A PRIMER ON GREEN BUILDING
Table of Contents
1. Executive Summary
2. Consumer Landscape
Residential Green-Building Demand
Consumer Willingness to Pay
3. Regulations and Standards
Building Codes and Regulations
4. Incentives for Consumers
5. Incentives for Developers
Summary of Developer Incentives
6. Alternative Energy Technologies
Geothermal Heat Pumps
Energy Efficiency Strategies
Renewable Energy Matrix
7. Green Building and Affordable Housing
Employing Green Building Principles in Affordable Housing
Benefits to the Resident
Cost and Benefit to the Developer
Incentive Programs and Standards for Greening Affordable Housing
Recommendations for Promoting the Greening of Affordable Housing
The authors express special thanks to the following individuals who graciously shared their time
Jonathan Coulter, Advanced Energy
Tracy Dixon, Advanced Energy
Scott Herr, Centex Homes
Lee Perry, East West Partners
James Royster, Enterprise Communities
Brad Wood, Cherokee GreenHome
1. Executive Summary
Americans are going “green” – they are seeking more environment-friendly clothes, cars, food, and
homes. On the advent of this movement, businesses and consumers are negotiating a tangle of new
markets, technologies, regulations, and incentives.
This paper analyzes green residential housing and includes a discussion of green affordable
housing. We identify some of the challenges and opportunities faced by builders and home buyers
in this space. Our analysis of the market demand demonstrates that while the data are opaque,
there are clear indications that consumers are motivated by energy cost savings, personal health and
comfort, and the ethics of green building. However, the data suggest that consumers’ willingness to
pay for these features is highly volatile and depends upon external factors.
Government and businesses offer numerous incentives to increase consumer demand for green
housing including tax credits, advantageous loans, or free services. In parallel, green residential real
estate developers can benefit from a complex and ever-changing web of governmental and non-
governmental incentives. The largest incentives are typically offered by cities and counties with
progressive agendas and large tax bases. With most incentives aimed at consumers, significant
opportunity exists for additional incentives to encourage more green residential construction.
Because green building strategies often include the deployment of renewable energy systems and
incorporation of energy efficiency tactics, this paper looks at the feasibility of four alternative energy
solutions for homeowners and developers: energy efficiency; small-scale wind turbines; solar panels;
and, geothermal technologies. Additionally, this paper briefly compares four of the most prominent
building standards and certifications for green building: LEED; NAHB; and, ENERGY STAR.
Finally, this paper addresses the convergence of different thought and market forces that motivates
the confluence of affordable housing and green building. Chief amongst these are: the general
advancement of building sciences; increased information on the impact of poor housing conditions
on health; and, proven performance of green building in the traditional market place. The key to
making green building accessible within the affordable housing arena is to focus less on the high-
end technologies and simply to understand the merits of good development design. A holistic
design methodology incorporates green principles from the outset and transforms the entire
building process. With a strong planning process, a developer can integrate green design into an
affordable housing project for a relatively small cost premium, and with great benefit to the
occupant in the form of reduced utility costs, reduced maintenance costs, and increased quality of
health. Anticipating the new green frontier for affordable housing, many government entities and
pioneering nonprofit organizations are paving the way for the furtherance of greening affordable
housing through regulatory and financial incentives.
2. Consumer Landscape
To understand fully the residential green building market, we must first understand the motives of
the green building consumer. Consumers offer a long list of reasons for purchasing green building
products, ranging from the purely self-interested to the wholly altruistic. We have summarized
these motivations below in six categories:
• Increase energy efficiency and decrease utility costs. In 2003, Professional Builder
conducted a survey to determine consumer preferences with respect to green building.
Remarkably, 92% of respondents indicated that energy-efficient features were either
extremely important or very important upgrades for a new home.1 Since 2003, energy costs
have continued to rise, and in 2006, a study by McGraw-Hill indicated that energy-efficient
techniques are still the most important green building method.2 In short, consumers
continue to demand more energy-efficient features – such as ENERGY STAR appliances,
better insulation, programmable thermostats, fluorescent lighting, and ceiling fans – to save
money on utility bills.
• Ensure health, safety and comfort in the home. Also of concern to purchasers of green
homes and products are personal and family health, safety, and comfort. In the past few
years, the media has widely reported the danger of substances found in common building
products (e.g. insulation, carpet and furniture) which off-gas chemicals into the air as they
break down. These chemicals, namely volatile organic compounds (VOCs), reduce the
quality of indoor air and affect the health and safety of the home’s occupants. In addition,
1 “The State of Green Building”. HousingZone.com - Green Building forum (www.housingzone.com), 2003.
2 “Residential Green Building SmartMarket Report”. McGraw-Hill Construction, June 2006.
inadequately filtered air may contain pollen or other allergens that decrease the comfort of
the occupant. Consumers have responded by demanding HVAC equipment that more
effectively filters and exchanges indoor air. In addition, manufacturers now make
formaldehyde-free insulation, solvent-free wood finishes, and low-VOC carpets that
improve overall indoor air quality.
• Conserve natural resources. The rapid decline of natural resources, such as water, timber,
oil, open space, and even clean air, has motivated many consumers to alter usage patterns
and consider new sources of energy. (For residents of dry western states, access to water is
an especially important concern.) For example, in an effort to limit water usage, many
consumers now opt for the installation of xeriscaping, water-conserving appliances, and
low-flow fixtures in their new homes. Furthermore, local municipalities have adopted
ordinances that preserve open space and regulate storm water runoff to preserve natural
drainage, and consumers continue to take greater interest in renewable energy sources such
as solar and wind to power their homes.
• Do the right thing. Although noted less frequently by consumers, doing the right thing to
protect the environment is still a primary motive for purchasing green homes and products.
Consumers who are “doing the right thing” tend to make purchases based on personal
morals and as a selfless expression of concern for the environment and the future of others.
These consumers are likely to buy green products regardless of the demonstrated economic
benefits, and they view energy efficiency as a means of being environmentally-friendly
rather than as a way to save money.
• Build a better home. Some consumers equate green homes and products with higher
quality. These consumers have a strong belief that a green home will have lower
maintenance costs and a higher resale value. Lower maintenance might result from the use
of such practices and products as xeriscaping, hardwood flooring, fluorescent lighting, and
durable building materials.
• Access and integrate with community. In addition to being energy efficient and
environmentally friendly, truly green communities provide homeowners with convenient
access to public services and transportation, commercial shopping centers, and community
open space. Consumers who purchase homes in green communities value the walkability
of the neighborhood and interaction with neighbors.
Residential Green- Building Demand
Estimates of residential green-building demand vary greatly. We believe the most likely cause of
this variability is due to the broad definition of the term Green Building. Each market study tends to
define green building in a slightly different way, resulting in drastic swings in demand estimates.
For example, the Natural Marketing Institute (NMI) defines Green Building Users as consumers
owning two or more green building products. Products are limited to those defined in the NMI
study.3 McGraw-Hill, on the other hand, uses the more broadly defined National Association of
Home Builders (NAHB) Model Green Home Building Guidelines as a basis for its study on the
green building market.4 Due to these discrepancies in the definition of Green Building, we found it
difficult to make direct comparisons between studies; however, we were able to identify general
trends, which indicate whether demand for residential green building is increasing, decreasing or
3 Understanding the LOHAS Consumer: A Focus on Green Building”. The Natural Marketing Institute (NMI), January
4 “Residential Green Building SmartMarket Report”. McGraw-Hill Construction, June 2006.
From the perspective of the nation’s homebuilders, the demand for green building (or at least the
supply of green homes) is rapidly increasing. Consider these statistics from McGraw-Hill’s 2006
report on residential green building5:
• 31% of home builders are more than moderately involved with green building.
• Green home building is projected to grow 30% in 2007.
