler 52%

Subcontractor 46%

Residential Architect 72%

Other 62%

All 58%

YES

Single-Family Builder 39%

Custom Home Builder 50%