The really good news coming out of the Builders’ Show last week was energy. There was a lot of it at Design & Construction Week in Las Vegas, where the International Builders' Show, Kitchen and Bath Industry Show and window shading shows came together.
And why not? The outlook for homebuilding hasn't been this good in years. The National Association of Home Builders (NAHB) expects that home sales and prices will each rise about 5 percent in 2014 and that housing starts will post a 20 percent gain. That’s about the best news the homebuilding market has had in a while.
There are several reasons for these gains. An expected 3 percent economic growth in the United States will translate into income growth for families and put more money in consumers’ pockets. Mortgage rates remain relatively low. And there’s pent-up demand.
One of the big reasons for all this homebuilding optimism is energy—or more precisely, the conservation thereof. “Consumers are showing heightened interest in conservation and saving energy,” says NAHB’s chief economist David Crowe.
Building energy-efficient and green homes during the economic downturn has helped the construction industry differentiate itself. Many consumers now expect energy efficiency in a new house. And now that the economy has perked up, smart homebuilders aren’t going away from it.
What Happens Now?
“Now what happens is that we’re finding a bifurcated industry,” says Harvey M. Bernstein, vice president of Industry Insights and Alliances at McGraw Hill Construction, which has released its 2014 Green Home Builders and Remodelers Study. “Those who did green now continue to grow, while others who have gotten back into the market will be moving into green.”
According to the survey, last year 23 percent of new home construction was “green,” resulting in a $36 billion business, up from 20 percent of homes and $25 billion in 2012. McGraw Hill projects the green home market to be worth an estimated $83 billion to $105 billion in 2016. And by 2018, it says 62 percent of homebuilders will construct 60 percent of their portfolios as green homes.
McGraw Hill defines a green home as one conforming with ICC 700 National Green Building Standard to be energy-efficient, water efficient, resource-efficient and having improved air quality.
So why the continued drive toward green?
“Energy efficiency is the number one driver,” says Matt Belcher, of Hibbs Homes in Wildwood, Mo., and co-chair of NAHB’s Energy & Green Subcommittee. “Now it’s growing beyond that to water conservation,” especially as severe drought is affecting many parts of the American West and inspiring more water conservation measures in California.
The Heart of Efficiency
All of this movement toward energy efficiency, of course, means more home technologies—from efficient HVAC systems to water saving measures to renewable energy sources, energy monitoring and management systems and smart home and automation systems that save energy by turning systems and devices off when not in use.
The profusion of technology means that homes today can be sold differently—or does it?
“A whole new generation of homebuyers (Gen Y) are used to automation,” says Belcher. “You just have to demonstrate the cost effectiveness.”
Will Consumers Buy In?
The McGraw-Hill study finds that more than two-thirds of homebuilders (68 percent) and 84 percent of remodelers say their customers will pay more for green. On average, builders say their clients will spend 3 percent more on green homes and 5 percent more on green remodels.
“They are perfectly willing to pay more as long as it saves them money,” says the NAHB’s Crowe.
That can often be the most difficult part of the proposition. So what do green builders like Belcher do? “We sell the monthly payment. By far the biggest cost of owning a home is its operation and maintenance.” By rolling the cost of efficiency into a mortgage, homebuyers save on their monthly utility bills and feel good about helping the environment.
Green Means Marketing
Building green makes marketing homes easier as well. Some 51 percent of homebuilders say it’s easier to market a green versus a non-green home and 63 percent of those say green is easier to market if they build 30 percent or more of their homes green. The experience clearly pays off.
Renewable energy sources such as solar and geothermal are becoming an important part of the story, says Bernstein. Interestingly, only 13 percent of builders in the study include solar photovoltaic (PV) in 2013, which should rise to 52 percent in three years. Solar thermal and geothermal fared a little better in 2013, with wind power lagging, but the biggest gains should be found in solar PV.
To say that renewables represent a part of the homebuilding market poised for robust growth may be an understatement.
As for builders just getting into energy-efficiency and green, let’s put it this way: A Performance Home Zone at the Builders’ Show attracted 400 attendees crammed into the space at one time. Energy efficiency and water conservation are becoming more than relevant. They are far more than trends. They now are essential and dynamic drivers pushing homebuilding forward and to greater gains.
“Those [builders] re-entering the market and not knowing enough about green—they don't know how to sell it [yet],” says Bernstein.
Perhaps those renewed builders should seek their niches in renewable energy systems. If so, here’s to your newfound power! Pun intended.