• By 2010, between 5% and 10% (or between $19 billion and $38 billion) of new construction
starts will be green projects.
Trends highlighted in NMI’s annual LOHAS (Lifestyles of Health and Sustainability) report are
equally encouraging and support the NAHB’s forecasts for rapid growth in green building. For
example, in 2006, more than 50% of the general population of the United States stated that they were
concerned about water quality and energy conservation, and between 25% and 50% of the general
population indicated that they were concerned about other issues related to green building, such as
global warming, forestation, water conservation, reliance on fossil fuels, indoor air quality, and open
Finally, another sign that the green building trend is here to stay is the increasing number of local
and national organizations that are rolling out green building programs. These programs include:
the Energy Policy and Conservation Act of 2005 (Federal Government); LEED-H (US Green Building
Council); Built Green (Colorado, Washington, California); Green Globes (National Association of
Home Builders); and, Earth Craft (Greater Atlantic Home Builders Association).
Consumer Willingness to Pay
Consumers appear most willing to pay a premium on upfront costs for energy-efficiency features
that will reduce long-run operating costs and less willing to pay a premium for products with no
promised payback. In 2003, a study in Seattle, Washington showed consumers were willing to pay a
premium of approximately 1% for these features7, but in 2004, the Greater Vancouver Regional
District reported that “more than 50% would pay 2% more and more than 20% would pay at least
5% more” for green features.8
In the past few years, energy costs have continued to rise, but the research we reviewed provides no
conclusive evidence that the consumer’s willingness to pay has risen as well. For example, in
February 2006, Rancho Mission Viejo (RMV) reported that 75% of homebuyers in Terramore – a
village in Ladera Ranch, California – said they would add more than $25 per month (or $3.60 per
square foot) to their mortgages to pay for green features (a 2.4% premium based on a square foot
cost of $150). Furthermore, RMV stated that 35% of homebuyers would add more than $100 per
month (or $14.40 per square foot) to their mortgages (a 9.6% premium based on a square foot cost of
$150) to pay for green features.9
More recently, McGraw-Hill reported that consumers are willing to pay up to $3,569 extra for green
features (based on a $250,000 home, this represents only a 1.4% premium).10 And, as recently as
September 2006, Jerry Yudelson, a green building consultant, indicated that he believes a 5%
premium is about the limit of what consumers will pay for green features.11
5 “Residential Green Building SmartMarket Report”. McGraw-Hill Construction, June 2006.
6 “Understanding the LOHAS Consumer: A Focus on Green Building”. The Natural Marketing Institute (NMI),
7 “Eleven Reasons Why the Green Home Market is Ready to Surge”. Jerry Yudelson, Greenway Consulting Group,
8 “But will consumers pay for ‘green’?” (Title of slide from survey results). Greater Vancouver Regional District –
BuildSmart Program (www.gvrd.bc.ca/buildsmart), 2004.
9 “Green Investment in Homebuilding: Lessons Learned at Terramor – Ladera Ranch, California”. Judi Schweitzer,
Rancho Mission Viejo, February 2006.
10 “Residential Green Building SmartMarket Report”. McGraw-Hill Construction, June 2006.
11 “Eleven Reasons Why the Green Home Market is Ready to Surge”. Jerry Yudelson, Greenway Consulting Group,
In short, consumers appear to be willing to pay between 1% and 5% more for green features, but
their willingness to pay is highly volatile and depends upon a variety of factors, including the
general health of the economy, financial incentives provided by government and private
organizations, and energy costs.
The surrogate profile frequently applied to the typical consumer of green homes and products is
that of the LOHAS consumer. While the attributes of the LOHAS consumer may not be entirely
transferable to the green building consumer, we believe they are close enough to provide some
valuable insights for those wishing to target green building consumers specifically.
Based on the LOHAS consumer profile, we believe green building consumers have the following
• Slightly more likely to be older;
• Slightly more likely to be female;
• Slightly more likely to be college educated;
• Slightly more likely to be married;
• Less likely to have children in the household;
• Likely to be white/Caucasian; and,
• An average income of $48K.
A study performed by the advertising firm Thomas, Taber and Drazen on the public’s awareness of
Built Green in Denver, Colorado – documents similar findings on the attributes of age, education,
and marital status. However, this study found that those likely to be aware of the Built Green
program had an average income two to three times greater than the average income of the LOHAS
3. Regulations and Standards
Prior to building a new home, a perspective home owner or builder may want to take the various
certifications into account. As mentioned above, there are many competing standards in the
marketplace, in addition to many local and state building codes.
Building Codes and Regulations
In the United States, the building codes are established at the state level. This creates significant
differences from state to state, with places like California having much stricter standards than North
Carolina. Additionally, municipalities and counties may also have additional codes that supersede
the state code. Finally, many neighborhoods have building covenants as well, dictating appearance
and materials. This complexity is illustrated in a recent Chapel Hill, North Carolina, regulation,
approved by the North Carolina Building Code Council, which states that there may be no rules
against using solar or wind power generators in new or remodeled home construction.
In North Carolina, applications for permits are made on a county/municipality level, but the
building codes are set by the aforementioned North Carolina Building Code Council.14 The council
is appointed by the governor of the state and is made up of 17 members. These members range in
occupation from mechanical engineers to building inspectors and architects. The code is reviewed
12 “Understanding the LOHAS Consumer: A Focus on Green Building”. The Natural Marketing Institute (NMI),
13 “2005 A&U Survey Results”. Thomas, Taber and Drazen, August 2005.
in multiple subcommittees and presented to the main council for modification. Towns and counties
may also petition the council for exemptions or amendments.
In the future, the leverage point for adoption of green building codes will exist at a state level in the
United States. While a national initiative may speed local adoption, the codes are so customized to
local needs that changes would have to be made state by state. For example, a state that is extremely
arid may not have to build and plan for the same stresses as one that gets large amounts of snow
every year. There are several states at the forefront of greening their building codes (California,
Oregon, Washington, Colorado), but improvements do not happen evenly across the country.
Because there is no federal mandate or central agency coordinating the green building movement,
there are at least thirty different local standards, in addition to several national and international
ones. At the micro level, cities such as Scottsdale, Arizona; San Jose, California; and Portland,
Oregon, have all created independent standards and certification/rating systems. There are also
many regional systems, such as the aforementioned Built Green system in California, Washington,
and Colorado, or the Green Home Program of New York. Many of these resources are not
necessarily rating systems or standards that are checked by a governing body, but are more
guidelines and resource aggregators to assist builders and consumers.
There are four well-recognized standards that exist today in the United States. They are the
ENERGY STAR ratings, the National Association of Home Builders (NAHB), Earth Craft, and
Leadership in Energy and Environmental Design (LEED). While LEED is rapidly becoming the
defacto international standard, each of the others is worth examining.
• ENERGY STAR. This rating program is run by the Department of Energy and the
Environmental Protection Agency. The stated goals of the project are to help citizens save
money and protect the environment through energy efficient products and practices.15
Products are given ENERGY STAR ratings based on the amount of energy they save
compared to standard products, while new homes can earn an ENERGY STAR rating if
they are at least 15% more efficient than homes built to the 2004 International Residential
• NAHB. This rating system is targeted primarily at single family homes, with a focus
on the mainstream home builder. There is no formal certification process associated
with this standard, however there is a strong affiliation with many trade
organizations, and it is well know throughout the building industry. NAHB does not yet
have a specifically “green” strategy, and will host a conference in 2007 to discuss how this
flexible, self-rating system can incorporate green practices.
• Earth Craft. This standard is found only in the Southeastern United States. Currently, this
voluntary building standard is used in South Carolina, Tennessee, Georgia, Alabama, and
Virginia. While this program is much more rigorous than NAHB’s, it still is perceived as
mainly a marketing tool. There is currently only one tier of certification, and it is done via a
very manageable process. The system is aimed primarily at mainstream homes (over 3000
have been certified to date), and primarily targets energy efficiency and building materials.
