Environmental Valuation & Cost-Benefit News

Link: http://www.enterprisecommunity.org/programs/green_communities/nextgen/incremental_costs_full_report.pdf

Executive Summary
Applying comprehensive green methods and materials to affordable housing developments invariably raises two hotly debated questions: 1) How much do these measures cost? and 2) Are these measures cost-effective? In-depth answers to both questions are now available from Enterprise Community Partners. This report shares findings from our evaluation of 27 affordable housing developments across the United States that meet the Enterprise Green Communities Criteria.

From a strictly financial standpoint, the projected “lifetime” utility cost savings—averaging $4,851 per dwelling unit discounted to today’s dollars—are sufficient to repay the average $4,524 per-unit cost of complying with the Enterprise Green Communities Criteria.

In summary, estimated lifetime savings exceed the initial costs of incorporating the Enterprise Green Communities Criteria into affordable housing. The Criteria offer health, economic and environmental benefits by addressing integrated design, location, site improvements, water conservation, energy efficiency, materials that benefit the environment, healthy living environments, and operations and maintenance of affordable housing.

Integrating the required Criteria can also produce substantial increases in residents’ quality of life. Developers of the 27 projects discussed in this report found it financially feasible to meet the Criteria, which go beyond energy and water conservation measures to include requirements that advance quality of life, such as:
• Promoting smart growth by choosing sites near public transit and community amenities, while avoiding sprawl, disturbance of wetlands and “leapfrog” development into greenfields.
• Using healthier materials such as the Carpet and Rug Institute’s Green Label carpets, as well as paints and adhesives with no or low percentages of volatile organic compounds (VOCs).
• Ensuring better indoor air quality by directly venting kitchen stoves and bath areas to the outdoors, and using other methods to re-supply fresh air and reduce the potential for moisture infiltration, which could lead to possible mold growth and negative effects on residents’ health.

While this report focuses on the cost-effectiveness of meeting the Enterprise Green Communities Criteria, forthcoming reports will examine the Criteria’s impact on carbon reductions and improved health of residents. For example, through our experience with the Enterprise Green Communities Offset Fund, we calculated that, on average, the housing units studied will cut 2 tons of CO2 emissions annually, compared to homes that only meet local building code standards.

To measure the impact of the Green Communities Criteria, Enterprise developed a survey and obtained data points on costs and utility cost savings from 27 housing development projects with a total of 1,640 single- and multifamily homes. This represents a quantifiable sample of the nearly 16,000 estimated units in 360 housing development projects that have complied with the Criteria.
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Achieving full compliance with the Enterprise Green Communities Criteria requires housing developers to implement mandatory and a required number of optional criteria. Our evaluation calculated the additional costs and utility cost savings that resulted from applying 38 mandatory criteria and 13 optional criteria in the 2005 version of the Green Communities Criteria (available in the Appendix).

Meeting the Enterprise Green Communities Criteria yields striking savings in utility costs, especially when compared to the cost of implementing the Criteria’s energy and water conservation measures. These savings make the cost of implementing the Criteria ($4,524) financially attractive. When considering the benefits revealed in our study, the average cost per dwelling unit to incorporate the energy and water criteria was $1,917, returning $4,851 in predicted lifetime utility cost savings (discounted to 2009 dollars).

In other words, the energy and water conservation measures not only paid for themselves but also produced another $2,900 in projected lifetime savings per unit. Moreover, water cost savings shared in this report are almost certainly underreported, given that we were unable to obtain complete data on sewer fee savings, which are a direct result of water-conservation measures.

Measures in the Criteria that do not have easily identifiable financial savings, but undoubted indirect financial benefit, include (though are not limited to) the integrated design process, ensuring a healthy living environment, reducing construction waste and providing operations and maintenance manuals. In fact, tradeoffs between cost expenditures and financial savings underscore the importance of executing an integrated design approach. Focusing on the design elements, such as orientation of the housing, location of the windows and optimization of daylight into the housing, can lead to less expensive mechanical and electrical system purchases, allowing room in the budget for other measures such as healthier building materials.

Our calculation of lifetime savings took into account the useful life of various improvements, anticipated increases in energy and water/sewer costs of nearly 5 percent, and a present value discount factor of 6 percent to express utility cost savings in 2009 dollars. The predicted savings from actual usage were based on a subset of 10 projects for which Enterprise had access to utility usage data for a one-year period.

How Utility Cost Savings Were Achieved
Implementing the following conservation measures produced dramatic utility cost savings:
• Building to Energy Star standards or better
• Installing all energy improvements with a 10-year or better payback for moderate rehabilitation projects
• Installing Energy Star appliances
• Installing Energy Star lighting
• Individually metering electricity for rental dwelling units (except supportive housing) to encourage conservation
• Installing water-conserving appliances and fixtures

The return on the subsidized investment of installing photovoltaic (PV) panels was a most impressive 194 percent per year. It should be noted, however, that the cost of installing photovoltaic (PV) panels to provide at least 10 percent of a project’s estimated electricity demand—an optional Green Communities criterion—was not found to be cost-effective, unless subsidies made this measure feasible. For the particular project that both installed PV panels and reported actual energy usage data, the average return on the cash investment was only 3 percent when subsidies were not taken into account. Until the production and installation costs of renewable energy technologies decline, it is widely recognized that subsidies are needed to make PV panels a cost-effective proposition for developers and building owners.

The costs of adhering to the Green Communities Criteria were self-reported by project developers. The “premium” was defined as the cost increment of implementing a Green Communities criterion versus following local codes and previous development practices that may have exceeded code requirements.

