Costs of Building Green
There IS A COMMON PERCEPTION that building a green home costs a lot more than building a conventional home. It is true that many green features and products are more costly — from photovoltaic panels for electricity to natural-fiber area rugs and FSC-certified hardwood cabinets. Indeed, most of the widely publicized green homes built over the past decade have been quite expensive, high-end homes.
But a green home need not cost any more than a conventional home. There are many green building strategies that cost no more than standard construction and some that actually reduce building costs. And if your designer carries out careful integration during the design of your home, some of the more expensive green features can often be paid for through savings elsewhere.
This article reviews strategies for building green at little or no additional cost, then takes a look at the concept of life-cycle cost— which explains why it often makes sense to invest more upfront in building a house in order to reduce the costs of operating it. We’ll also take a look at some innovative ways of paying for a green home.
CONSTRUCTION COSTS VS. OPERATING COSTS
While you don’t have to spend more money to build green, it often makes good economic sense to do so. Investments in energy efficiency, renewable energy systems, and highly durable or low-maintenance materials will pay for themselves over time through reduced operating costs and avoided replacement costs. Some of these investments can be offset from the start with savings elsewhere, but many such investments do increase construction costs.
The process of examining the cost or savings of something over time is referred to as life-cycle cost analysis. You can think of it as the cost of ownership. The idea is illustrated in Figure 13.3, which compares various water heater options. For each of the water heaters, the first cost (installed cost), annual energy cost, and expected life of the equipment are given. With this information, the total costs of providing hot water using each water heating system can be compared over a certain period of time — in this case, 13 years, the expected lifetime of most of the equipment. A more sophisticated analysis would factor in the discount rate and inflation, but this simple approach gets the idea across.
As you can see from the table, the least expensive water heater to buy, an electric storage-type unit, actually costs the most over 13 years. The least expensive options over 13 years are demand gas and an indirect-fired water heater that operates off a boiler used for space heating. Solar water heating may do even better, depending on the type of backup heating used.
Another very good example of life-cycle cost analysis is to compare a conventional electric light bulb with a compact fluorescent lamp (CFL) that has comparable light output. From a first-cost standpoint, the incandescent light bulb is a much better deal: about 75¢ vs. $7 for the CFL. But because the incandescent light bulb only lasts 750 to 1000 hours and uses three times as much electricity, the CFL is a better deal from a life-cycle cost standpoint.
Another way to express life-cycle cost savings is through the payback period. This is the number of years (months in some cases) that it will take for energy savings to pay back the added cost of the more energy-efficient device or the cost of replacing a standard product with a more efficient product. As you can see from the table, for a light that is on 5 hours per day, the payback for putting in a CFL instead of an incandescent lamp is less than one year; in other words, the one-year life-cycle cost of the 75-watt incandescent lamp is greater than the one-year life-cycle cost of the 23-watt CFL.
As you can see, it often makes good economic sense to invest more upfront in equipment or products that will save money over time. The same argument can be applied to products that last longer or require less maintenance, although the economic benefits are often harder to measure.
THE COST OF GOOD DESIGN
The one area in which a green home almost always costs more than a conventional home is the design work. It takes more time to design a compact, energy-efficient home that sits lightly on the land. Integrated energy design takes time and skill and often involves sophisticated computer modeling. You should expect to pay for that additional design time.
Indirectly at least, you should also expect to pay a little more for the education required of a green designer or builder. To keep up to date on green building materials and practices, that building professional has to buy books, read key periodicals, attend conferences or workshops, and perhaps spend time surfing the Web. The knowledge acquired through such efforts will enable the builder or designer to do a better job with your green home. But because of that investment of time, his or her hourly rates may be a little higher than the competition’s. That’s all right. You are likely to get a lot more in the long run. Avoid the temptation simply to go with the low bid when it comes to having your house designed and built.
PAYING FOR A GREEN HOME
While a green home should be pretty much like a conventional home when it comes to paying for it, there are a few differences that can make the financing process more difficult. There can also be some benefits when it comes to financing.
