Breaking ground

As 2006 came to a close, the homebuilding boom in America that has continued for more than a decade showed signs of finally abating. Economic data indicates sales slowing across a number of categories, although not amidst a full-blown recession. And as the market enters a potential downturn, or at the very least a correction leading to more modest growth, its effect on sustainable and green building remains in question.

According to the National Association of Realtors, existing home sales for November 2006 in the United States were approximately 6.28 million. They have hovered around that same general range for the past five months after falling from sales of more than 7.3 million in July 2005 and 6.9 million in early 2006.

But that doesn’t seem to worry Bill Jackson and Peter Wilcox. The developers of the Mississippi Avenue Lofts in Portland (along with partner David Yoho), Jackson and Wilcox say they expect to break ground as early as February on 32 units of high-density housing in a neighborhood that was plagued with boarded-up storefronts just a few years ago. The plans call for brownstone-like townhouses along the street and penthouses with wide wood-festooned rooftop decks, as well as more affordable one-bedroom units. Sixty percent of the structure’s ground-floor retail is leased to a popular local gourmet grocer, Pastaworks, on a 10-year lease.

What’s more, the Mississippi Avenue Lofts are aiming to achieve a Gold designation from the U.S. Green Building Council’s LEED (Leadership in Energy & Environmental Design) program. The building plans include an innovative energy sharing system for heating and cooling that will be up to 75 percent more efficient than other air systems; a storm water management system for irrigating plants and avoiding runoff; nontoxic paints free of volatile organic compounds; and a courtyard-oriented layout that distributes natural light and encourages natural ventilation. Situated in the burgeoning North Mississippi district, where a host of shops and restaurants have transformed this once dilapidated inner-city neighborhood into one of the city’s most popular, the project is also just a few blocks away from Portland’s MAX light rail system, encouraging mass transit use.

“I’ve done about 85 projects in my career,” says Wilcox, an award-winning urban designer and green economist who previously served as housing director for the surrounding Multnomah County. “I think this is going to be the strongest of all of them.”

The Mississippi Avenue lofts feature a courtyard design.

The Mississippi Avenue Lofts have seen just under 50 percent of units pre-sold before groundbreaking, a figure they’re very happy with, Jackson and Wilcox say. Banks are more hesitant to lend developers money without pre-construction contracts, largely due to the housing market downturn, Wilcox says. The team won’t secure 100 percent of their financing until 50 percent of the building’s value is pre-sold, but so far they say the outlook is good.

Because the project is poised to become the first LEED-rated project on Portland’s east side, the developers believe going green has helped differentiate their product in a crowded field. “It’s the epitome of a sustainable, transit-oriented development,” Jackson says.

Portland’s close-in neighborhoods, like many throughout American cities, are experiencing a proliferation of new high-density, mixed-use, multi-family housing projects, particularly for-sale condos. And in many cases, homebuyers looking for an urban lifestyle are also seeking design and construction projects that match their values.

“Green homes are a little more isolated from a downturn,” says Chris Bartle, president of The Evergreen Group, a San Francisco green brokerage company. “Our market has softened too, but not enough to really make a difference.” Bartle says the ups and downs of market fluctuation in the home building market are offset by a larger, decades-long awakening with respect to sustainable products and services. “I think it’s one of the largest trends in real estate and the homebuilding industry ever,” he adds. “We’re seeing the way our homes are built completely change.”

The U.S. Green Building Council’s LEED program was originally created as a certification for commercial buildings, but recently the organization created a spinoff program targeted at single-family houses: LEED for Homes. As of November 2006, only four homes (in Oregon, Oklahoma, Maine and Michigan) had received the certification, but many more applications have been submitted. “Even Home Depot has FSC (Forest Service Council) certified wood. They can’t get enough silicon to produce all the solar systems wanted,” Bartle says. “It’s a super hot topic.”

One challenge, Bartle says, is that there just aren’t that many truly green homes built today. “People want to see a green home before they decide, and sometimes it’s hard to find them unless it’s being publicized in an event like a green homes tour. There also need to be more realtors out there who understand and can characterize what a green home means in terms of added value for the buyer.”

Another area where green building advocates would like to see progress made is appraisal. Investing in sustainable practices and technologies means making one’s home more energy efficient, which will reduce the ongoing cost of utilities. Green homes are also healthier environments with better air quality. By some estimates, a LEED-rated building adds between 4 and 5 percent in value. But, says Mississippi Avenue Lofts co-developer Jackson, “we’re spending hundreds of thousands of dollars to make it LEED, and then you don’t see that reflected in the appraisal.”

