2010 TRENDS IN GREEN BUILDING AND WHY

Top Ten Green Building Trends To Watch In 2010
Sean Penrith, January 8, 2010 (Earth Advantage Institute)

SUMMARY
Reports are emerging in every sector of the building industry that show New Energy and Energy Efficiency features do much more than reduce utility bills. They increase market value.

Buyers are coming to understand this and demand for homes and buildings with green features is growing. As a result of increasing demand for green building features, statistics show the sector was one of the few bright spots for the construction industry in 2009.

Well-documented findings, like those about the Pacific Northwest residential real estate market in Certified Home Performance: Assessing the Market Impacts of Third Party Certification on Residential Properties, by Ann Griffin of the Earth Advantage Institute, are the basis for a prediction about emerging green building trends from Sean Penrith of Earth Advantage.

In Griffin’s investigative research, a sample of third-party certified homes in the Portland and Seattle metropolitan areas was selected. Certified homes in the Seattle metro area sold at a price premium of 9.6% when compared to comparable noncertified counterparts. Certified homes in the Portland metro area sold at a 3%-to-5% price premium. In addition, certified homes were on the market 18 days less than noncertified homes. Griffin’s paper includes references to a variety of market studies with comparable findings.

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Penrith says that because of such fundamental economic facts there are 10 trends that will lead green building in 2010 and expand on its ability to incorporate New Energy and principles of Energy Efficiency:

1. The smart grid and connected home.
2. Energy labeling for homes and office buildings.
3. Building information modeling (BIM) software.
4. Buy-in to green building by the financial community.
5. “Rightsizing” of homes.
6. Eco-districts.
7. Water conservation.
8. Carbon Calculation.
9. Net Zero Buildings.
10. Sustainable building education.

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This is exciting news in and of itself but it is part of a much bigger trend. Polls show broad support nationwide among all demographics and both political parties for New Energy. Few have found a way to use this overwhelming majority to move the recalcitrants in Congress but many are working on it.

Washington, D.C., is likely to see green building in 2010.

Typical of polls taken over the last year. (click to enlarge)

COMMENTARY
The Griffin study of the market performance of third-party certified sustainable homes starts with a fundamental assertion: “Certified homes are worth more.” It goes on to provide the evidence that this assertion is true.

It also deconstructs the several important issues inside the assertion.

It concludes by describing the work that remains to fully understand the implications and dimensions of the assertion, including a collaboration among residential appraisers, real estate brokers, homebuilders, and sustainable building advocates to better understand and explain the multiple issues involved in home valuation.

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Market sales information does not account for performance-based cost savings or resident health and broader environmental benefits from sustainability. Earth Advantage Institute set out to do comparable property analysis and test the hypothesis that certified homes would demonstrate better market performance in terms of sales price and time on market than comparable, noncertified homes.

Specific research in the Griffin paper:
(1) a study of residential property comparables (certified vs. comparable non-certified homes, determined by a certified appraiser);
(2) surveys and interviews with home builders;
(3) interviews with residential appraisers;
(4) surveys of residents of certified homes;
(5) a study of marketing and consumer education impacts on home sales;
(6) residential property case studies (published separately); and
(7) commercial property case studies (published separately).

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The Portland study: 92 certified homes built between 2000 and 2008, with a majority sold in 2006 and 2007; 340 comparable homes, each certified home matched with 3 or 4 comparables.

Conclusions:
(1) Certified homes sold 18 days faster than noncertified homes.
(2) Certified homes sold for 3% to 5% more than noncertified homes. In a statistical analysis with a 95% level of confidence, the overall price difference was found to be 4.2%.

The Seattle study: 68 certified homes, 207 comparables; an analysis included of market performance in terms of the sales price.

Conclusions:
(1) The expected percentage change for sales price was found to be 9.6% more for the third-party sustainable certified homes.
(2) The certified homes did not sell faster, and stayed on the market an average of 5 days longer (or 40% more time on the market).

Residents living in third-party certified and self-certified homes gain more than just market value. They also benefit from the longevity of the home, more efficient energy use and improved indoor air quality. 90% of third-party certified home residents say they would choose it over a noncertified home and would pay more. 80% would pay as much as 5% more.

