Does Energy Efficiency Drive Home Builders out of Business?

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A couple of months ago, I was reading a discussion in one of the many LinkedIn groups that I belong to and came acros a comment arguing that energy efficiency requirements drive builders out of business. Here's part of what this fellow wrote (emphasis added):

"No one is against saving water or being more energy efficient, in fact if you can build a better mouse trap then the competition you will win over the customer. The point that I have been making is that the goverment is mandating things that most consumers can't afford to pay for which puts builders out of business. The more builders that go out of business the higher prices will go for the consumers.

"Most builders who adopt a green agenda are very sincere in their ambitions but soon find out that customers love what they are doing, but they can't or are unwilling to pay for it. In many markets today you can't make it work because of appraisals. Also, understand if you come up with ideas that produce a better mouse trap and you can sell it, I will be the first to stand up and cheer you on. I am just stating what I have seen from my 25 years in the business."

This argument is gaining traction among some home builders because energy codes have stiffened their requirements. For example, here in Georgia, the state passed a new energy code that (mostly) went into effect on 1 January of this year. Among the new requirements:

Will these new requirements cost builders extra? Mostly, yes. If they've been installing power attic ventilators, though, they'll now save a little bit by not putting them in.

Sealing up the house and the ducts to limit the amount of leakage shouldn't cost extra because they should be doing this already. Plus, the thresholds for passing are pretty easy to attain. Once builders and their trade contractors learn the details, it'll be easy to do and add little to no cost.

Yes, there'll be a cost to have their work tested, and I think when Mike Barcik surveyed HERS raters around the state last year, he found the average cost of a test would be around $75. Also, the new energy code doesn't even require third party testing. Builders and HVAC contractors can get trained as Duct and Envelope Tightness (DET) Verifiers and test their own work.

Getting back to the main question, will the extra burden and cost of meeting the new requirements drive home builders out of business? Hmmmm.

  • Have disposal requirements put tire manufacturers out of business?
  • Did the new security procedures instituted after 9/11 bankrupt airlines?
  • Does a former drill sergeant make a terrible therapist? (Oh, wait, that's a Geico commercial. Sorry.)

My answer is an emphatic No. Yes, builders have gone out of business and will continue to fold. The main factor in the past few years, though, is the economic downturn, not new energy efficiency requirements. Correlation does not imply causality. Just because home energy efficiency requirements have increased and builders have gone under doesn't mean one caused the other.

Also, if we're talking government mandates, as the commenter above referenced, then we have a level playing field. All builders have to do it, so home buyers don't have the option of going to one who's not incurring the extra cost to meet the requirements.

In my opinion, new requirements for home energy efficiency are essential. Building science has come a long way in the past few decades, and we know that conventional home-building methods lead to a host of problems - and that they're easily remedied. We're also grappling with serious energy security issues, and every little bit helps.

The argument that efficiency drives builders out of business is similar to the claim that requiring greater energy efficiency takes away our freedom. Basically, I think, it comes down to people in the construction industry being resistant to change. They want to do things they way they've always done them, but that's a guaranteed path to going out of business.

What do you think? Does energy efficiency drive home builders out of business?

Comments

Armando Cobo

Those are the typical ignorant comments you hear all the time. The fact is that if you know what you are doing, a HERS70 house should cost the same or almost the same as a “typical” leaky, moldy and drafty house. The reality is that most builders and homebuyers rather have granite countertops than a properly insulated foundation. They rather have $50k in kitchen appliances than an HVAC system designed, installed and balanced properly. Also, if all fails, they could lower the square footage of their designs by 10% so they can "afford" a high efficient and performing house. It’s all in the education (or lack of) of our industry.

Sam

I am not against more energy efficient homes. However I am against private for-profit groups controling our building codes with mandates that make them money.

Hunter Dendy

No. They were already on the way out. 
It's the same as businesses complaining about being required to recycle, or people upset because they can't smoke in public rooms (where there are likely to be children): just because certain people have been benefitting from doing (or getting away with) something that is harmful to others and our environment, doesn't mean they have a right to continue doing it. Our culture is evolving and you either join progress or get left behind. 

John Barba

My good friend Robert Bean (www.healthyheating.com)says if you build to code (i.e. the minimum requirements), then congratulations, you get a "D." We can and should do better, and enhanced energy performance is the only thing I can think of that will actually reduce the monthly cost of living in the house after you've bought it!

George Reynolds

Contractors need some kind of protection from codes gone wild. New versions are coming so fast, an architect would need crystal ball to plan for an Energy Star house in 2013.  
Inspection requirements from OSHA, local building inspectors, Resnet or Leeds, Healthy Built and whatever; make cost and time estimates exponentially impossible. 
Inspection duplication is bad business especially when it's supposed to be about efficiency. 
 
