How Green is Your Valley?

Homebuilders and homebuyers are odds. The political and “moral” push to design and construct “green” homes has now forced homebuilders in many communities to throw their collective hands in the air and say, “Damn the economics, full steam ahead.” For many, this will require substantial changes in how they design, build, and market these environmentally friendly homes to a skeptical and often disinterested homebuyer. For others it may put them out of business (HERE). 

Most buyers want what I’ve been saying for years: They want the biggest home, on the biggest lot, they can afford—period. I realize this is open for significant debate, but most housing growth is still in the suburbs and will be for the short and long term. It is the detached single family home that the buyer wants. And if it’s a choice between an extra bedroom, or a photovoltaic roof top electrical system – the building industry is finding that the bedroom wins.

For the last few weeks there has been an interesting series in Builder Online on the acceptance and costs of building green homes. They found that in some instance the costs of building green can add more than $150,000 to the cost of a home. These costs are for solar thermal and PV systems, more efficient equipment, tighter homes, and insulation. Some of these systems and building standards are even mandated under many state laws.

Most new homebuyers are interested in the following in order of important:

• Location (city, neighborhood, schools, culture, etc.)
• House Cost
• Debt Cost
• Maintenance Cost
• Affordability – the blending of the three
• Design and Layout
• Environment

Yes, like it or not, in my opinion, the last and least important is environment (HERE). Buyers will say they value these elements of a house: Energy Star ratings for appliances, windows, and certifications as important to their decision, but most buyers expect the home they buy will be energy efficient (insulation, windows, water heater, etc.), the heating and cooling the state of the art, and appliances will not waste energy (i.e. dollars). They do not expect to pay for these as extras.

We are heading for a time when new homes will essentially be cost free for electricity. Solar PV systems (with battery type storage systems) will become ubiquitous like modern HVAC systems, and as the two become better integrated, homes will essential become zero electricity users. Cost of heating will drop with better design and insulation (and cheaper natural gas). The issue is always how much will the buyer pay to reach these levels – they do not see these as trade offs.

What is more critical is the quality of the construction itself – not the whistles and bells. Better insulation and moisture control reduces everything from nail pop in drywall to cracks in drywall and moldings. These are actually more for the builder themselves than the buyer – call-backs and repairs are very costly.

One of the problems at the moment is the velocity of new home sales is still slow. This is due to many factors from student debt, costs of down payments, and very high cost of new homes. If the demand were higher many new products would literally hit the street. Competition and markets would bring these new products to the industry.

We will see substantial changes to the “green” side of the housing industry, they may not be flashy but they will save the homebuyer money in the long term. But one thing is for sure, the basic home will be more expensive.

Stay Tuned . . . . . . . .

The Future of Housing Development in California

After looking at the title of this missive I am shocked that I even have a tenth of the expertise to ponder such a thought. Let’s go over my qualifications: homeowner, community planner, urban designer, mortgage holder, and California resident. I do not have banking credentials, a financial resume, or even a minor in accounting. So there . . . I have all the necessary qualifications and maybe more than the usual talking face on the tube.

I just finished reading John Mauldin’s latest newsletter on the current state of banking and mortgages. If I wasn’t concerned before, I am very close to extremely concerned and breathing heavily now. I recommend his weekly newsletter, it is free and worth millions.
(see: http://www.frontlinethoughts.com/printarticle.asp?id=mwo101510)

Without the underpinning of secure titles and mortgage papers there will not be a housing industry. If there is no assurance by a title company that the house and property being purchased has clear title, no one will expose himself or herself to the risk. The banks won’t, the builders won’t, the landowners won’t, and the buyers won’t.

A few months back I wrote about whether the master planned community is dead, I offered that I thought it was. The reasons are numerous and obvious to all in and out of the industry. Now I am concerned that this mortgage mess and with it the attendant foreclosures will lay low the housing industry as a whole for years to come. There are very few adults supervising the children now. Lax management, creative and outright fraudulent banking practices, too much money chasing too much money, and a general “I am in it for myself,” attitude has contributed to this mess. With very, very, few examples most of the players in this industry have contributed to the problems we face today. Builders, developers, bankers, unions, politicians, and even the buyers have all had their collective hands in the cookie jar. The jar is now empty and there is a sharp bear trap on the dark bottom.

There will be a few housing projects that will move forward. Most are urban high-density projects that have some political muscle behind them. They fit agendas and programs created through the particular cities they are in. Salvaged school sites, environmental reclamations, transit oriented communities, and maybe even a few old fashion developments. But large-scale communities with thousands of acres and units are well out of the realm of the possible now. And probably through the rest of this decade; we are reliving the 1930s.

Coming is a time of retrenchment and financial reconstruction on a scale not seen in modern banking and it will be worldwide. This banking rebirth must be based on the underlying principle of property rights and ownership and on the free market exchange of money, goods, and land. If these are not supported through regulation, law and insurance they are meaningless.

As can be seen in the Mauldin article we are in tenuous times and I fear for the whole structure of our industry. The first blog I wrote in early summer dealt with the demise of the design industry and the collapse of architectural and engineering firms. While some still cling to a few projects it is now a war of attrition and survival. This economic disease will spread through the construction industry; few will remain and they will be the very large conglomerates and the very small custom builders.

Look at a house. Walk through a new home (assuming you can find one) and count the industries it took to build, equip, and furnish it. Then multiply those items by one and a half million and you will understand what I mean. We waste our political wind taking about green industries, alternative energies, electric cars, iPads and other distractions. To say our politicians are intellectually lazy would be too kind, these impacts on the banking and housing industry need far more coverage than the sound bites of the foreclosed house sign and the grieving owner. Where are the adults when the sand box needs them?


Stay tuned . . .