Currently, there are no plans to expand the standard outside of the southeast.
• LEED. The Leadership in Energy and Environmental Design standard is emerging as the
leader in the field, and is becoming internationally recognized as the most robust green
building standard. The US Green Building Council uses over 6,300 members and member
15 “About Energy Star”; http://www.energystar.gov/index.cfm?c=about.ab_index
organizations to form committees to build this comprehensive certification system. The
multi-tiered standard was initially created for commercial spaces, and is currently
undergoing a pilot program for neighborhood development and residential buildings. It
has been used in all fifty states and adopted by twelve. Although the process management
is a bit cumbersome, it uses third party verification and validation to ensure that the
standards are met. LEED encompasses much of the ENERGY STAR efficiencies and
savings, and uses them as points towards the overall score. The comprehensive standard
can be expensive, but it is also what has been responsible for bringing the concept of “green
building” to the mainstream.
While the US has taken the lead in green building standards, many other countries have begun to
create their own. The most innovative standard outside of the US can be found in the United
Kingdom, started by BRE. The BREEAM (BRE Environmental Assessment Model) is a commercial
product that was created in 1988.16 The program has already certified over 65,000 buildings, and
has recently rolled out its “EcoHomes” program for residential buildings.
Other countries, including Canada, Australia, India, and Japan all have a national green building
standard as well. In each of these cases, the standard has been based either solely on LEED, or on a
combination of LEED and BREEAM. Local exceptions exist, mainly caused by lack of resources or
lack of certain products in the local market. For example, India’s system does not assign points for
using alternative energy because there is no commercially available product for the general
populace that can supply the needed power.
While LEED is the most comprehensive standard, it also is currently the most expensive. Over the
life of a house, the efforts taken to achieve a LEED certification will provide reduced costs, and as
the market leader in certification, the overall value of the house will increase as well. Most building
codes and regulations are covered in the standard, and in many places the requirements are already
mandated by local ordinances.
4. Incentives for Consumers
Consumers of all incomes interested in building a green home or retrofitting an existing home with
green technology can take advantage of a number of incentives provided by federal, state, and local
agencies. Most of these programs require the individual to submit to an audit or follow recognized
standards. Governments and private organizations provide these incentives in order to improve
energy efficiency in communities, reduce pollution, and provide better housing. Below are
examples of incentives in North Carolina.
Individuals can attain advantageous home financing when purchasing a new home that is energy
efficient or when refinancing or remodeling an existing home that can be made energy efficient.
These special lending options, called Energy Efficient Mortgages (EEMs), are available under the
U.S. Department of Housing and Urban Development (HUD), the Department of Veterans Affairs
(VA) for qualified military personnel, Fannie Mae and Freddie Mac.
Recognizing that energy efficient homes cost less to operate on a monthly basis than standard
homes, EEM lenders offer various incentives to make mortgages more flexible. The rationale is that
buyers can spend more on housing expenses because they are spending less on energy costs. Table
1 shows a simplified example17 to demonstrate this dynamic:
Table 1: Simplified Example of Energy Efficiencies Offsetting Mortgage Payments
Same Home with
Home Price (90%
Loan Amount $135,000 $139,334
Monthly Payment $991 $1,023
Energy Bills +$186 +$93
Monthly Savings -- $61
All EEMs require that a professional home energy rater report on the home’s current and potential
energy efficiency. The home energy rater inspects the homes and measures insulation levels,
window efficiency, and the heating and cooling system efficiency among several characteristics. The
home receives a score on a scale to 100. For homes that are already efficient, the report will provide
the value of the monthly energy savings and the value of the energy efficient measures. For homes
that need energy improvements, the report will list measures to improve efficiency and the resulting
estimated savings. The lender then uses the home energy rating savings report to determine the
specifics of the mortgage.
HUD EEM mortgages allow buyers to finance energy improvements for costs up to 5% of the
property’s value (not to exceed $8,000) or $4,000 – whichever is greater.18 Up to $200 of the cost of
the energy rater report can be included in this total. Improvements must be cost effective, meaning
they can be included in a borrower’s mortgage only if the total cost is less than the total dollar value
of the energy saved over the lifetime of the improvement. The lender places the money for the
energy improvements in an escrow account. After the loan closes, the improvements are installed
and inspected for verification, then the money is released to the borrower. HUD places a limit on the
amount of the mortgage, which may change with inflation. In Orange County, NC the maximum
mortgage in 2006 was $200,160 for a single-family home. The final loan amount can exceed the
maximum by the amount of the energy efficient improvements.
For homes with existing energy efficiencies, HUD EEMs allow lenders to stretch the debt-to-income
qualifying ratios, allowing a larger percentage of the borrower’s monthly income to be applied to
the monthly mortgage payment. The stretch gives the buyer more borrowing power based upon the
VA EEMs are very similar to HUD EEMs. The only difference is the amounts that can be financed.
Under the VA program, up to $3,000 in upgrades may be financed solely on documented costs
(rather than $8,000 under HUD). Up to $6,000 may be financed if upgrades are deemed cost
17 Example taken from Pacific Gas and Electric Company. (1996). Energy Efficient Mortgage Home Owner Guide.
Reproduced by U.S Department of Housing and Urban Development. Retrieved December 6, 2006 from
18 U.S Department of Housing and Urban Development. (October 26, 2001). FHA Energy-Efficient Mortgages. Retrieved
from December 6, 2006 from http://www.hud.gov/offices/cpd/energyenviron/energy/apply/fha.cfm.
effective. Additionally, only qualified military personal, reservists, and veterans are eligible for this
Fannie Mae and Freddie Mac EEMs vary by lender. Unlike the Federal EEMs, these loans do not
have mortgage limits. Moreover, energy improvement of up to 15% of the value of the home for
existing and 5% of the value for new homes can be financed. In North Carolina, Greater Bay
Funding, HomeFirst Mortgage Corporation, Indigo Financial Group, State Employees’ Credit Union,
and Wachovia Mortgage Company offer EEMs. The debt-to-income ratio stretch is determined by
adding the estimated monthly energy savings to monthly income, up to a 2% ratio increase.
The Federal government provides tax credits to individuals who purchase certain energy efficient
products. The law allows for a 10% credit for buying qualifying items. The maximum credit is $500
over two years, 2006-2007, and includes the following items: insulation systems; exterior windows
or doors; metal roofs; circulating fans; furnaces; or, hot water heaters.19 The components must meet
or exceed the criteria established by the 2000 International Energy Conservation Code.
In addition, Federal law makes a credit available to taxpayers who add qualified solar panel
systems, solar water heating equipment, or a fuel cell power plant to their residences. Individuals
are allowed a credit of 30% of the investment for each of these three systems up to a maximum of
$2,000. However, the fuel cell power plant credit may not exceed $500 for each 0.5 kilowatt of
States also provide tax credits in order to promote energy efficiency. In North Carolina, a statue
revised in 1999 and renewed in 2005 for five years provides a tax credit of 35% of the cost of
renewable energy property constructed, purchased, or leased.20 The credit has several limits
depending on the specific system:
• A maximum of $3,500 for residential active heating, combined active space and
domestic water-heating systems, and passive heating;
• A maximum of $1,400 for residential solar water-heating system, including solar pool-
heating systems; and,
• A maximum of $10,500 for photovoltaic, wind, or other renewable-energy systems for
The cost of the equipment, associated design, construction costs, and installation costs are eligible
for the credit.
