Green Building in the Residential Market

Green Building in the Residential Market

According to a recent trends report, green building is expected to occupy a larger share of the residential real estate market in the future.

Buildings account for a large share of electricity consumption, overall energy use, and carbon dioxide emissions in the United States. By incorporating features and practices that reduce energy consumption and carbon dioxide emissions, green building can significantly aid in protecting the environment and conserving natural resources. Lessons from developers of green housing and findings from a recent report on green building trends were the focus of “Green Residential Trends: Opportunities in a Rapidly Growing Market,” a session at the 2016 convention of the American Institute of Architects (AIA). Session speakers examined green building trends in the residential construction and remodeling market, highlighted strategies to achieve better outcomes for green developments, and identified obstacles to green building.

Green Residential Growth

Green building construction is on the rise nationwide, and this exponential growth is expected to continue into the near future. Findings from "Green and Healthier Homes: Engaging Consumers of all Ages in Sustainable Living,” a 2015 trends report discussed at the AIA session, indicate that green building projects will occupy a growing share of the residential real estate market. The report defines “green building” as land development and the building, renovation, or remodeling of homes that complies with a credible green building ratings system, or as development that “incorporates environmentally sensitive site planning, resource efficiency, energy and water efficiency, improved indoor environmental quality and homeowner education.” Fifty-one percent of single-family homebuilders and 36 percent of remodelers surveyed for the report anticipate that green building projects will make up more than 60 percent of their residential projects by 2020.

Most single-family homebuilders and remodelers chose energy-efficiency as the most important green practice in homebuilding and remodeling, followed by durability for homebuilders and the creation of healthier indoor living environments for remodelers. These findings suggest that homeowners and homebuyers may be interested in green features primarily for their potential to reduce energy use. Developers of multifamily rental housing, however, may have different motivations for incorporating green features. Sanford Steinberg, principal at Steinberg Design Collaborative, LLC, observed that developers will integrate green features into the design of multifamily rental developments for several reasons: to meet the requirements of the jurisdiction in which the development is located, to help market the property, to make the development more competitive in the rental market, or to help sell the development more easily as part of the developer’s exit strategy.

Popular Features and Successful Approaches

According to Brandon Bryant, president and owner of Red Tree Builders, certain green features have become especially popular with homebuyers, including induction cooktops, light-emitting diode (LED) lighting, whole-house ventilation, and smart home technology that allows energy usage to be monitored remotely. Homebuyers have also shown interest in having their homes prewired for solar and electric car charging, whereas some, including many baby boomers, have demonstrated a preference for ductless or ducted mini-split heat pumps instead of traditional ducted heat pumps. A system with multiple mini-split units is more flexible than a traditional system because each mini-split unit has its own thermostat and controls the temperature within a different room or zone, allowing residents to consistently use one mini-split unit for the rooms in which they spend the most time and occasionally use another unit for less frequently occupied spaces such as guest rooms.

Bryant and Steinberg agreed that coordination among all parties early in the design process is important for achieving the best outcomes for both single-family and multifamily green building projects. For single-family developments, Bryant recommends pursuing an integrated design. In an integrated design, all parties involved in the home design, including the client; the architect; the builder; the heating, ventilation, and air conditioning contractor; and a certified Home Energy Ratings System (HERS) rater, communicate early in the design process to set goals for energy efficiency, conduct energy modeling, and run analyses on different design options. The results of those analyses are then compared to determine how each design option affects energy efficiency, allowing the builder and architect to provide a design that balances the client’s aesthetic and energy-efficiency goals. According to Bryant, the integrated design approach ensures that the clients’ homes ultimately meet the promised energy-efficiency standards. A similar approach that focuses on coordination among the architect, contractor, developer, green certification professionals, and city officials, can help achieve the best outcomes for multifamily developments.

Green Building Challenges

The high cost associated with many green features and practices is a potential barrier to the expansion of green building. Among those surveyed for the “Green and Healthier Homes” report, the largest percentage of single-family homebuilders (42%) reported that green features and practices added 5 to 10 percent to construction costs, and the largest percentage of remodelers (47%) stated that green features and practices increased remodeling costs by more than 10 percent. Despite these added costs, 69 percent of single-family homebuilders and 78 percent of remodelers felt that homebuyers were willing to pay a premium for a green home.

The cost of green building may be especially problematic for developers of multifamily rental housing. According to Steinberg, energy codes in many areas already require a high level of energy efficiency, and meeting these regulations can increase costs by $600 to $1,000 per unit. Obtaining green building certifications can also add significantly to the cost of a multifamily development. In addition, rental developments that require tenants to pay utilities may experience the issue of split incentives; although the owners or developers pay for the cost of adding features that increase energy efficiency, the tenants reap most of the cost savings associated with the reduction in energy use. In some cases, higher construction costs associated with increased energy efficiency could lead developers or owners to charge higher rents to recoup their investments. Steinberg, however, noted that for several green multifamily rental projects on which his firm has worked, green certification did not translate into higher rents for tenants, especially in weaker real estate markets, indicating that the higher cost of green building may not always be recaptured through rental income. Addressing the high costs for green features and practices will be essential to ensure that green building practices continue to expand.