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Banks may overlook value of energy efficiency

Gauging the value of energy efficiency

WASHINGTON — Home energy efficiency and sustainability have been major policy priorities for the Obama administration, but beyond the documentable savings on utilities bills, what other value is there?

Housing groups and housing officials say that definitive statistical data covering multiple regions of the country are scarce. But some research projects in Oregon, Washington and California offer promising hints. In a study covering existing and new houses sold between May 2010 through April 30, the Earth Advantage Institute, a nonprofit group in Portland, Ore., found that newly constructed homes with third-party certifications for sustainability and energy efficiency sold for 8 percent more on average than noncertified homes in the six-county Portland metropolitan area. Existing houses with certifications sold for 30 percent more.

The raw sales data in the study were provided by the Portland Regional Multiple Listing Service. "Certified" houses were defined as those carrying Energy Star or LEED for Homes designations, or Earth Advantage home certifications. (LEED stands for Leadership in Energy and Environmental Design.) The latest study was the fourth in an annual series conducted by Earth Advantage, each of which has shown clear price premiums for certified houses.

However, officials caution that using average sales prices pulled from MLS data without attempting to measure "comparable" homes against one another directly may not be conclusive. For instance, newly constructed certified houses may be more expensive to start, and existing certified homes may be larger and more likely to be located in higher-cost neighborhoods where homeowner adoption rates for energy-efficiency measures are higher.

Nonetheless, said Dakota Gale, Earth Advantage's manager of sustainable finance, looking back at four years of studies, "we can still see a consistent trend that third-party certification continues to result in a higher sales price, even during the past year when home sales were down."

What about the return on improvements? A recent study on houses in San Diego and Sacramento, Calif., published by the National Bureau of Economic Research, took a different tack: When you install photovoltaic solar panels on your roof, how much do you get back in market resale terms?

Researchers examined home sales in both metropolitan areas between 2003 and 2010 and found that, on average, solar panel installations cost owners in a sample of homes in the $500,000 range $35,967. But with federal and state subsidies, the net average cost came down to $20,892. This net expenditure, in turn, yielded an increase in appraised value by $20,194 — a 97 percent rate of recovery on the investment.

Though less than 100 percent, a 97 percent recovery rate is much higher than most home improvements in the most recent "Cost vs. Value" study conducted by Remodeling magazine — well above major kitchen and bathroom renovations.

Kevin Morrow, senior program manager for green building at the National Association of Home Builders, says that although many newly constructed homes come with energy and sustainability certifications, banks don't necessarily recognize their value when it comes to providing mortgage money.

For example, bank underwriters often do not include reduced monthly utilities costs in the household income/household expense ratios that affect the maximum mortgage amounts available to buyers.

"The case needs to be made (to lenders)," he said, "that, hey, these (highly efficient) houses will cost less to operate, so they should be worth more."

Morrow added that appraisers are part of the issue as well if they don't have the training to recognize and credit extra value to houses that have money-saving solar installations, geothermal heating and cooling, Energy Star appliances throughout, water conservation features and other green improvements.

Kenneth R. Harney can be reached at [email protected]

Banks may overlook value of energy efficiency 08/27/11 [Last modified: Saturday, August 27, 2011 4:31am]
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