Utilities, non-profits, and local governments provide incentives for energy efficient homes across the
country. In North Carolina, utilities provide incentives ranging from loans for energy efficient
equipment to six months of free dial-up internet access. A notable example is Progress Energy
Carolinas. The company’s Energy Efficient Financing Program offers financing to help customers
purchase heating and cooling systems, storm windows and doors, insulation, and other energy
efficient products.21 Homeowners can receive loans up to $20,000 for 10 years with no collateral and
19 U.S. Treasury Department and Internal Revenue Service. IRS Newsroom. (February 21, 2006). Treasury and IRS
Provide Guidance for Energy Credits for Homeowners. IRS Press Release. Retrieved December 6, 2006 from
20 Database of State Incentives for Renewable Energy. North Carolina Incentives for Renewable and Efficiency.
Retrieved December 6, 2006 from
21 Progress Energy Carolinas, Inc. (2003). The Energy Efficiency Financing Program for energy-saving home
improvements. Retrieved on December 7, 2006 from http://www.progress-
no closing costs. The program is a partnership between Progress Energy, Fannie Mae and Volt
VIEWtech. In addition, Progress Energy Carolinas offers a 5% discount off of energy bills for
homeowners who have ENERGY STAR qualified homes.22
All 50 states and the District of Columbia have Weatherization Assistance Programs (WAPs) which
assist low-income families who lack resources to invest in energy efficiency.23 Using funds provided
by Congress, the State WAPs send qualified staff to low-income homes to test and then improve
energy efficiency. Typical measures may include: installing insulation, sealing ducts, tuning and
repairing HVAC systems, mitigating air infiltration, and reducing electric base load consumption.
Weatherization crews also perform health and safety tests including: testing heating units and
appliances for combustion safety, carbon monoxide, and gas leaks; assessing moisture damage;
checking electrical system safety; replacing unsafe HVAC systems; and installing smoke and carbon
monoxide detectors. WAPs create average energy savings of $218 per year and reduce a
household’s annual gas heating consumption by 33%. According to the North Carolina WAP, the
program serves over 3,000 families each year.24 Unfortunately, these programs are not expansive
enough. According to the National Consumer Law Center, if no new poor were to arise and no
weatherized low-income would ever need to be re-weatherized, it would take 100 to 150 years for all
low-income units to be reached.25
Government agencies and private businesses offer a range of incentives in order to promote green
building. Currently, these incentives are not organized to best affect consumer behavior.
Opportunities exist for public-private or business-to-business partnerships which can better reach
out consumers and offer more comprehensive benefits.
5. Incentives for Developers 26
The promotion of green residential construction is a priority at all levels of government, within state
and local home building associations and utility commissions, and is the mission of many non-profit
organizations. While no one would argue that interest and involvement from multiple spheres of
society is unnecessary or unwanted, the end result is a complex web of incentives and benefits for
builders of green homes. A developer of green residential buildings must have intimate knowledge
of the incentive landscape in order to realize all the benefits for which a green project or green-
oriented firm is eligible. This section provides an overview of the sources and types of incentives
that are available to green housing developers, and highlights notable programs. Sources are
divided into two groups: governmental and non-governmental – with each group providing a
different set of benefits that are based on its particular expertise or capacity.
22 Progress Energy Carolina, Inc. (2006). Energy Efficiency Program/Energy Star. Retrieved December 7, 2006 from
23 Weatherization Assistance Program Technical Assistance Center. (November 27, 2006). Weatherization Assistance
Program Overview. Retrieved December 7, 2006 from
24 North Carolina Community Action Association. (2002). Weatherization Overview. Retrieved December 7, 2006 from
25 Colton, Roger D. Energy and Low-Income Housing: Part I, Energy Policy Hurts The Poor. National Housing Institute.
Issue #76, July/August 1994. Retrieved on December 7, 2006 from
26 A comprehensive summary of these and other federal and state governmental incentives can be found at
http://www.dsireusa.org/summarytables/FinEE.cfm?&CurrentPageID=7&EE=1&RE=1. The research conducted
and analysis presented does not account for the many state-level incentives for the installation of alternative energy
generation systems (e.g. solar and geothermal), which are often incorporated into green residential buildings. The
language of most of the incentives that were reviewed indicated that only the consumer that ultimately purchased
the home was eligible to receive grants or tax credits. There may be circumstances in which the developer could
directly or indirectly (through a higher sale price) receive state tax incentives. The research and analysis does not
account for incentives for green commercial, green neighborhood, or brownfield development.
Two things are certain with government: taxes and bureaucracy. Savvy governments at least realize
that a reduction of these two certainties can be a powerful stimulus for action. To promote green
building practices, governments at all levels are providing financial incentives and/or reducing
bureaucratic delay around residential green construction.
State does not offer tax or grant incentives to developers
State offers tax or grant incentives to developers
State does not offer tax or grant incentives to developers
State offers tax or grant incentives to developers
The only Federal tax program exclusively for
developers was included in the Energy Policy Act of
2005. It provides developers with tax credits of up to
$2,000 for an energy-efficient home built and sold in
2006 and 2007. The amount of the tax credit is
dependent on the type of home and level of energy
efficiency achieved by the home – a site-built home that
achieves a 50% reduction in energy use relative to the
International Energy Conservation Code, for example, is
eligible for the full credit. This tax credit program is
currently set to expire at the end of 2007.
Although most states have many incentives for owners
or renters of green homes, only a few states have
incentives specifically for the builders, developers, or
contractors that construct green residences. Maryland
provides tax credits for incorporating alternative energy
generation capabilities into green homes or for a
residential green project as a whole if it is on a brownfield site or in a priority funding area. Illinois
provides housing developers with grants of up to $4,500 for green low income housing construction.
Michigan and New Jersey have grant programs that provide developers up to $8,000 and $2,900
respectively, for a subset of ENERGY STAR rated homes constructed in the state each year. Finally,
New York has a pool of grant money set aside to help fund technical assessments of energy-
efficiency measures in building designs and green residential developers can receive tax credits for
up to $7.50 per square foot for eligible green apartment building expenses. Many of the state grant
programs are competitive and only lightly funded, thus limiting their reach and potential.
Moreover, states without these programs should recognize an underutilized opportunity to directly
incent developers to construct green residences. This is especially appropriate for rural or less
wealthy areas of states, given that most local governmental incentives are concentrated in densely
populated areas with larger tax bases.
Figure 1: State Government Tax and Grant Incentives for
Green Residential Developers
Owning to the notion that all real estate is local, developers are primarily being incented at the
county and city level. These levels of government are not relying on tax breaks; rather most
incentives are aimed at educating developers on green practices and/or appealing to a builder’s
innate sense of time equaling money. Programs can be complex and differ dramatically in each
locality. Nevertheless, a developer should consider the time spent getting to understand local
incentives for green residential construction a solid investment. King County (WA) recently
launched a program aimed specifically at green developers. Green residential developers are now
eligible to receive up to $25,000 to help offset incremental design costs and LEED registration and
certification fees. An additional carrot that will help mitigate costly bureaucratic delay is that green
residential developers will receive expedited building permit reviews. Sarasota County (FL), Marin
County (CA), Arlington County (VA), the County of San Diego (CA) and the cities of Chicago (IL),
Boulder (CO), Cincinnati (OH), and Scottsdale (AZ) are among the many jurisdictions across the
country that offer some combination of expedited building permits, technical assistance, or grant
funds to developers of green residences. Green residential developers clearly stand to benefit from
activity in these progressive jurisdictions. Concrete data on the number of jurisdictions that have
adopted incentive programs for green residential development does not exist, but it is safe to
conclude that widespread adoption has yet to occur. Green residential developers that operate in
jurisdictions without incentives stand to benefit from lobbying or other efforts that encourage
adoption of similar incentives.