On the downside, lenders may not be familiar with some aspects of a green home. If you’ve been able to eliminate a central heating system or air conditioning system through top-notch integrated energy design, your lender may not be comfortable providing the mortgage — because all the other homes in your area have both central heating and air conditioning. If you’ve used an innovative construction system for your home, especially an oddball material like strawbale, your lender may not be able to find any comparable houses in the area to base an appraisal on — and appraisals are a key part of obtaining a mortgage.
To make the mortgage process go as smoothly as possible, offer to explain the features of your house design to the banker. Show him or her the computer modeling results that demonstrate energy savings and passive solar heating. If you want to build with something like strawbale or rammed-earth construction, provide some articles that explain how these systems work, and find some examples in your area, if possible. Be willing to educate lenders, and don’t get defensive if they are at first negative about the idea. Remember, you are not only seeking your own mortgage, but you are also paving the way for others in the future who will be going through the same process. If you do a really good job, then with the next customer, the banker may actually be the one suggesting some of the green building elements that can be used.
On the positive side, more and more lenders are beginning to offer something called an energy-efficient mortgage (EEM) that may make you eligible for a larger mortgage. Here’s the idea behind an EEM: If you live in an energy-efficient house, you will spend less money each month for energy; as a result, you can afford to spend more on the mortgage payment. Lending institutions that provide EEMs will factor the expected savings in operating costs into their analysis of how much debt you can carry, and they will let you carry a larger debt-to-earnings ratio with your mortgage.
If, based on your household income, you would be eligible to buy a conventional house worth $140,000, a lending institution that offers EEMs might let you spend $150,000 on the house. Even though your mortgage payments will be higher, your total monthly bills will be lower (due to the energy savings) than if you paid $140,000 for a home without the efficiency upgrades. So you get a better house and more money in your pocket (if the reduction in monthly energy expenses is greater than the increase in the mortgage payments). Some EEM providers also offer slightly reduced interest rates or reduce some upfront costs of closing the loan.
Fannie Mae, the largest lending company in the US, recognizes EEMs and is working on other innovative lending programs for green homes. The company is piloting green mortgages that consider not only energy efficiency, but also water and transportation cost savings, in their EEM calculation. Homes with lower water bills due to xeriscaping and horizontal-axis clothes washers, for example, will have lower operating costs, so the buyers could qualify for higher mortgage payments. Homes located close to public transportation allow households to get by with fewer vehicles, reducing living expenses significantly. These sorts of benefits can be built into green mortgages, allowing you to buy a more expensive — but higher value — green home.
BENEFITING WHEN YOU SELL A GREEN HOME
Experience is showing that energy-efficient green homes appreciate in value faster than conventional homes. The landmark Village Homes community in Davis, California, completed in 1982, consists of 240 houses laid out in small clusters on 60 acres, with protected farmland and access to a network of bicycle pathways. Houses here have increased in value far faster than those in neighboring, conventional subdivisions. Fifteen years after completion, these homes were selling at $10 to $25 per square foot more than standard homes in the area.
The same experience has been found with the more recently built EcoVillage at Ithaca cohousing community in Upstate New York, located on 176 acres with 90% of the land protected as wildlife habitat and organic farmland. There is a waiting list for any of the 60 homes that might come onto the market, and there is strong demand for building a third neighborhood. Those that bought into this cohousing community made an excellent investment.
With energy prices rising dramatically during the first decade of the 21st century, the home value differential between green homes and conventional homes is likely to grow. Any home that costs one-half or one-quarter as much to heat and cool as others in the area will be a hot item in the real estate market if natural gas and heating oil prices continue to rise. Building an energy-efficient green home is a very good investment.
Construction cost is something you will most likely be thinking about throughout the planning, design, and construction of your new home — starting at the very earliest stages. While green homes have a reputation for being more expensive than standard homes, that certainly doesn’t have to be the case. As you have seen in this article, there are many opportunities to achieve green features at little or no additional cost — some, in fact, that can actually reduce costs. In thinking about costs, however, keep in mind that the cost of building your home is only one part of what you will spend on it over the years or decades you live there; operating costs are also an important consideration. One of the greatest features of a green home will be its low operating costs — due to energy-conserving design, solar heating, water-conserving plumbing fixtures, and whatever other features you’ve managed to incorporate into your home. Saving money is one of the many features your green home will provide.