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Summary of the key findings in the Griffin residential property analysis:
(1) Sustainable third-party certified homes sell faster. They stayed on the market an average of 18 days less in the Portland metro area in 2007-08;
(2) Certified homes sell for more than noncertified homes. In the Seattle metro area, they sold for 9.6% more; in the Portland metro area, they sold for 4.2% more;
(3) Certified homes sold for 11% more than noncertified homes between May 1, 2007 and April 30, 2008 in the Portland metropolitan market;
(4) Newly constructed green-certified homes in King County, WA, for the 9-month period ending May 31, 2008 sold for 4% more. Per square foot, certified homes sold for 37% more;
(5) Home builders (98%) believe that third-party verification adds value and are concerned that current residential appraisal practices fail to recognize the positive benefits of certification;
(6) The home buying public needs to better understand the value and significance of certified sustainable homes. Home builders who build Earth Advantage and Built Green homes say homebuyers need to learn to appreciate the quality and value (long-term durability, high quality materials, improved indoor air quality, increased energy efficiency) of sustainable homes;
(7) Home values should incorporate performance measures. Example: Long-term reductions in utility bills and repair costs should be a considered in the appraisal price;
(8) More dynamic appraisal models are needed. Sustainable building advocates, home builder associations, residential appraisers, realtors, and financial institutions ned to collaborate on mechanisms for recording sustainable improvements in a home and monitoring those improvements’ ongoing performances; and
(9) Certified homes perform better if the home buyer understands the quality and systems of the home and displays it to prospective buyers.

Two 2009 highlights of green building:
(1) the Oregon Sustainability Center, which may be one of the first “living” office buildings; and (2) the market share for certified sustainable new homes rose in greater Portland and Seattle, despite the down economy.

Artist's rendering of the Oregon Sustainability Center. (click to enlarge)

Notes on the trends expected to emerge in 2010 because of the growing recognition of the value of green building:

(1) The smart grid and connected home.
Spurred by funding from the Obama administration through the Recovery Act and budget measures supporting New Energy (NE), Energy Efficiency (EE) and the advanced transmission requirements they introduce, utilities are investing in localized pilot projects that (1) upgrade the grid, (2) streamline power generation and (3) more efficiently store and/or distribute electricity. The biggest activity is in homes because venture capital shifted last year, with the economic downturn, to “smart” technology.

Because much of venture capital comes from success in the IT boom, the development of “smart” systems to manage energy is an obvious evolution to ET (energy technology) in the pursuit of more efficiently providing IT with the huge doses of energy it needs. In the process, it will streamline energy consumption in residences and commercial buildings.

The developments include custom and web-based display panels (“energy dashboards”) that show real-time home energy use, even real-time energy use, appliance by appliance. These will give residents and occupants more control of their consumption of energy and cannot help but change energy use habits toward conservation in the same way that the Toyota Prius dashboard had led to modified driving habits. Homes and buildings could be rated with an Energy Performance Score.

Smart grid growth is expected to be big. (click to enlarge)

(2) Energy labeling for homes and office buildings.

The ability to quantify the efficiency of homes and buildings means it can be used to understand the value of New Energy and Energy Efficiency upgrades (like a car’s mpg). Momentum is building among energy agencies and legislators to label homes and buildings and allow buyers to compare them. A publicly available score on the
Multiple Listing Service (MLS) would surely transform the value of NE and EE improvements and drive adoption.

Pre- and post- upgrade energy audits already show the capacity of NE and EE and will likely be used to demonstrate the effectiveness of Recovery Act spending. Many states, including Oregon, Washington and California in the West, have written energy performance into recent legislation that approaches the concept of labeling.

The EU has a multidimensional home efficiency rating system. (click to enlarge)

(3) Building information modeling (BIM) software.

Seeing an opportunity to expand their reach, IT entrepreneurs backed largely by Silicon Valley-based VC money have been evolving ever more remarkable computer-aided design (CAD) software for building design with increasingly accurate energy consumption modeling. This is expected to be another way that home and building performance can be quantified. BIM software is already finding its way to a wider audience of designers and builders.

(4) Buy-in to green building by the financial community.