While governments often partner with local non-governmental organizations to provide technical or
educational aspects of their green incentive programs, significant activity also occurs independent of
government involvement. Non-profit organizations and trade associations offer incentives to green
residential developers largely in the form of access to intellectual capital, networks, or public
recognition. Some utilities have made the connection between their operational model and the
energy efficiency of the residences they serve. Utilities can provide monetary incentives, as well as
offer technical assistance to developers of green residences.
Many non-profit organizations have the promotion of green building as their mission. Non-profits
are often independent experts whose tighter budgets typically require that they provide developers
access, as opposed to capital. Access can be to a variety of opportunities: consulting and technical
services, inclusion in directories of green businesses, education and training, certification, marketing
support, or affiliation with a well-known local standard setter. Earth Advantage in Portland, OR is a
self-sustaining 501(c)3 that bills itself as the “Northwest’s premier green building program” for
healthy homes. Member companies gain unparalleled access to Earth Advantage’s expertise,
consumer brand recognition, and a large network of other green businesses. Similar organizations
exist across the country and should be one of the first places a green residential developer turns for
expertise and local market insight.
Green developers will often establish their own trade or home builder associations (HBA) to
facilitate knowledge transfer, networking, and business development opportunities around green
building. Although HBAs offer many of the same benefits enumerated above, they have the
advantage of being established and managed by member companies. As a consequence, they tend
to have higher funding levels, little competition, and can influence the entire chain of development –
government regulation, consumers/public, developers, and municipalities – whereas non-profits
tend to focus on one or two of the links in the chain. California Green Builder and Built Green
(Denver, CO) are examples of a state-wide and a local HBA that focus on serving the needs of
residential green developers.
The final non-governmental sources of incentives to developers of green residential buildings are
utilities and utility commissions. Utilities have access to funds, technical expertise, and their own
incentives for reducing energy use in their service areas. Utilities typically secure funds for such
programs through voluntary or mandatory premiums charged to their customers. Incentives most
often take the form of rebates, both to developers and consumers. Developers of homes in Pacific
Gas & Electric’s (PG&E) (CA) service area that qualify for inclusion in the statewide ENERGY STAR
New Homes program are eligible to receive rebates of up to $500 per home. PG&E also provides
training courses to builders, developers, and contractors on energy efficient design, products, and
specifications. Most of these courses are free or carry a nominal fee. Alaska’s Golden Valley Electric
Association offers rebates of up to $300 to home builders that incorporate electrical energy efficiency
measures during construction. Much like the state programs described above, utilities and utility
commissions are large providers of incentives to consumers who integrate energy efficiency into
their homes. A large opportunity exists to incent developers, builders, and contractors directly for
green residential construction.
Summary of Developer Incentives
Individually, the incentives to developers of green residential buildings may seem too insignificant
to dramatically affect the supply of newly-built green homes. While far more incentives are offered
to home owners or tenants who undertake energy efficiency projects, governments and non-
governmental organizations are starting to understand the developers’ role in this issue. Efforts to
incent developers to build green homes are well-designed for they directly address two areas that
developers consider paramount – the bottom line and the development timeline. Many incentives
are well-funded and scalable for the developer. Once expertise is developed and green principles
operationalized, a builder can reap the benefits of green development with successive residential
projects. It can be reasonably expected that the pervasiveness of incentives to developers of green
residential buildings will continue to increase. Developers are strongly advised to become familiar
with the incentives for which they could be eligible, as well as keep abreast of new incentives that
may appear in the markets in which they operate.
6. Alternative Energy Technologies
Green building strategies often include the deployment of renewable energy systems and the
incorporation of energy efficiency tactics. This section looks at the feasibility of four alternative
energy solutions for homeowners and developers: geothermal technologies, solar panels, energy
efficiency, and small-scale wind turbines.
Geothermal Heat Pumps
Residential geothermal heating and cooling systems are slowly gaining acceptance in the United
States. Geothermal technology utilizes the earth’s temperature to heat and cool air and water in
homes. The systems are incredibly energy efficient and dependable. They concentrate natural heat
rather than using fossil fuels. In addition, they are noiseless and virtually maintenance-free.
However, the high price of installation and lack of consumer knowledge results in geothermal
systems use only growing 2-3% annually.27
Obstacles to Mass Deployment:
• Cost. Consumers interested in installing residential geothermal heat pump systems must
bear a high initial price. A typical system used to heat a family home costs approximately
$13,500.28 The payback period can be relatively fast, especially if the system being replaced
is outdated and energy inefficient. The energy savings equal the initial investment in 2 to
• Consumer Knowledge. The average consumer is unaware that geothermal technology can
be used in a residential setting. Only 750,000 homes in the US use geothermal systems,
equaling less than 1% of the entire heating and cooling systems market.30 As a result, few
homeowners have exposure to the technology. If geothermal technology use is to increase,
consumers need to envision geothermal technology working in their setting and how it
benefits them environmentally, socially and financially.
• Installation. Geothermal pump systems need to be installed by a highly qualified and
certified contractor. The integrity and efficiency of systems depend on proper installation.
Engaging a qualified individual could be intimidating for homeowners. In addition,
installation requires a large portion of land where coils that trap the earth’s temperature can
be buried. Landscaping after installation may increase the cost of the project.
Feasibility for Individual Homeowners. Retrofitting homes on an individual basis can be
expensive, but costs can be recouped quickly. Pumps carry the ENERGY STAR label providing
access to alternative financing for geothermal installation. The cost is easier to bear when
constructing new homes because the installation cost can be rolled into a 30-year mortgage. Again,
open land and an educated, available contractor will be required.
Feasibility for Large-Scale Developers. Adding geothermal technology to an entire community
will add a premium to each home. However, this premium will be far less than the premium for
installation on one home. Developers who wish to install geothermal pump systems need to be
convinced that consumers will absorb the higher cost of the homes. If consumers are unfamiliar
with geothermal pump systems, it becomes the responsibility of the developer’s sales team to
educate the consumer on the benefits of geothermal technology. Because of this challenge,
developers may choose to stay away from geothermal technology until it is more widely used and
accepted. One benefit: it is much easier and faster to install geothermal systems in new home
construction during lot preparation and subdivision.31
Residential solar technology has been in use since the 1970s. Acceptance has grown and technology
has improved in leaps and bounds over the last 30 years. Today, over a million homes use solar
technology of some kind.32
Obstacles to Mass Deployment:
• Equipment. The equipment used to harness solar energy has been considered unattractive
for much of its history. Until recently, solar panels were large and had an unconventional
appearance. The wide use and acceptance of solar technology has made the look of the
panels more acceptable. In addition, advances in solar technology have produced more
attractive forms of capturing solar power. Panels are now smaller and mimic the
appearance of skylights. Solar shingles are also available in lieu of panels.
• Cost. Residential solar systems responsible for complete home power can cost $10,000 to
$20,000 to install.33 Solar hot water systems alone can cost $4,000.34 Consumer savings as a
result of solar installation are difficult to estimate because conventional electricity cost and
incentives differ from state to state. For example, the cost of electricity is extremely high in
New York, making solar systems more attractive in that state. Incentives are managed by
each state resulting in different tax credits, rebates and loan programs across the nation.
• Installation. Most solar systems are difficult to install and consumers will need to hire a
professional. It is possible for a homeowner with experience in roofing, plumbing and
carpentry to install a solar hot water system. In some cases, the solar system interacts with
the electrical grid. In these instances a certified electrician will need to perform the
installation. Solar systems are dependent on directionality and slope of the roof.
Occasionally, older homes do not meet the directional requirements needed for the solar
panels. In addition, these metrics may be difficult for consumers to understand and assess.
Feasibility for Individual Homeowners. Homeowners have a surprising number of options and
flexibility within solar systems. The systems can range from water heating to entire home power.
