The Value of Green Labels

Is the economic ball rolling??  The markets seem to be moving again… home sales are increasing, developer inventories are slimming and the National Association of Home Builders (NAHB) has announced another positive spike in permits and new home development for the 3rd quarter in a row… in the midst of the “pre-presidential” election, why aren’t we hearing about the proverbial backbone of our economy – the construction industry?  What’s fueling this growth?  What the heck will it look like this time around?   As the next wave of home building and growth emerges from the  recession ashes can we expect consistency?  We’ll it appears all the hype around green building may be a little more of a benefactor to than once perceived.

A recent study published in July 2012 formulates the “value of green labels”… in short they assess the intrinsic value of building a high performance home that is in compliance with one or more (Energy Star, LEED for Homes, NGBS, etc.) of the green label programs.  The first comprehensive study of its kind within the United States concluded; Green Labeled Homes will garner a 9% increase in home value on average and this value is inherently more in hotter more environmentally conscience regions and areas with higher utility rates, spikes or pending increases.  Well, DUH!!!  But then you got to stop and think…. all three of those conditions apply to Hawaii!

We have all heard that Solar Water Heating (thermal heating) and Photovoltaic (PV) are great upgrades that add a bunch of value to a home… okay, yeah it’s tangible, it’s new, it’s convenient and you get that instant gratification of seeing those panels on the roof and those sweet tax credits!  It does make sense if you’ve got $60K to burn… but let’s consider energy efficiency as a whole, I mean, before you go blanketing energy use and over-consumption with silicon and plastic that doesn’t always pencil.  While we’re at it let’s also take a gander at the most common home improvements from a whole value perspective;

PV – 3.5% increase – average cost $55,400 (4.5 kW system) – positive residual savings

New/Upgraded Kitchen – 4.6% increase – average cost $43,500 – no residual savings

Pool/Landscaping – 2.1% increase – average cost $61,900 – negative residual savings

New/Upgraded Baths – 2.9% increase – average cost $13,500 – no residual savings

Green Label Retro-fit – 9.3% increase – average cost $21,800 (includes mechanical systems) – positive residual savings

These percentages are based on national figures SO keep in mind that regions like Hawaii tend to have a higher percentage because of the demand.  It also applies when building your home, the study has found that 65% of single family developers are building to some type of Green Label, most notably Energy Star but this has improved their marketability and value by offering higher comfort at a lower operating cost.  It has also been found that homeowners who take part in the process of building their home can have an immediate positive return on their investment in energy efficiency by pursuing a green label program.  The comparisons and numbers as follows;

Average (standard code) new construction – $230 / s.f. x 1,000 s.f. = $230,000

Utility and Operating Cost Yr. 1 – $335 / month x 12 months – $4,020

Appraised value Yr. 1 (home only) 2.8% avg. increase of new home at refi – $236,440

Positive Variance – $2,420.00

Average new construction to Green Label standard – $236.50 / s.f. x 1,000 s.f. = 236,500

Utility and Operating Cost Yr. 1 – $52 / month x 12 months – $624

Appraised value Yr. 1 (home only) 9.1% avg. increase of new home at refi – $258,020

Positive Variance – $20,896 (less the standard code construction s.f. difference of $6,500) = $14,396.00

Of course there are a lot of factors that play into these formulas, everything from climate zone, utility rates, size, architecture, etc. etc. but the concept still remains, within the typical appraisal and refinance period of 1 yr homeowners will yield an immediate ROI fr0m building a high performance home to some form of Green Label.  Not to mention the residual savings which compound annually… to me that just seems like the most efficient way to go!