Big news last week: A USGBC press release reported a new academic study that shows LEED-certified homes in Texas selling for 8% more, equivalent to about $25,000, and all “green-certified” homes selling for a 6% premium, equivalent to about $19,000 more. Unlike all but a few people, I’m sure, I actually read the report about the study. Turns out, there’s more than a few shades of gray to the conclusions in the report.
Financed by USGBC, the study looked at 40,634 home sales in Texas over a nine-year period, 2008 to 2016 inclusive. Using what is now a standard academic methodology, the study examined 139 LEED sales out of all homes sold during that period (some of them more than 50 years old). All told, 3,853 homes had a “green label,” unspecified (other than LEED) but probably Energy Star, which is enormously popular with Texas homebuilders.
LEED-certified homes represented less than 16 homes sold per year in the entire state of Texas, which had a population of 24 to 28 million people during the study period. LEED Homes represented only 8.4% of all homes sold with green labels, but only 0.3% of all homes sold during those years.
Even though the academic methodology used in the study is accepted and the conclusion about LEED is statistically valid at the 90% confidence level, would you base your business decision about whether to build and certify a LEED Home for sale on this information? There is certainly a market for green homes. Currently, for example, there are 129 “green and sustainable” homes for sale in the Austin area alone, according to one real estate website.
But would these homes appraise for 8% more? Not likely; appraisals are constrained by nearby comparable sales. It’s almost impossible for an appraiser (hired by the lender) to give any credit for energy savings and green labels. That means the extra price premium is entirely on a buyer. On a $300,000 home with 20% down ($60,000), that means that the $25,000 premium adds 40% to the cash needed to buy the home (not counting closing costs, of course). That’s a lot of green to pay for going green!
Should we build green homes in the single-family market? Of course! Are they going to be LEED-certified Homes? Not likely. In 2015, the National Association of Home Builders green label (the ICC-700 National Green Building Standard) had about 25% of the overall new home market, but about 70% of the market for single-family home green certifications, as LEED Homes dominated only the multifamily market. This does not count Energy Star, which is the overwhelming choice of home builders in Texas.
For example, more than 22,000 Energy Star homes were built in 2016 in Texas, by nearly 200 builders. Compare that to an average annual pool of 16 homes with LEED labels over the nine years of the study and you’ll easily see where builders choose to put their money and where buyers respond the best.
Sometimes, when you dig just a little, there’s a lot less there than meets the eye at first glance!