Systems can even connect to the electrical grid, feeding back excess power generated. This rolls the
consumer’s electric meter backward, reducing their electric bill and sending energy back to the grid
for use by other consumers. Although incentives vary state to state, programs have been available
for many years. Information about incentives is available and generally easy to understand. Solar
technicians are available in most communities across the nation. One disadvantage of retrofitting
homes is consumers tend to wait until current systems disintegrate before rolling over to solar
technology rather than replacing healthy, existing systems.
Feasibility for Large-Scale Developers. Buyers are more apt to choose solar powered homes when
they can roll the cost of installation into a 30-year mortgage. This is an advantage for developers
who are building solar neighborhoods. Large installations of solar power demonstrate economies of
scale. The larger the installation, the lower the cost per system.35 In addition, the cost of installing a
solar system in a new home is lower than the cost of retrofitting a home.36 Developers also get to
maximize the benefits offered by incentives. Tax credits, rebates and loan programs can bring
equity into each large-scale project.37
Energy Efficiency Strategies
Increasing energy efficiency is the low-hanging fruit for homeowners seeking to reduce their
contribution to pollution from the burning of fossil fuels. Homeowners can improve efficiency by
taking a wide range of actions to retrofit their homes. At the bottom-line, an energy efficient home
has a tight building envelope to prevent air seepage in and out of the residence; maintains a
comfortable air temperature without overdependence on artificial conditioning; and, uses low
impact methods to conserve natural resources. There are several strategies that can achieve these
goals without adding significant cost to design, as long as they are considered in the early phase of
project planning. Generally, green features become more costly in subsequent stages of the housing
development process. But because many the following tactics do not necessarily depend upon each
other, homeowners can work at their own paces and within their own budgets, making retrofitting
for energy efficiency a good entry point for most homeowners.
A representative list of tactics follows. It is by no means all-inclusive.
• ENERGY STAR products. The U.S. government developed the ENERGY STAR label for
products that require significantly less energy than their counterparts with equal
performance levels. Products range from kitchen appliances to consumer electronics, light
bulbs and even entire homes. “If every household and business switched to ENERGY STAR
products, over the next 15 years the carbon dioxide reductions would be equivalent to
taking 17 million cars off the road for each of those years. And the country would save $100
billion in energy bills.”38
• Improving insulation. Homes that hold inside temperatures more effectively require less
energy for heating and cooling. Replacing or adding to existing insulation in walls is one
tactic. Sealing cracks around windows and doors that generate drafts is another. Replacing
old windows with more efficient windows can also improve efficiency. “Windows account
for approximately 5 percent of all building energy use, according to the U.S. Department of
• Daylighting. Daylighting seeks to reduce the need for artificial light. Windows, skylights
and open floor plans can enable homeowners to limit artificial light in the home, thereby
reducing the need for electricity. Ensuring a southern-facing orientation of the home is the
best way to maximize natural daylighting, with appropriate shading on the southern
windows to prevent excessive sun exposure in the summer.
• Design elements. Passive solar heating uses south-facing windows to allow sunlight and
the corresponding heat to enter the home in the winter. The sunlight heats masonry or
water tanks that then slowly release the heat into the air during the day. Good passive solar
design also blocks excess heat from entering the home during the summer by using
awnings, shutters or other devices for shade. Another strategy for improving energy
efficiency utilizes the earth to improve constancy of indoor temperatures. Homes built
partially underground or into the sides of mountains or hills maintain a more constant
Obstacles to Mass Deployment:
• Cost. The retrofitting of existing homes to promote energy efficiency clearly requires
additional investment on the part of the homeowner, but cost is not a major deterrent. There
is a wide range of tactics, enabling homeowners to select the actions that offer the greatest
improvement for their budgets. Homeowners can take small steps, like replacing dead light
bulbs with compact fluorescent bulbs that require very small investments. Cost is not a
significant issue in new construction.
• Lack of knowledge. The major obstacle is a lack of widespread knowledge on the costs and
benefits of pursuing energy efficiency. Historically, residential energy costs are very small
as a percentage of household income. In 1997, the average household spent 2.3% of its
income on residential energy.40 Reducing residential energy needs has not been a priority
for homeowners. With prices rising sharply over the past decade, however, spending on
residential energy has increased 33% for the average household,41 creating a more
hospitable environment for discussions about reducing energy usage in the home. As fuel
costs continue to rise, homeowners will see greater benefit to improving the energy
efficiency of their homes. There is a wealth of available information on the topic. The
challenge is getting it into the hands of homeowners, builders, general contractors and
Feasibility for Individual Homeowners. Energy efficiency is highly feasible for individual
homeowners. The range of available tactics allows homeowners to select the actions that offer the
greatest improvement for their budgets. Purchasing ENERGY STAR products and improving
insulation are easy for homeowners looking to retrofit existing homes. Increasing daylighting and
the introduction of design elements like passive solar remain feasible for retrofitting, but will prove
more challenging and costly. Undoubtedly, retrofitting for some design elements will be cost-
Energy efficiency is most effective when multiple tactics are incorporated into an integrated design,
making new construction ideal for implementing energy efficiency strategies. An integrative design
improves payback for any additional construction costs. Further, additional costs are rolled into the
home mortgage. New construction is only constrained by budget and the knowledge and abilities of
the contractors and designers.
Feasibility for Large-Scale Developers. New residential developments are ripe for the
incorporation of energy efficiency strategies. Any and nearly all tactics are available to the developer
during the planning of the new development. Additional costs are minimal when incorporated into
the blueprints. Further, developers can differentiate their homes in the marketplace by incorporating
energy efficiency strategies.
Wind is the fastest growing renewable electricity source in the world.42 The vast majority of this
electricity is produced by utility companies in large wind farms with multiple 100-300 foot tall
turbines. Microturbines make wind energy accessible on a much smaller scale for residential homes.
When compared to other alternative energy sources for residential needs, however, wind is less
feasible for mass deployment.
Obstacles to Mass Deployment:
• Variability. “A wind turbine should experience year-round average wind speeds of at least
12 mph” to be economically practical.43 This is a severe limitation to the effectiveness of
wind energy because the technology does not yet exist to enable the storage of wind-
generated electricity. Homeowners who require constant access to electricity must have
access another source of electricity. While new technology enables turbines to be more
responsive to greater variability in wind gusts, the technology is not yet available in
• Cost. Installing a residential wind turbine can be a costly proposition. Small turbines range
in price from $6,000 to $22,000, depending on the size and service agreements with the
manufacturer.44 A wind turbine is also a long-term investment. The payback period can
range from six to fifteen years.45 This is a hefty investment for a system that cannot
guarantee consistent access to electricity without additional sources.
• Aesthetic Concerns. Wind turbines undoubtedly alter the skyscape. Aesthetic impacts have
stalled the construction of virtually pollution-free utility scale wind farms in places as
environmentally progressive as Massachusetts and Vermont. While some view utility scale
turbines as majestically beautiful, microturbines do not convey the same magnificence.
Some view microturbines as downright ugly.46 Wind turbines must exist 30-100 feet of the
ground, clearly generating potential eyesores in neighborhoods.
• Installation. Installing a wind turbine requires similar skills and expertise as solar panel
installation. Working with the home electrical system and connecting to the existing utility
grid requires a trained and licensed professional.
Feasibility for Individual Homeowners. Wind is not feasible for most individual homeowners.
Cost and the variability of electricity supply are major deterrents. A microturbine currently requires
supplementation with solar panels, another generator or a connection to the grid to ensure constant
supply of electricity. As long as energy from utilities remains relatively inexpensive, the cost of wind
turbines will remain unattractive until new technology enables electricity storage or energy
generation from lighter, less-consistent winds. Further, aesthetic concerns could stymie a
homeowner’s deployment of a turbine if neighbors and local regulators seek to block permitting.
