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Green Home Renovations Moving into the Mainstream

June 12, 2017
The interior of eco-friendly green house with wide doors and windows
Energy-efficient homes can save you money and increase housing resale values. (Photo credit): Hardwick General Contracting

Plentiful financial incentives for eco-friendly home improvements can boost resale values.

You live in a beautiful Victorian-style home with leaded windows, slate shingles and the original cedar wood siding. Built near the turn of the 20th century, your home has the kind of decorative character that just can’t be found in the new construction of today.

Here’s the main drawback: your home leaks energy and costs a fortune to heat and cool. If you are concerned about protecting the environment, it’s hard to reconcile the fact that a 100-year-old house devours electricity and natural gas.

Fortunately, it’s easier than ever to retrofit old homes to improve their energy efficiency and make them more environmentally friendly—and more Americans than ever are taking the plunge. By 2018, green single-family housing will make up about 40 percent of the total housing market, the U.S. Green Building Council said, citing a McGraw Hill Construction report.

The shift to green construction principles has even changed the homebuilding industry. Some builders that started out designing only conventional homes have changed their approach because of market demand.

“It’s all we’ve been doing,” said Greg Hardwick, a builder in Maitland, Fla. “Every call we get is for a green home.”

The outside of Orlando green home, designed by Hardwick General Contracting
This 5,500-square-foot Orlando, Fla., home, designed by Hardwick General Contracting, features an 11-kilowatt solar-power electrical system and energy-efficient windows and appliances
"By 2018, green single-family housing will make up about 40 percent of the total housing market."

Financial incentives to retrofit

You may have been putting off a green retrofit because of steep upfront costs, but financial incentives are plentiful and available for the taking.

The costs of geothermal water heaters, LED lighting, and other green building materials have steadily dropped to more affordable levels. It’s also easier to rationalize the capital investment because of the immediate savings in utility bills. An upgrade to a home’s air-conditioning system can save a family about $700 per month, according to PACENation, an industry association in Pleasantville, N.Y.

It’s also hard to argue with the fact that greening a home enhances its future resale value. In Washington, homes with green features sell for 3.5 percent more than homes without, according to a report by real estate appraiser and author Sandra K. Adomatis and the Institute for Market Transformation, a D.C. nonprofit group.

Plenty of U.S. homeowners have the financial means to pull the trigger, as Americans have been piling up billions of dollars of equity during the economic recovery. Now, the equity they’re sitting on can be easily tapped through low-rate home equity lines of credit, such as East West Bank’s Bridge to Home Saver Equity Line of Credit, as rates remain at historically low levels.

Green commercial housing nearly doubles

No matter the size, shape or purpose, it seems like virtually every type of new housing development is using some form of green construction principles. About 84 percent of residential construction will include green features by 2018, McGraw Hill said. And the residential green construction market is projected to nearly double from 2015 to 2018, according to a U.S. Green Building Council study.

Apartment and condo buildings are on the cutting edge of this trend, and that may be due to a special financial incentive available to these projects. When a multifamily development incorporates environmental features, it helps both the real estate development company and the local government.

Take, for example, the types of projects seen by Hung Hsi Chen, the manager of East West Bank’s Northgate branch in Seattle. He has seen a noticeable uptick in loan applications by developers that include plans for eco-friendly buildings.

“It’s better for the developer to design green buildings because [local regulations] allow them to build more units in a single project,” Chen said. “That helps their cash flow.”

The bank gets a nice lift, too. When a developer can maximize the number of housing units in a single project, it’s a great way to manage risk, Chen said.

“It’s better for the bank because we want higher density,” Chen said. “If someone moves out, then it doesn’t affect your vacancy rate.”

"It’s better for the developer to design green buildings because [local regulations] allow them to build more units in a single project."

- Hung Hsi Chen

The outside patio of Orlando green home, designed by Hardwick General Contracting, at night
Orlando, Fla., eco-friendly home designed by Hardwick General Contracting

Finding financing

An innovative type of financing product has also helped spur a boom in green home renovations. Property-assessed clean energy financing programs, also known as PACE loans, can help finance the purchase of solar panels, energy-efficient windows, appliances and other equipment.

PACE loans, which can be used for commercial and industrial development, in addition to residential, must be backed by state governments. Some groups have expressed concern that PACE loans can lead consumers into a debt trap, in part because of high interest rates and because loan payments are deducted through property taxes.

But that hasn’t slowed the popularity of PACE financing. About $3.7 billion of PACE loans have been made for residential use since 2009, according to PACENation, and the Federal Housing Administration last year gave initial approval to the attachment of PACE financing to FHA mortgages.

The concept of PACE lending has received endorsements from several well-established financial firms. Morningstar, the mutual fund rating company, in February gave a big thumbs-up to PACE loans in an extensive study of the program’s features.

In the report, Morningstar concluded that PACE is “a beneficial program that offers corporations and consumers the opportunity to affordably implement energy-efficiency and energy-renewable upgrades.”

Low-income housing

Finally, green homebuilders want to dispel the notion that retrofitting a home with energy-efficient materials is only for the rich.

In fact, some improvements cost very little, and sometimes they’re even free, according to the Florida Green Building Coalition. These include sealing your attic to prevent water seepage, installing aerators on water faucets, and sealing wall openings to prevent the escape of cold or warm air from inside the home.

The green home cause has even been a longtime priority for government housing agencies. The Federal Housing Administration has a long-running effort to upgrade its housing with green features, and to implement the same kinds of strict energy-efficient standards in its new construction that are part of the most upscale green homebuilders.

Private developers are in on the action, too. Take The Rose apartments in Minneapolis. The affordable-housing development was built on a reclaimed Superfund site (where the environmental damage from previous uses was so severe it required federal intervention), has a solar water-heating system, and features a community garden so residents can grow their own food, reducing trips to the store.

Act before benefits end

Federal and state tax credits can help subsidize construction or installation costs. However, some tax credits are set to expire, such as the solar panel tax credit. Many professional associations and environmental advocacy groups have pressed lawmakers and officials to extend those tax credits.

“We need the federal government to keep, and even expand, incentives that are already producing major advances in energy-efficient design and cutting the carbon footprint of buildings,” said Thomas Vonier, president of the American Institute of Architects.

Other financial incentives, like the residential renewable energy tax credit, have either recently expired or will soon reach their sunset date. Incentives to install wind or geothermal power are expected to vanish, and homeowners are urged to take advantage of them before it’s too late.

One of the best-known programs for environmentally sound housing, the federal Energy Star program, has been placed on the chopping block as a cost-cutting measure. However, a group of companies that manufacture building products, including the makers of Andersen windows and Carrier HVAC systems, have urged officials to keep Energy Star.

The Alliance to Save Energy wrote in an Apr. 24 letter that Energy Star ”enjoys a long track record of success and should be strengthened, not weakened, to ensure it continues providing these important benefits to the public, while helping us meet our energy and environmental goals.”

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