Many experts suspect that the red-hot housing market of 2006-2007 that created so much ultimately unsustainable wealth for many may never return to pre-recession heights. As Americans continue to grapple with the fallout from the meltdown of many of the nation’s key institutions, perceptions of value have shifted considerably.
In regards to the housing industry, the things that add real and lasting value are increasingly perceived as upgrades which offer immediate cost of ownership savings. As the housing market recovers, concerns about energy efficiency, environmental impact, and adding lasting value will continue to weigh heavily in the minds of consumers and investors alike who were burned by the housing bubble crisis.
The housing market has made some tentative gains in the past year, reflecting the condition of the larger American economy as various industries and individuals work themselves out of the crushingly long depression. More importantly, Americans in general have shaped up, shed fat, gotten leaner, and generally put their financial houses in order.
As for our physical houses, our places of dwelling, we no longer lust for massive cookie cutter homes, and three or four-car garages. Instead, homeowners have pivoted towards green, energy-efficient homes built for quality with sustainable materials. Not only are eco-homes friendly towards inhabitants and the environment, they can become quite attractive economically.
Green Homes Puts Green In Your Wallet
When most homebuyers and homeowners consider investing in a “green” home or energy-efficient retrofits, the question is invariably about balancing present costs (in the form of sustainable investments) and costs over time (i.e. energy bills). Building with sustainability in mind substantially reduces those life-cycle costs, such as energy bills and maintenance associated with low-quality, turn-key products.
However, the trade off is that sustainable homes and renovations will generally demand a higher front-end premium, although studies indicate this premium is often no more than 2 percent more on average. Thus, for most individuals, the debate between going green or saving a little money in the short term becomes all about timing. In the long run, investing in sustainability will always yield savings, and studies show that investing in sustainability also adds immediate value in the form of home equity.
What Is Home Equity?
Home equity is a home’s real property value, or the difference between a home’s fair market value and the outstanding balance of all liens on the property. What’s important here is that homeowners can benefit from a gain in home equity thanks to increase in property value. Most people are familiar with the idea of property value. Proximity to services and zoning to a good school district all increase property value thus increasing a homeowner’s equity. Adding renewable systems or investing in green retrofits has precisely the same effect – boosting home sales prices and creating wealth for homeowners.
Green Home Premiums
A study out of Berkeley shows that the average price premium bump for homes that have sustainable features, such as photovoltaics, makes up for the initial investment. In essence, investing in renewables and green features adds instant equity. Reports across the nation corroborate the Berkeley study showing price premiums as high as 30 percent (or 61 percent in some isolated cases).
Even in the midst of the Great Recession, energy-efficient homes significantly outperformed the rest of the market selling at 8.5 percent more per square foot at a time when traditional homes saw tumbling sale prices. Homes that met strict third-party certifications, such as LEED (Leadership in Energy and Environmental Design) or Energy Star, fared even better, commanding prices 25 percent higher.
This Prius Effect taking hold of the eco-home market, the correlation between environmental ideology and increased sales of greener goods, can be both good and bad. It can evoke a perception of faddishness or the idea that premiums are driven by perceptions of social status rather than actual value. However, the economics cannot be denied. As Texas energy rates continue to increase and water becomes more scarce, this value becomes increasingly evident. The truth, backed by a considerable body of research, is that green homes sell for more. Today, more and more Americans are demanding greener, energy-conscious homes as a means to live more comfortably, and more economically, without taking an undue toll on the natural world.
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