Rural homeowners and farmers are potential exceptions. Where aesthetic concerns are not as great
and the wind blows more consistently, installing a microturbine will be easier and make more
economic sense. These users will still require an alternative strategy for producing electricity on
Feasibility for Large-Scale Developers. Wind is more feasible for new, large-scale residential
development. In places where the wind blows steadily enough, microturbines could be part of an
effective alternative energy system. Wind variability still requires supplementation, but the costs can
be spread evenly across all the homes in the development. Aesthetic concerns could still be an issue,
but a large-scale developer may have more leverage in the permitting process. Further, the turbines
can be integrated into the design of the home development so as to minimize negative aesthetic
46 Conversation with Brad Wood., Project Manager, Cherokee Mainstream GreenHome on November 12, 2006.
Renewable Energy Matrix
The thumbs indicate how each factor affects feasibility of implementation.
= Positive = Neutral = Negative
Table 2: Renewable Energy Matrix
7. Green Building and Affordable Housing
While “green” as a building methodology has gained significant ground in the conventional home
production market, it has played a more muted role in affordable housing development. The US
Department of Housing and Urban Development estimates that 1.3 million people live in publicly
subsidized housing.47 Additionally, one of the most highly utilized affordable housing subsidies –
the Low Income Housing Tax Credit program (LIHTC) – has supported the construction of over 2
million affordable rental units since its inception in 1986.48 Imagine the impact of greening the
national affordable housing inventory.
Because the first point of focus with green building tends to be on the innovative technologies,
affordable housing developers often dismiss greening as a feasible element of affordable housing
construction. However, the most basic tenants of being green stem from having a strong design
methodology that looks at a residential dwelling as a system of interrelated components and
processes.49 It also evaluates a home as an integrated part of a larger community that promotes the
47 “Greening Affordable Housing”, Environmental Building News, Vol. 14, No. 3, BuildingGreen Inc., March 2005.
48 “An Even Greener Plan for Affordable Housing: How States are Using the Low Income Housing Tax Credit To
Advance Healthy, Efficient and Environmentally Smart Homes”, James Tassos, Enterprise Community Partners,
August 1, 2006.
49 Advanced Energy, http://www.advancedenergy.org/buildings/about/.
use of public transportation and walkability. A well-designed, affordable, green home generates
cost savings for the occupant, reduces health risks (and thus medical costs), improves quality of life
and provides a more durable building that requires less long-term maintenance expenditure.
To date, non-profit community development corporations have been the pioneers of greening
affordable housing, but the convergence of several key market forces has underscored both the
necessity and feasibility of greening affordable housing. The urgency of creating higher quality
affordable housing stock has been heightened by increased investigation into the impact of housing
on the health of low-income individuals and a realization, by environmental advocates, that the
poor are disproportionately affected by environmental concerns. Moreover, because the financing
subsidy regime for affordable housing is already highly regulated, there are ready frameworks for
the implementation of green regulation. Lastly, advancements in building science and green
building standards have brought greening to a new level of efficacy. With the prominence of green
building standards such as LEED, the performance of green buildings is becoming more fact rather
than fiction, and the marketplace has started to view greening as a less risky proposition.50
Employing Green Building Principles in Affordable Housing
Some of the particular challenges of incorporating green building into affordable housing revolve
around the fact that:
• Most Federal subsidies target multi-family affordable housing projects that are rental.
Therefore, the decreased utility costs resulting from green features in the dwelling unit are
typically accrued by the occupant and not the developer. While the developer (turned
property manager) can reap financial benefit in the form of more durable buildings
requiring less maintenance, in general, it takes longer for the affordable housing developer
to see any strong economic benefit from going green.
• For-sale, affordable housing developers are particularly focused on keeping costs low
because they cannot bake green cost premiums into the price of the home.
Thus, the focus of applying green tenets to affordable housing development should concentrate on
transforming building philosophy and processes rather than technology implementation. Early
design decision making – drawn from the expertise of all the relevant parties (e.g., architects, site
planners, contractors, engineers, subcontractors, etc.) – is the foundation for the cost-effective
greening of affordable housing.
As discussed in Section 5 of this primer, building green does not necessarily entail investment in a
geothermal pump or an active solar system, but rather, it involves planning smarter buildings that
simply work better. In the affordable housing arena, a focus on energy efficiency strategies is the
most prudent approach and can go a long way toward improving the quality of affordable housing
Benefits to the Resident
Housing is considered affordable if: (1) the total living expenses (including mortgage, utilities,
insurance, etc.) comprise no more than 30% of the household income; or (2) the dwelling is
affordable to individuals earning 80% or less of area median income. For these residents, the
benefits of greening affordable housing are significant.
• Energy savings. Energy costs as a percentage of a low-income person’s income are very
high, and utility bills are one of most common reasons for people falling short on rent or
mortgage payments. Enterprise Community Partners estimates that low-income
50 Conversation with James Royster, Program Director, Green Communities Enterprise Community Partners, Inc on
December 12, 2006.
individuals spend 17% of their income on energy costs.51 Green building has the potential
to reduce these costs up to 50%.52
• Health improvement: Approximately four million children in the US have asthma, and 40%
are related to residential exposure. The incidence of asthma is 40-50% higher amongst
minority children in urban areas,53 and medical bills are the primary cause of most
bankruptcies. Green design reduces harmful residential exposure by decreasing moisture
and thus mold, providing better air circulation, preventing pest infestations and using
healthier materials that prevent introduction of harmful chemicals into the indoor
environment, such as VOCs.
• Better quality of life: In well designed, walkable communities, with proximity to mass
transit, low-income residents have greater access to job opportunities, are encouraged to
exercise and rely less on car transportation, which can cost up to $0.40 per $1 of income.54
• Decreased long-term home repair expenditures: Energy savings are relatively easy to
quantify, but low-income homeowners can also benefit from the use of more durable
materials that reduce maintenance and replacement costs for the home. Developers of
affordable rental housing can also enjoy the same benefit when their properties revert to
asset management post-construction.
Cost and Benefit to the Developer
A recent study completed by New Ecology Inc. (NEI) measured and compared the costs of 16 green
affordable housing projects. The projects did not use sweat equity (i.e. volunteer labor), and at least
80% of the units had to be reserved for low- to moderate-income households. Excluding one outlier
project, NEI data shows a relatively minimal green premium of 3.72% of total development costs on
average (2.98% without the photovoltaic panels, which are very pricey). The highest of these was
9.09% (or $9,700 more per unit in net present value (NPV) terms), but this dropped to 4.68% if
photovoltaic panels were excluded.55
Perhaps one of the most significant factors contributing to the increased cost of construction is lack
of familiarity with green building principles amongst construction professionals. This lack of
knowledge may require upfront soft costs to either educate the contractors or to pay a premium to
hire contractors familiar with green building. Additionally, the education process can add time to
the development schedule, and in real estate, time is money. As the field matures, though, and the
industry develops a stronger experience base, the costs associated with construction delays will be
To mitigate these upfront costs of green building, developers need to understand the landscape of
incentive programs, but they can also focus on developing mixed-income projects. The market rate
portion of the project can help offset some of the costs of the affordable piece, and in so doing, the
developer will also be creating more diverse neighborhoods.
51 Marketing materials for Enterprise Community Partners’ Green Communities Program,
52 “Affordable housing goes ‘green’”, Apartment Professional, March/April 2005,
53 Marketing materials for Enterprise Community Partners’ Green Communities Program,
55 “The Costs and Benefits of Green Affordable Housing”, New Ecology Inc., 2005. One project’s costs (Erie Ellington)
totaled 18.33% less than comparative conventional affordable housing. However, this was excluded from the
averages referenced above because it was the only instance in which the cost of the green project fell below
The same NEI study also demonstrated that in 11 out of 16 cases, the benefit to the developers
outweighed the costs of implementation. NEI used a life-cycle approach (see Figure 2),56 in which
the costs of operating the building for the long term were factored into the NPV equation along with
the upfront construction costs. The NPVs of the cost benefit to the developer ranged from $34,764
above costs to $9,730 below, where a NPV above costs indicates that the value of the benefits
exceeded the costs. A developer’s place on this broad spectrum depended largely upon two things:
(1) if the developer had a long-term interest in the building (e.g., it is a rental property versus for-
sale); and (2) if the developer is responsible
for utilities costs.57 In addition to these
financial benefits, developers can inure
other benefits from building green because
in many cases, greening will enhance the
developer’s standing in the competitive
LIHTC allocation process.