“Progress is being made but we’re not there yet,” Bartle says. “There are several green mortgage brokers out there, and in some cases they’re actually working with the big banks, the Wells Fargos of the world. But really it’s the smaller banks starting up now that are talking about green building as a source of investment.” Like the emerging trend of socially responsible stocks, Bartle sees real estate investment trusts targeted at green buildings as a future option for socially conscious investors.

Another potential avenue for green’s value to be more accurately reflected is in insurance. Last August, California-based Fireman’s Fund Insurance Company announced it will begin offering discounted premiums and rate credits to owners of commercial green buildings. It only stands to reason that sustainable residential buildings will follow with similar discounts. Green buildings enjoy lower operating expenses, and that adds value to a property, which some say should be reflected in higher claims paid after damage to a home.

Quadrant Homes helps homeowners go subtly green with suburban style.

At the same time, the residential side of the green building movement is not immune to the effects of declining home sales. For example, Bellevue-based Quadrant Homes is one of the largest homebuilders in the state of Washington.

The company, a Weyerhaeuser (NYSE: WY) subsidiary, has built thousands of homes throughout the Puget Sound area, mostly in suburban locations. All of its homes are designed to meet the Built Green standard, a certification for Puget Sound area homes that include extra insulation, high efficiency water heaters and appliances and low-toxicity paints and finishes. But Quadrant’s business also depends heavily on homebuyers who place an emphasis on value.

For some buyers, even if reduced energy bills will help pay for an extra upfront investment in green building features, that added up-front cost can be the difference between buying a house or not. “Market prices over the last couple years have gone up dramatically, and that is forcing people who want to buy a house to adjust their priorities,” says Quadrant Homes president Peter Orser. “We operate out of a showroom. A customer comes and picks features. What has proven true and consistent through every kind of market adjustment is that the buyer is all about space. I think our energy features have fallen down below the cutoff line for affordability. It doesn’t make the top of the list of must-haves.”

Orser says even energy efficiency achieved through regulatory means has an impact on the market. “We’re creating a cost for a product that our customers often weren’t willing to pay for on their own, and they do not always prioritize as valuable,” he explains. “It’s going to put another burden on affordability, which is eroding at an alarming rate. People’s incomes are not keeping pace with some of the regulatory change. I appreciate that sometimes regulation is in spite of what people want, and appropriately so. But I think there has to be a balance here. How far do the provider, the customer and the government all need to go in terms of paying for that social good?”

Instead, many of the ways in which homes are becoming greener are through advances incorporated more silently but across the board with respect to construction practices. For example, Quadrant uses finger-jointed studs in framing its houses, which are recycled from scrap material, and are also a straighter, truer product. Similarly, Quadrant now conducts testing on all its ducts to make sure the heating and cooling systems are operating as efficiently as they were designed to. That’s a requirement of the Built Green program, but it’s also a means of quality control.

Still, with America’s dependence on fossil fuels a hot-button political issue, and alternative energy sources such as solar becoming increasingly mainstream thanks to technological innovations and government rebates, green homes continue to occupy an ever-greater portion of the market. It’s just that when markets slow, sooner or later every segment feels the effects.

Part of the problem lies not with customer demand, however, but with infrastructure. The Energy Star Homes Northwest program was created in 2004 (as part of the larger Energy Star rating system for consumer products) by the nonprofit Northwest Energy Efficiency Alliance to certify homes in Oregon, Washington, Idaho and Montana built 15 percent more energy efficient than state energy code stipulations. But the goal for market share by 2009 was dropped from 20 to 14 percent after failing to meet estimates.

According to an evaluation of the Energy Star Northwest program prepared by economic consulting firm ECONorthwest, it has taken longer than expected for newly recruited builders to begin constructing homes certified by the program. Still, last year alone the Energy Star program recruited 219 builders.

Another infrastructure improvement already underway in California and Oregon is the inclusion of green building features in the Multiple Listings Service, the shared online source that realtors use to list homes for sale [see “Want cork flooring with that bungalow?,” SIJ, Oct. 2006.]

“But they’re way behind,” Bartle says of the realty profession. “Too often they can’t go into a house and tell you what the greenness is worth.” In the long run, the ultimate indication of success for residential green building, like commercial building, comes when it’s difficult to distinguish what constitutes green versus mainstream. “Green building is going to become an oxymoron,” Bartle adds. “Why would you want bad chemicals used in your house?”

Which is precisely why developers like Bill Jackson and Peter Wilcox wanted to make their Mississippi Avenue Lofts as green as they could.

“We were talked out of going LEED all the way along through this process,” Wilcox says. “We had so many people in the building industry tell us we were just paying for the piece of paper. But in the end we really just followed the line for what residents here were looking for.”