New home buyers are willing to pay more for “green” related as well as “energy” related items. It is true, however, that when asked they will pay more for energy related items than just green items.
First, energy related items typically have payback periods because of reduced energy costs over time. (Energy Star appliances, better insulation, better windows, PhotoVoltaic, PV water heaters, etc.). Home buyers, being pretty rational, buy the argument that any investment in these items will pay them back over time.
Second, “green items” (aka sustainable products) typically payback in terms of the livability of the house like better indoor air quality by using products that use recycled content (wood, flooring, decks, etc.) and/or don’t produce gasses (low VOC paints, insulation that doesn’t use formaldehyde, floor adhesives that don’t use toxic ingredients, etc.) and/or reduce waste (recycling programs for construction materials). These items induce buyers on two levels: one, many people are going or leaning “green” because they feel like they are doing their small part to “help mother earth” and two, many buyers are becoming informed about the bad stuff these things do to their health over time (this concern is especially true among houses where children are present and/or where there are baby boomers who are leading the craze about healthy living).
Third, indoor air quality, for example, is surprisingly ranked as one of the biggest concerns among home buyers and new homes give them assurances that their air is not contaminated. Combine this with the fact that many of the green items are getting mainstreamed and add little or no costs to the builder.
Fourth, new home builders have found it challenging to sell the features of these offerings let alone their benefits. This is the old marketing problem.
A few interesting marketplace facts:
The percent of people who are in the market shopping for a home and actually prefer a new home is ~60%. That number varies between 56% and 64% and has stayed consistent for almost 8 years. One of the primary reasons for preferring a new home is that they are more energy efficient. ~50%.
When we asked home buyers in the last two years if Solar panels for generating energy were important - 44% indicated they were Very Important and 19% indicated they were Essential
When we asked in the same study if they wanted Solar panels for hot water - 43% indicated they were Very Important and 20% indicated they were Essential
These numbers have not changed very much over the years.
One study at Terramor in Ladera Ranch (So Cal.) (400 homes out of 1000 had solar and 100% had a variety of “green features”).
Suppose a “Low Energy Home” (solar systems that generate 40% of its own energy) had been available when you were looking for a home. Initially the cost of this home would be an additional $8,000, yet over time you would recoup these costs in your yearly utility bill savings and mortgage tax interest deduction. How likely is it that you would have considered buying such a home? (% Responding)
1. Not at all likely 3.18
2. Not very likely 12.47
3. Somewhat likely 34.75
4. Very likely 19.36
5. I definitely would have considered it 28.12
We understand that you have rated some items (from a list of some “green” and some energy “related” items) as important and some not important at all. How much more, per month as part of your mortgage, would you be willing to pay for the items you thought were important?
1. I wouldn’t pay any more 11.14
2. Less than $25 11.67
3. $25 - $49 21.75
4. $50 - $74 17.77
5. $75 - $99 11.14
6. $100 - $124 13.00
7. $125 - $149 3.18
8. $150 - $174 2.39
9. $175 or more 3.98
As part of a post purchase study of buyers in this same community we calculated that people were willing to pay between $1.20/ sq.ft. to $2.40/sq.ft.. for a marketbasket of these sustainable features.
Other studies have concluded that resale homes with PhotVoltaic to generate electricity sell for more than comparable home without PV in the same area. The return on investment for these resale homes with PV was on average 12 to 1.
Just in the last few months, a builder in Northern California offered homes with PV and contracted to sell 27 out of 28 within a week. The traffic was very high and the sales effort for this ‘energy related offering’ was very good.
A very recent study, after the housing market collapsed, concluded that people would pay more for both “green” and “energy” related features as part of their mortgage. They will pay more for energy related features but the amount they would pay for green stuff was very impressive. I’m not at liberty to reveal the numbers at this time.
American LIVES, Inc.