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Financing Home 2.0
Jon Lebkowsky, 26 Jan 08

While predatory lending practices in the mortgage industry have been getting a lot of press lately, there's a far more positive trend within the same industry: green mortgages.

What do I know about finance? Though in these columns I focus on social media, I'm often in discussions about sustainability, and many of those focus on the built environment. I'm aware that big developers like Stratus here in Austin are completely serious about green buidling, and there are more and more LEED-certified construction projects in development, and various green building experts looking beyond LEED for better ways to ensure sustainable design and building.

Large construction projects are incentivized by the energy-efficiency ROI realized through green building practices, but how about smaller residential builders and buyers? Are there sufficient and completely clear bottom-line incentives for sustainable residential building and retrofitting? How is sustainable defined at that level?

Austin Energy, my own local utility, offers various rebates and incentives for energy-efficient building, and it has a residential green building program that rates homes using sustainable guidelines. Austin Energy is considered a leader; other utilities aren't as far along in supporting or sponsoring green building programs. AE serves a city that's always had a vital, strong environmental community, and is currently served by a mayor who has a background in environmental design, and has proposed an aggressive Climate Protection Plan (pdf) with a goal to makes "all COA facilities, fleets and operations totally carbon-neutral by 2020." Austin is also the home of Pliny Fisk's Center for Maximum Potential Building Systems, which I'll be writing about in later columns. Austin is a lab for green innovation, and in this context I've been learning fast about green/sustainable building, which can include many practices. We're focusing on ideals like zero carbon footprint or maximum energy efficiency. Austin may also lead with models for financing green development, both commercial and residential.

It's one thing to experiment with energy and building alternatives, but if you want to do the kind of mainstreaming that will make green building standard and unexceptional, you have to accommodate the higher current up-front costs of the new energy sources and building methods, especially given current anxieties over the subprime loan debacle. Lenders and appraisers are inherently cautious because of the risks and liabilities they live with every day, and they're even more cautious now because of the subprime meltdown. Buyers are concerned about the potential for a down market to depreciate the cost of the home they're buying, and everyone's jittery about economic conditions: can I still afford this mortgage if gas and food costs quadruple? More expensive green building practices or add-ons like photovoltaic panels or solar water systems will become mainstream only if there's increased demand, and only if lenders will finance the additional cost, which means that appaisers will have to relate added cost to added value. For a sense of the appraiser's dilemma, check out this conversation in an appraisers' forum. One way to assess added value is to factor in the future energy savings. (And what if you're depending on an appraisal for a building in Arizona, which has a statute about standard appraisal practices that says "solar energy devices... and any other device or system designed for the production of solar energy for on-site consumption are considered to add no value to the property"?)

There is, in fact, a revolution in the world of building construction, and it's not just about green building. I alluded to it in an earlier column about the home of the future, where I mentioned the impact of digital convergence. Consider that a home and the environment where it's built can be seen as aggregations of data - about materials, forms, shapes and sizes, climate, native animals and insects, soil, air etc. These data can be aggregated and analyzed to inform smarter, more flexible, more configurable, lower impact construction, fitted with various sensors, computer systems, displays, and robots. We'll see persistent innovation and change through all this, and we'll also see what I previously referred to as DIY (do it yourself) home environments. You might call this "Home 2.0" – the occupant will be an active participant in home construction and maintenance, and will be empowered to configure the home according to needs and preferences du jour. This may sound wonderful, but it's also new and complex... and a potential challenge to standards for appraising and financing the built environment.

Every time a house changes hands, what happens? It gets renovated. Everyone wants a new kitchen. And whenever change happens in architecture, there is tremendous waste. Thirty to 40 percent of our landfills are made up of building materials from construction and renovation projects. What we have done is design a kitchen that you can unplug and move around, so there’s no need to renovate. You can rearrange its components so that it adapts to your needs. ~ Pliny Fisk
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What utilities are leaders in conservation and innovative thinking? I have heard of
* SMUD (Sacramento Municipal Utility District)
* Austin, TX
* Burlington, VT

Are there any private (investor owned) utilities that are role models?

Posted by: Jim on 27 Jan 08

The biggest challenge in my view that Austin is facing, like many other metropolitan areas, is sprawl. Austin's suburbs continue to expand farther north, south, and east. Commute times are increasing, and owning property near downtown is out of reach for most of us. Affordable, dense, single-family housing near downtown would be truely progressive.

Posted by: Kevin Bush on 28 Jan 08

The conversation you linked to in an appraisers' forum was quite interesting.

What would it cost to create the data these appraisers need?

Posted by: Daniel Haran on 28 Jan 08



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