John K. McIlwain is the Senior Resident Fellow and J. Ronald Terwilliger Chair for Housing at the Urban Land Institute. An author, speaker and former lawyer, McIlwain brings more than 35 years of experience in the fields of housing.
Energy-efficient homes are cheaper in the long run, and that's what buyers want
The U.S. housing industry is much like the U.S. auto industry in its resistance to change. The design of both single-family homes and apartments is only just beginning to change, just as the American auto industry is only just now trying to figure out how to deliver newer, truly fuel-efficient cars. Unlike the auto industry, however, the housing industry doesn’t have the federal government’s fuel efficiency (CAFE) standards to prod it along.
But there are early signs of change. New single-family homes in Phoenix, Arizona, are selling even at slightly higher prices than existing homes - that is, if they have green, energy-efficient features that will significantly reduce the cost of lighting, cooling and heating over time. This is happening in many other parts of the country as well.
Energy efficiency is, as one developer puts it, "the new granite countertop." After all, no one asks what the payback period is for a countertop. Just as items that were once added to a new home or condo for an additional price are now standard, so too are energy-efficient equipment and design becoming standard features expected by the buyer or renter.
This shift is perhaps happening fastest in the single-family home industry as it looks for whatever it can find to move its homes. Green, it turns out, is the most effective way to sell a home. Buyers find it more appealing to buy a home that is already efficient than a less expensive home that needs major retrofitting as well as new appliances and HVAC systems.
It is still hard to show that renters will pay more for an energy-efficient apartment than for a standard one, even when they are paying for the utilities. That said, there is growing evidence that energy-efficient and green apartments rent up faster than other ones, and are experiencing less turnover, both of which drop to the bottom line.
This is a trend that the apartment industry in particular needs to watch. Its market is far younger than the homebuying market, a differentiation that will continue to grow as the young members of generation Y defer homebuying into their early and middle 30s. This, the largest generation ever, is also the one most committed and sensitive to the cost and use of energy. They are, by and large, an increasingly values-driven group, and climate considerations, sustainability, and reducing the use of energy are at the heart of their values. In short, the prime market for apartments is the greenest market in U.S. history.
So, where will these trends lead the industry? Inevitably, the green trend will lead to homes becoming energy net zero or net plus, linked to the grid and buying and selling as the day goes along. Green will no longer mean being a bit more efficient than before, but will mean that a home uses no net energy (net energy zero) or produces net energy (net energy plus). Homes that still draw all or most of their energy from the grid will see a marked decline in value, just as today's homes that are far from sources of public transit are losing value while homes proximate to transit are holding value.
Making a house or an apartment net energy zero or plus will be achieved in a variety of ways, many of which haven’t been discovered yet. Even today, very few builders are experimenting with passive housing - homes that are so air tight, insulated, and sited as to need little more heat than that provided by the bodies of the residents, and can draw cooled air from the ground. Passive and active solar will become greatly more efficient, as will geothermal and wind power.
Many of the techniques will be from the past, like siting for passive solar and wind protection, shielding with trees and the like. Residences will be designed to the local environment once again - New England style in New England, adobe homes in the Southwest.
The major shift will likely begin to occur in the latter part of this decade and accelerate between 2020 and 2030. The major cause for this change is the shift in the housing market driven by the growth in generation Y households over the course of the decade and the ever-rising cost of energy.
Local governments will encourage the shift as they enact ever-higher energy efficiency standards and begin to require disclosure of a house’s or an apartment’s energy use in the same way automakers now must disclose the gasoline mileage of new cars. It is of course possible that the federal government could also be a factor, but rules like the federal CAFE standards for cars seem unlikely at this time.
Other design trends to anticipate include smaller homes designed for a more open lifestyle. Homes will become smarter, adjusting themselves for greater energy efficiency throughout the day, and will be operable remotely (as some are now). For instance, the new Nest thermostat will automatically sense the presence of people, will learn how a resident wants the home’s temperature set over time, and can be run from a website by an iPhone or iPad, all for $250.
Lighting, heating, and cooling will be adjusted not just by machines, but also by external and internal shading, glass that changes, windows that open and close automatically to gain benefit when the outer air can be used, and other new techniques that limit human wastefulness. In short, the pace of technological change in housing will begin to mirror the pace of change in all other areas of technology development.
Meanwhile, as homes and the technology that runs them evolve, so will the landscape in which they are set. The United States is moving toward a more urban lifestyle. This does not mean that the old split between the central city and rural areas that was common during the 19th century will reemerge. It does mean, however, that metropolitan regions that are now covered by cul-de-sac suburbs will continue to change as more suburban town centers emerge, and as inner-ring, prewar suburbs are rebuilt at greater densities. Suburbs will morph from culs-de-sac into clusters of town centers linked more and more by some kind of mass transit.
Townhouses and apartments will become more common as density increases. Again, this does not mean that everyone will live in high-rise apartments as this will continue to be limited to only parts of cities like Chicago, New York, and Los Angeles. Most urban areas will achieve density through small lots, townhouses, and low- and mid-rise apartments and condos.
If all these changes seem far-fetched, remember that times of stress like the ongoing housing crisis greatly accelerate changes already underway. This means that the future is closer than it may seem. As Daniel Goleman, the author of Emotional Intelligence, says, "the future is already here, it’s just not evenly distributed."
Photo credit: Fred Prouser/Reuters