Lenders and insurers already see the value and are working green building into their packaging. New loan products and insurance packages are emerging that offer better rates to owners and residents of green buildings that can demonstrate with new tools that their homes and buildings are more efficient and healthier.

An adjunct of the approach is that it makes owners more responsible for care and maintenance and less inclined to indiscrimately or irresponsibly cut costs.

Why wouldn't they buy in? (click to enlarge)

(5) “Rightsizing” of homes.

With rising awareness of efficiencies and falling real estate valuations, a bigger space no longer means greater equity. Real estate values are not expected to rise quickly and energy prices are. And the Federal Reserve is likely to raise interest rates by mid-year to control inflation, which will have a dampening effect on the real estate market. For all these reasons, builders are planning on smaller new and upgrade projects.

(6) Eco-districts.

Walkable, low impact communities in urban and suburban settings is gaining momentum coast to coast. Portland is encouraging greener communities designed for walking and biking. California’s SB 375 would reward communities for sustainable growth. These movements are backed as much by conservatives who want the nation to reduce its dependence on foreign oil as by environmentalists.

(7) Water conservation.

Even more than energy – and largely due to modernity’s profligacy with cheap fossil fuel energy in the last century that has led to global climate change – water is almost certainly going to be the essential resource in the coming years.

Residential water use is more than half of the publicly supplied water consumption in the United States. In an effort to control that, the EPA’s WaterSense specification for new homes, finalized in December of 2009, requires water use reductions of 20%. Compliance verification groups will likely be trained to WaterSense standards.

Europe’s mandatory energy labeling includes water efficiency documentation and U.S. performance scores are also expected to include it.

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(8) Carbon Calculation.

The first step toward controlling the 40% of U.S. greenhouse gas emissions (GhGs) that come from buildings’ use of energy is the measurement and documentation of each building’s role in the consumption. That does not begin when a light switch is thrown. It begins with the GhGs generated in the production of the building materials.

Lifecycle analysis (LCA) of building products by third party technical teams is underway. Some are working with state and federal authorities to educate and develop effective carbon offset policies (including monetized credits to make favorable methods profitable). How far this trend develops depends on whether the Obama administration’s energy and climate legislation, and the cap&trade mechanism contained in it, becomes law.

(9) Net Zero Buildings.

Definition of a net zero building: A building that generates more energy than it uses. Time frame for measurement: One year. Variables: size, EE, NE.

The very influential Architecture 2030 Challenge calls for all buildings in the U.S. to be net zero in 2030. The goal is already within reach. The technologies exist. Oregon has several net zero homes, and the planned Oregon Sustainability Center will be a net zero office building.

(10) Sustainable building education.

Builders are beginning to learn and understand. Homebuyers, homeowners and building owners are educating them. Demand, especially in progressive cities, will continue to drive the process. It will sweep up the entire chain of building industry-associated professionals (real estate, finance, insurance). The result will be a growing appreciation of the profitability of green building from the designer and builder to the appraiser, the bank, the insurer and the owner.

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QUOTES
- From the conclusion to the Griffin study: "Residential appraisers, real estate brokers, and financial institutions will benefit from a greater understanding of sustainable home construction and home value by improving their ability to work with third-party certified buildings. Increased professional training and understanding of sustainable home practices will lead to more accurate value assessments of sustainable homes...Residential builders and sustainable building advocates must continue their dialog with appraisers, real estate professionals, and relevant financial institutions in order to facilitate this improved knowledge transfer..."
- Jim Harris, Financial Post, December 15, 2009: "What is the future of energy? is a critical question. The three fastest-growing sources of power in the future will be: negawatts, smart systems and clean power...Negawatts...is a term coined by Amory Lovins to signify electricity that isn't needed to be produced due to energy efficiency. Mr. Lovins is one of the world's leading energy efficiency experts -- and coined the term when he saw a typo in a report -- "negawatt" instead of "megawatt." Every kilowatt hour (kWh) that I save through energy efficiency is a kWh that someone else somewhere else on the grid can use. It's the cheapest form of power generation. A negawatt strategy can apply to: 1) how electricity is produced; and 2) how it is consumed..."