Many affordable housing developers do not routinely track the costs and benefits associated with going green and therefore found it difficult to provide the data we requested. This was particularly true for tracking electricity, gas and water usage, whether paid for by residents, owners or property managers of rental housing. It appears that many homeowners and rental property managers pay these bills without knowing if their usage is above average, normal or below average when compared to local norms.

Accordingly, it is logical to assume that green building and property management practices would be more widely adopted and valued if property owners and residents paid greater attention to their energy usage. This would require tracking utility costs periodically and increased awareness of building features and habitual practices that influence utility costs. If rental property managers periodically tracked utility use by dwelling units, they would be more likely to identify underperforming HVAC and other building systems. Depending on the reason(s) for the low performance, property managers could make improvements and/or encourage residents to adopt conservation measures.

Additional Key Findings
• Project developers reported many instances of implementing individual Green Communities Criteria with no cost premium over their normal construction practices. These reports of zero additional costs were included to determine the weighted average costs for the mandatory criteria. We believe this non-reporting of cost premiums is explained by the large proportion of sampled projects located in cities and states with previously established green building standards. For example, six of the projects located in Oregon and Washington state reported no cost premiums for meeting the Enterprise Green Communities Criteria.
• Larger and more prevalent cost premiums were associated with providing adequate ventilation and improving energy efficiency, as well as installing Carpet and Rug Institute Green Label carpeting.
• On average, negligible cost premiums were reported for selecting “smart sites” for affordable housing that were located near public services and transportation, and minimized sprawling development of greenfields on the outskirts of developed areas. However, this finding may partly reflect the difficulty of quantifying land cost premiums.
• With respect to water-conserving irrigation methods, low-tech roof-water harvesting systems yielded modest costs, on average, while potentially offering significant future savings as described in this report.
• Integrating the Enterprise Green Communities Criteria has far-reaching environmental benefits—namely, the annual reduction of carbon emissions. In developing the Enterprise Green Communities Offset Fund, we calculated that, on average, the Green Communities homeownership and rental units studied would cut 2 tons of CO2 emissions annually, compared to homes meeting local building code standards below the Green Communities Criteria.
• In all categories of occupancy, the per-unit costs of compliance were remarkably similar, while predicted utility cost savings varied considerably. The 15 supportive housing projects in our survey had the highest predicted lifetime savings, while the three projects with for-sale homes had the lowest. Based on our extensive experience with supportive housing developers, we presume that these developers paid careful attention to compliance to improve residents’ health and reduce energy costs, most of which are paid by the supportive housing property owners.
• By far, the study’s three for-sale homes had the lowest predicted lifetime utility cost savings. This is likely the result of energy and water conservation measures already in place by builders, who reported an average incremental cost of only $1,137 for those features. This amount was then projected to yield $2,878 in lifetime utility cost savings—more than two and a half times the investment.
• The incremental cost of incorporating the Enterprise Green Communities Criteria was lowest among moderate rehabilitation projects—a fact that we attribute to the Criteria’s ability to adapt to the realities of partially rehabilitated single- and multifamily homes. The predicted lifetime savings for these projects are now two times the reported incremental costs of complying with the Criteria, giving moderate-rehab projects the highest return on investment of any subset of the 27 projects we surveyed.
• Substantial rehabilitation projects had the highest cost premium for compliance. At the same time, these developments are projected to have remarkably high lifetime utility cost savings.
• One of the study’s surprise findings involves the predicted lifetime savings for new construction projects, which were 23 percent lower than the average of all projects combined. Since our analysis does not reveal any specific reasons for this finding, we conjecture that new home developers had previously used relatively high standards for energy and water conservation measures and/or had to meet higher construction standards. In other words, there is strong evidence that starting from a higher baseline reduces the expected incremental lifetime savings.

Overview of the Report
This study is presented in two parts. The first part includes background on the study, an analysis of the Green Communities Criteria’s financial benefits, and implications for future policy and practice. The second part, the Technical Report, describes how and why specific Green Communities Criteria are incorporated into development projects and provides detailed findings on the average costs to implement each criterion....

The guide also lists some resources for more information on green housing.

By Dana L. Bourland, AICP, LEED AP, vice president of Green Initiatives for Enterprise Community Partners and managing director of the Green Communities Offset Fund.

After releasing the study Enterprise announced a $4 billion commitment to launch the next generation of its Green Communities initiative....

Activities related to the next generation of Enterprise Green Communities are already underway. Enterprise’s own efforts will result directly in the creation, preservation or retrofit of 75,000 green homes and community and commercial buildings within the next five years. Through our newly established retrofit funds, in key markets, Enterprise will lend to existing multifamily building owners for energy and water reduction capital purchases and healthy living environment improvements. In May, Enterprise committed its $95 million New Markets Tax Credit (NMTC) allocation to target green deals, which bolster funding for commercial and mixed-use developments with a demonstrable community impact. Enterprise also is purchasing carbon offsets from green affordable housing developers by raising charitable contributions through its innovative Green Communities Offset Fund. And, Enterprise Homes, one of the largest developers in the mid-Atlantic, is already building and rehabilitating 100 percent to the Enterprise Green Communities Criteria.
http://www.enterprisecommunity.org/programs/green_communities/nextgen/enterprise_green_nextgen_release.pdf

Enterprise Community Partners, Inc., Enterprise Green Communities;
www.enterprisecommunity.org
A national leader in investment capital and development solutions for affordable housing and community revitalization, Enterprise has invested more than $10 billion since 1982 to help finance more than 250,000 affordable homes in communities across the nation. Enterprise launched the Green Communities initiative in 2004, building on more than two decades of creating decent, quality, affordable homes and communities for low-income families.