ROI of Green Building

Save on Resilience

The ROI of Building Home Resilience

09-22-2021

Resilient buildings can save lives, heartaches, and time and effort spent on recovery from damages. Can resilient/sustainable buildings also save money?

A sustainable building has an economic aspect to it: buildings are long-term, capital-intensive investments designed to perform for decades into the future. Buildings that do not perform well under current and future climate events will have a negative economic impact on occupants, investors, and even the community and local government.

The good news: resilience is largely quantifiable, achievable, and demonstrates a positive return on investment (ROI).

In this blog post, we provide information on the financial feasibility of a resilient, sustainable home:

  • Costs of Building resilience and green
  • ROI
  • Opportunity costs
  • Save on Resilience
  • Final thoughts
  • References

 

Costs Of Building Resilience and Green

Question: Can we afford to make our house more resilient/sustainable?

Answer: Can we afford not to? 

For example, the average cost of damage after a heavy storm, powerful winds, or hail is roughly $5,500 thousand dollars, but that number fluctuates greatly depending on the magnitude of damage (and the source of information you research). As extreme events continue to become the norm, expect those numbers to go up substantially. Another example of average costs to recover from water damage is estimated here, by square feet. 

One way to hedge against that cost is buying insurance, but that may be a subpar solution. Because insurance companies are at the forefront in realizing the growth in extreme events, they either massively raise premiums or completely drop coverage in some risk-prone areas. In the sad event you do experience damage from a climate hazard, getting the insurance money is not always easy and you are still left with the task of restoring your home. 

Nevertheless, if you are lucky and manage to cover yourself with insurance, you will pay only the deductible. In our blog post on climate insurance, we share the cost and feasibility of different types of insurance for varying types of risks. The premiums of all types can often be lowered by adding resilient/sustainable features to your home.  

Looking at either new construction or retrofitting, adding sustainable features (both green and resilient) may require a higher upfront cost, but the financial (and mental) savings come later, in many cases yielding a positive, better return on investment (ROI).

 First, let’s look at several cost examples of resilient features:

  • A study on climate change adaptation strategies in residential buildings in Australia found that related cost-effectiveness varies in different climate zones and ranges between several thousand and tens of thousands of Australian dollars. 
  • A report by the Urban Land Institute (ULI), which included ten case studies of different project types with different geographical locations and climate-related risks, also presented a wide range of expenses on resilience, ranging between negligible and ten percent of the total cost of the project. 
  • We already argued that sustainability goes hand in hand with resilience. This source provides more specific costs of building green.
  • Zero Energy Ready (ZER) homes produce as much renewable energy as they consume over the course of a year, without onsite solar photovoltaics (PV). According to a report by Rocky Mountain Institute (RMI), the incremental costs of building ZER compared to the costs to build an identical home that meets the local energy code are equal to or less than the cost thresholds. Where solar financing is available, solar panels can bring these homes to Zero Energy (ZE) at little or no added cost (and greater long-term value). 
  • Maclay Architects design sustainable buildings and in recent years focused on Net Zero buildings, which average the extra cost of an energy-efficient residential building at $50,000, or $30 per square foot. 
 

ROI

The extra costs of these features tell half the story. As with any investment, one must look at the ROI. When we invest in our home, and specifically in resilient features that make it more sustainable, we should look at the operational savings,  opportunity costs and other, non-financial goals we want to meet.

  • The mentioned ULI’s report shows that financial returns of resilience averaged hundreds of thousands of dollars in annual operation savings, increased reputation, reduced losses, reduced insurance premiums, and increased rental premiums.  
  • The National Institute of Building Sciences (NIBS) has put together the Natural Hazard Mitigation Saves 2019 Report which concludes that adopting the latest building code requirements saves $11 per $1 invested. Going with the above-code design or retrofit could save $4 per $1 cost. The report also includes real-life examples of savings when implementing features that enhance the resilience of properties. 
  • An MIT research states that the payback period for hazard mitigation in residential buildings can be five years or less. This research was performed on two-story wooden homes in New Orleans. 
  • Sustainable homes have greater property value than less resilient homes. This is backed by research done in Florida, showing that although coastal properties are considered sought-after, price appreciation of single-family homes was higher in elevated areas that are less prone to sea-level rise and flood risks. 
  • Based on the RMI report mentioned above, ZER homes routinely save tens of thousands of dollars on utility bills for consumers over the lifetime of a 30-year mortgage. Zero Energy Project calculated the Return On Investment of ZE and ZER homes based on data from the RMI report. Their calculation shows an ROI of 3.2%-6.3% for ZE and 5.6%-12.5% for ZER. 
  • For Net Zero building, according to Maclay Architects, the break-even point is eight years, averaging with $60,000 cumulative savings. 
  • Million Acres, a Real Estate Investment company that provides information on the best ROI for home renovations, is now recommending sidings and windows from materials that are more durable and energy-efficient.
 

Opportunity Costs

As mentioned, not only the return on investment should be considered, but also the opportunity cost. When you need to make the decision of adding a new feature to your home, making a purchase, choosing a material or service, it is tempting to go with the cheapest option, and sometimes it is the only option that your budget permits.

The problem is that the cheapest option will probably not last as long as you need it to, and you will be forced to choose again, and repay. Choosing resilience in building design will make your decision last longer, therefore making it more affordable. Think buying sidings that last 30 years vs replacing every 7 years.