My best contractor has already said they will no longer be doing Energy Star after seeing the Version 3 checklists. Not to long after that, my provider had the same message.

Allison Bailes

Armando C.: Deciding where your priorities lie is definitely important. And plenty of energy efficient affordable homes have been built, so we know it doesn't have to break the bank. 
 
Sam: Which for-profit groups and which building codes are you referring to? 
 
Hunter D.: I agree! Keep up or get left behind it is. 
 
John B.: Yep, a code-built house is the worst house that the law allows you to build. I think it's fair to keep bringing up the standard. 
 
George R.: I think you're confusing mandatory building codes with voluntary programs such as ENERGY STAR. Codes are generally on a 3 year cycle, so there's plenty of time to prepare.

Mike

Code writing is a political but open process that entails rigorous cost-benefit analyses. They don't always get them exactly right, but the process is designed to keep pressure on the industry but not to put it out of business. I'd encourage that commented to engage the IECC process if he has specific comments to make.

Armando Cobo

Well, maybe my next car should be a brand new Mercedes-Benz CL65 AMG and expect the rust to start showing up in two years; or the AC system not keeping me comfortable from the moment I buy it; or an oversized engine with the transmission of a Zastava Koral (Yugo); or windows that provide direct heat inside the car at 200°F; or indoor materials and finishes that make me sick. If I don’t expect that from a car company, why should consumers expect any different from our houses. If that so, then our industry is in the TOILET.  
 
No one consumer buys a house expecting it to be leaky, moldy, drafty, without fresh make-up air or uncomfortable. The fact is that our clients EXPECT us to be professionals and provide them with the best house possible at their price range, and as a whole, our industry fails miserably doing so. The design and build community has, for a long time, made compromises to do substandard work just to “get” a job; but we expect everyone else to give us 100% perfection.

Dave Jenkins

Do government mandates damage business? Of course they do, every time. Just like taxes. Tax an activity, get less of it. The idea that the consumer will have no place to turn because all new-construction is under the same mandate ignores the most painfully obvious fact that a consumer will simply likely choose not to be one! At least until they mandate that everyone must buy an "energy efficient" new home! I don't want my government telling me what is "energy efficient," any more than I want them telling me how much health insurance I must buy. 
 
Did someone say more regulation does not equal less freedom? 
 
We've built our own company around designing and engineering homes homes that perform at a 55 HERS (so far). Not because someone in Washington mandated it, but because a growing # of customers want to do what they can to reduce their energy costs, but it must make economic sense to them. Many of these home buyers understand that DC bureaucrats are scheming to dramatically raise energy prices. They brag about it in fact. 
http://www.youtube.com/watch?v=CNSZ62xiD4M 
 
Sorry for the rant, but it just frosts me when the prevailing answer is more government regulations. An organization too often removed from real innovation, that specializes in taking and wasting money it has not earned from hardworking Americans, like home builders. 

Allison Bailes

Dave J.: Maybe you should reconsider your opening salvo: 
 
Do government mandates damage business? Of course they do, every time. 
 
Really? Did seatbelt mandates damage the auto industry? Have child labor laws damaged the manufacturing sector? Have obscenity mandates damaged the porn industry? 
 
I understand what you're trying to say, but when you use the word 'every,' your argument is easily proven false. Yes, some mandates have put a crimp in the ability of some businesses to make profits. Often, but not always, that's a good thing.  
 
I think we all want clean water, safe roads, and uncontaminated food. If the government's not going to help us get those things by mandating certain actions on the part of individuals and entities, then who will?  
 
Back to the topic of this article, the choice of home buyers not to buy recently has nothing to do with houses getting more expensive because of energy efficiency. It has everything to do with the economic downturn. I think the last decade showed that buyers will throw money at anything that smells like a house, no matter the price, if the banks give them money and someone convinces them it's a good investment.  
 
I posted this article to a LinkedIn group yesterday and got a comment from a European who said that their construction industry is booming - because of government mandates for energy efficiency. And American government mandates ain't got nothing on European mandates. 
 
[PS I think we met at SEBC last year. I'm an old friend of Ken Fonorow's.]

Matthew Cooper

I think there is an unfortunate convergence of the most significant changes in required energy efficiency improvement and a majorly repressed market.  
 
Where the home building industry had previously had to comply with a 17% improvement in efficiency stretched out from 1975 to 2009; they now face three back to back to back cycles of 15% each from IECC 2009 to 2012 to 2015. 
 
It is certainly a paradigm shift for the building industry, but they are an adept industry filled with both creative folks that embrace change as well as pioneers of new means and methods of advancing construction practices in America. 
 
Will mandated change contribute to the demise of some marginalized companies? Absolutely. Should it? I would suggest no. The successful home builder of today must stay ahead of both technique and technology. In addition, they must constantly roll with the changes in consumer demand, and demand today is total cost of ownership.  
 
When confronted with an onslaught of existing homes, with varying degrees of energy efficiency and poorly engineered attempts at effective retrofitting; the ground up, house as a system approach is the successful home builders best tool in their tool belt when it comes to being a viable business.

Allison Bailes

Matthew: That's an interesting - and relevant - perspective on the efficiency increases being asked of builders. It's definitely time for a paradigm shift, and I do believe, as you say, that builders can be creative and pioneering enough to make it happen. Thanks for your comment!

Craig

To address the main question that is asked, I guess it depends on what standards are trying to be or needing to be met. As a former HERS rater, in my years of experience, (based on a 2000 sq ft home) the average builder would incur about $1,000 extra in costs plus some additional time to understand the requirments (and yes they have changed over the years) to achieve basic Energy Star Certification. Regardless of who pays for this, (the builder or home owner) having a 3rd party professional inspect and test under the ES program is overall a good idea to provide additional quality assurance. Does an additional $1,000 make it economically impossible for the builder to survive?  
 
Although I am not a licensed GC, I recently completed a prototype home of 1872 sq ft, built using Eco-Panels, that would retail for around $105 sq ft. This home, based on ES modeling, has reduced overall energy demand by about 70%, received the Energy Star Tax Credit, achieved Gold Level Healthy Built Homes and would have made LEED Silver (I didn't want to pay the extra cost for LEED certification). My last month's total energy bill was $31.31 Affordable, high quality and high performance homes are definitely achievable for everyone. 
 
Two things I feel would really help us all are 1st: A standardized calculation that appraisers can use to add value based on energy efficiencies and that the lending institutions would accept to allow for higher loan amounts. 2nd: A much higher tax credit to builders who achieve the Energy Star Tax Credit Level. 
 
I am doing a blog on my prototype if anyone is interested in visiting: www.affordablegreenhome.blogspot.com 
 
Best Wishes

Allison Bailes

Craig: Great points! Yes, energy efficient new homes can be affordable, too. Nice blog as well, and now I know what Eco-Panels are. It looks like you've done what I asked Huber about when I was at a lunch-and-learn on their Zip-Wall and Zip-Roof OSB products. One of my first questions was about when they would use Zip on structural insulated panels and make ZIP-SIPs. They told me recently that someone was doing this, so I guess it's you guys.

Craig

Allison, 
 
Thanks for reply. Eco-Panels has been working with the ZIP system (Huber) for a few years and we would like them to start manufacturing panels larger than 4x10. Eco-Panels has actually worked with 14 different skin options depending on the clients specific needs. We made panels for an Eco resort on St. Johns USVI in which they wanted AC grade plywood as the interior skin and then calked and white washed for a beautiful finished interior surface. As for my prototype, it is performing very well for a very affordable cost, but I did make some mistakes along the way as my builder was not spending the time to stop, think and ask. I appreciate the time you are taking on this site to help us all maybe take some extra time to stop, think and ask.

Raymond Pruban

It is builders like these that keep builders like me focused on building healthier more energy efficient homes. It is too bad the building industry is so slow to advance. It is good for my business though.

Bruce

A $75 blower door test in New York?! There must be a lot of auditors looking for work. I can't roll a truck for $75! Maybe the EPA needs to look at Sun Setting the E* program. It has been squeezed by codes and the ANSI approved NAHB Standard and LEED. I think it has served its purpose and with builders jumping ship over the V3 requirements (actually its the HVAC contractors in my area KC who are pitching a fit). The money saved by the EPA can be used to pay down the deficit and builders who get it can work on other available program certifications.

Henry

Great article, Alison. 
 
 
 
There is obviously a whole lot of education needed. Homeowners should know that there is purchase cost and operating costs associated with a home. A small investment up front can reap big savings for the life of the home. 
 
 
 
Builders should know that doing things right during construction is cheaper and easier than fixing things later. It's about providing a better product. 
 
 
 
The arguments about freedom from government regulation or "codes gone wild" drive me nuts. How about my freedom from shoddy building practices? Unfortunately, in a "lowest bidder" environment like the building trades, quality suffers. 
 
 
 
Any builder that is driven out of buisness by efficiency or other codes shouldn't be in business in the first place. They give the profession a black eye. Good riddance!

Tom

I think that energy efficiency should be a given for any builder. You would be suprised at how many builders and home owners have not heard of using Manual J to install a brand new HVAC system. See Sizing your HVAC system. Some builders don't even bring it up and the client ends up wasting money on an undersized or more likely oversized unit. Sealing HVAC joints should be part of every job since it the system leads it's money wasted for the next 20+ years. 
 
 
 
In Montgomery County MD there is now a requirement to install fire sprinklers in new homes or those undergoing renovations over a certain size. That's a big ticket item and I think that requirement would limit the number of clients who could afford to do it. 
 
 
 
Tom

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