 

Save on Resilience

Luckily, some organizations try to make it easier for us financially. 

Here are some examples of ways to reduce the cost of resilience in buildings:

  • Insurance: The traditional, and often most expedient, risk management approach is buying insurance. Having insurance that fits the risks that your property is exposed to, should help cover the unwanted costs of damages caused by the increasingly extreme weather phenomena. 
  • Tax credits: The IRS offered a federal 30% tax credit of the cost of solar electric, solar water heating, wind energy, and geothermal heating equipment installed and placed in service through January 1st, 2020, and 26% in the case of property placed in service before January 1, 2021. This tax credit was then extended an additional year. The credit will decline to 23% and then 10% in the following two years. There is no dollar limit on the credit for most types of property and it includes the cost of installation.
  • Funding/ Rebates: Some programs offer to fund sustainable features. Please note some of these grants are for local governments, but they should trickle down in one form or another to communities and residents, so it is highly recommended to check your city or county sources for this information.
    • The U.S Department of Energy (DOE) provides the Weatherization Assistance Program (WAP) that helps reduce energy costs for low-income households by increasing the energy efficiency of their homes while ensuring their health and safety. 
    • The office of community service provides the Low Income Home Energy Assistance Program (LIHEAP) which helps with energy crises, weatherization, and energy-related minor home repairs.
    • NOAA’s resilience toolkit aggregated funding options for flood mitigation strategies and suggestions on how to get the funds from different organizations. 
    • FEMA’s Hazard Mitigation Assistance Grant provides funding for eligible mitigation measures that reduce disaster losses. Here is information on how to apply. 
    • The WaterSMART Drought Response Program provides financial assistance to water managers to develop and update comprehensive drought plans (Drought Contingency Planning) and implement projects that will build long-term resilience to drought (Drought Resiliency Projects).
    • Commercial Property Assessed Clean Energy (C-PACE) is a financing solution from Connecticut Green Bank that finances energy upgrades immediately with the option to pay for them over time through a voluntary benefit assessment lien, levied and recorded against the benefiting property, to be repaid along with real property taxes. 
    • Through the Self Generation Incentive Program (SGIP) program, California provides incentive payments for installments of energy storage in homes, now extended until 2024. For residential customers, SGIP provides $250 per kilowatt-hour of stored energy. This can result in an average savings of $3,000 of a Tesla Powerwall 2, which is a little shy of 50% of the battery cost and about 25% of the total cost of the battery including installation.
    • The Database of State Incentives and Renewable energy (DSIRE) provides information on many available incentives in all States that may assist your climate related risk management.
    • The Texas Infrastructure Resiliency Fund (TIRF), provides financing for flood mitigation and protection projects and related planning efforts. The TIRF is administered by the Texas Water Development Board (TWDB) and includes four separate accounts: a Federal Matching Account, a Floodplain Management Account, a Flood Implementation Account, and a Hurricane Harvey Account.
    • Currently, six states (New Jersey, Massachusetts, Pennsylvania, Maryland, Washington D.C, and Ohio) have Solar Renewable Energy Credits (SREC) programs. If you generate solar energy at home, you can sell SRECS to utility companies. They buy them in order to meet their Renewable Portfolio Standards (RPS) requirements (electricity suppliers are required to generate a portion of their electrical power from a renewable energy resource). One SREC is earned for every megawatt-hour (MWh) of solar electricity a solar panel system generates. The price of SRECs varies between different states and can reach prices of over $400.
    • The East Bay’s public power agency (EBCE) in California offers a limited-time program called Resilient Home that helps homeowners choose solar panels and energy storage. After installation, a $1,250 incentive is offered for sharing the stored energy with EBCE.  
    • Sealed is an inspiring company that offers home improvements for better energy efficiency and comfort, while providing the contractors and covering the upfront costs. Their customers pay from their actual energy savings. To qualify, you will need to provide your contact information. 
  • Loans
    • Energy-efficient mortgages (EEM): Homeowners can finance energy efficiency improvements to existing homes, or increase their home buying power with the purchase of a new energy-efficient home. The U.S. federal government insures the loans through the Federal Housing Authority (FHA) or Veterans Affairs (VA) programs. This allows borrowers who might otherwise be denied loans to pursue energy efficiency, and it secures lenders against loan default.
    • BlocPower offers a 15-year lease program on energy-efficient equipment with no money upfront, providing a means for property owners to save energy and improve tenant comfort. You will need to fill out the information to find out if your building is eligible to participate in the program. 
 

Final Thoughts

As we often reiterate in our blog posts, a sustainable home is a resilient one. Today there is enough research to refute the belief that resilience means more expensive and proves that it can actually mean more affordable. 

Still, since building resilience may lead to building beyond code, we can expect more upfront costs, but we must keep in mind that there are financial and non-financial returns that come later. In addition, we should and can find ways to reduce upfront and ongoing costs through either funding or discounts/rebates offered by different organizations. 

And last, as we pointed out early on in this post, with the acceleration of extreme weather events (both in magnitude and frequency), we must learn how to manage climate risks and build resilience into our homes and communities.

 

KEEP COOL. BUILD RESILIENCE. EAMPACT.

 

References

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