In the affordable housing arena, though,
where the majority of the projects are
rental housing, the pie of benefits is
disproportionately allocated to the resident
of the affordable unit. The occupant does
not incur any of the upfront construction costs but is the group that typically enjoys the benefit of
utility cost savings. Even in the case of for-sale affordable housing, the owner usually wins out over
the developer because the developer is unable to recover green construction premiums by boosting
the sale price of the home.
Figure 2: Life-Cycle Approach to Cost-Benefit Analysis
Incentive Programs and Standards for Greening Affordable Housing
As is the case in many parts of the affordable housing world, nonprofit organizations are providing
the incentives to encourage innovation. Two pioneering nonprofits in particular have paved the
way for greening affordable housing.
Enterprise Community Partners’ Green Communities Program (GCP). Over five years, GCP will
help place $555 million in capital to build more than 8,500 environmentally healthy homes for low-
income families that meet GCP’s Green Communities Criteria. GCP is similar in purpose and form
to LEED, but GCP specifically targets developments for low-income residents. Additionally, GCP’s
criteria are focused heavily on energy-efficiency strategies. Developers whose project plans meet the
criteria can receive assistance in the form of grants, low-income housing tax credit (LIHTC) driven
equity and low cost financing, to help defray the costs of design, planning, charrettes,
predevelopment and construction for a green affordable housing development.58
Launched in October 2004, GCP has far exceeded its one year targets, with green developments in 21
states, creating 4,300 environmentally efficient homes for low-income families via $179 million in
grants, loans and equity. Based on the 4,300 green units underway, cost premiums are between 2-
3% (or $2,000-5,000 per unit) in a multifamily development. Premiums for single family homes tend
to be higher. Each of these homes will use 7,000 fewer gallons of water and will save $350 in energy
bills per home, saving a grand total of 30 million gallons of water and $1.5 million in energy costs
One of Enterprise’s specific goals through the program is to help re-shape state level affordable
housing policy by influencing how states distribute their annual allocation of LIHTC. LIHTC is the
single largest affordable housing subsidy. Each year, LIHTCs are allocated to state housing finance
agencies (HFAs) by the Federal government on a per capita basis. In turn, HFAs distribute the
56 Diagram reference, Ibid.
58 See http://www.enterprisecommunity.org/resources/green/index.asp for more information about GCP.
59 Hardcopies of marketing materials for the Green Communities Program.
state’s LIHTC allocation to affordable rental housing developers, through competitive criteria set
forth in a HUD-approved Qualified Allocation Plan (QAP). One of Enterprise’s missions via GCP is
to influence the criteria set forth in these state QAPs, and to encourage HFAs to collaboratively fund
green affordable housing projects. Through GCP’s first year efforts, more than 10 states have
included green policies and criteria in their QAPs.
Homes Certified via SystemVision
2001 2002 2003 2004 2005 2006 (est.)
Advanced Energy’s SystemVision. This program looks
at a house as a system with interdependent components,
and lays out specific, certification criteria for ensuring an
energy efficient home. Affordable housing
developments in North Carolina committed to
SystemVision certification, may receive building grants
of $4,000 per green home from the NC HFA. Projects
must meet rigorous quality control standards
administered by Advanced Energy staff. The upgrades
to meet SystemVision standards total approximately
$1,700, and the cost of the Advanced Energy quality
control check is $1,050. Since its inception in 2001, over
1,000 homes have been SystemVision certified, in
conjunction with 56 affordable housing building
Figure 3: Homes Certified via SystemVision
The unique aspect of SystemVision is that the program not only ensures construction of affordable
green homes, but it also ensures efficient use of the home through its Energy Use Guarantee
Program. For the first two years of ownership, if the heating and cooling costs of the house exceed a
pre-calculated “Guaranteed Usage” amount, Advanced Energy will pay the difference, provided
that the homeowner’s energy consumption pattern has been prudent,61 taking into account any
upward adjustments to utility rates. The immediate benefit of the guarantee program is that is
expresses the cost savings of greening in dollar figures that the consumer can easily grasp, and in
the long-term it helps change individual behavior. To date, the reported payout to homeowners has
been a mere $2,764.12 for the 500+ homes built by 2005.62 In addition, because SystemVision homes
meet US EPA ENERGY STAR Homes standards, owners receive 5% off of their utilities from Duke
Energy and Progress Energy.
Expected Long-Term Accomplishments. Recently, Enterprise and Advanced Energy collaborated
to further enhance their abilities to influence affordable housing building methodologies on a
national scale. Enterprise’s GCP criteria in combination with SystemVision’s quality control
component will introduce a comprehensive green building standard for affordable housing
developments nationally. Together, these organizations hope to create a base of trained building
professionals, and to capture the hard facts (cost, health, energy savings, etc.) that support the
emotional side of the green affordable housing argument.
Recommendations for Promoting the Greening of Affordable Housing
There are three unique issues areas that pose distinct challenges for wider scale acceptance of green
building within affordable housing development:
(1) Narrow scope of loan underwriting. Permanent loan underwriting is based on the price of the
house or development, and does not take into account the longer term savings that could derive
from energy efficiency. Therefore, affording the loan for a green home or development is out of
reach for most low-income persons or affordable housing developers. Lenders should adopt a life-
60 Conversation with Jonathan Coulter and Tracy Dixon from Advanced Energy on December 6, 2006. Data in graph
provided by Mr. Coulter.
61 See http://www.advancedenergy.org/buildings/about/systemvision_guarantee.html for the exact stipulation of the
owner’s responsibility under the Energy Guarantee Program.
62 Conversation with Jonathan Coulter and Tracy Dixon from Advanced Energy on December 6, 2006.
cycle approach in loan underwriting, which would include the operational savings of the green
home/program in the initial loan qualification process, thereby increasing the income level against
which the homeowner/developer is evaluated. Some lenders have already started to do this via
energy efficient mortgages in the conventional lending market as discussed in Section 3 of this
primer. This trend is particularly salient for affordable housing financiers. Other lending sectors
(e.g., for commercial and office construction) have started to think this way, as evidenced by the
increasing number of lending to green office and commercial buildings. As more data on the
success of such lending becomes more readily available, hopefully affordable housing lenders will
also begin to feel more comfortable with an expansion of their underwriting methodologies.
One nonprofit took this discussion a step further and created a program to help introduce flexibility
into the mortgage underwriting process. The national offices of the Local Initiative Support
Corporation (LISC) are considering a credit enhancement program that would guarantee the
increased net operating income created on affordable green projects. The credit enhancement would
permit lenders to make larger loans without inheriting substantially increased risk.63
(2) Public subsidy cap on per unit development costs. Many public subsidy programs institute a
cap on per unit costs of affordable housing developments. Other programs also levy design
limitations. Imposing such restrictions on a project greatly discourages green building in affordable
housing projects.64 The government agencies responsible for overseeing such programs need to
reevaluate how such provisions constrain energy efficient building, and should revise program
(3) Constant focus on upfront costs. As mentioned earlier, developers of affordable housing have a
particularly vigilant focus on keeping the cost of construction low since any premium incurred for
building green cannot be recovered in the sale price of the home or in increased rent rates. They rely
on a myriad of complex subsidy programs to make the economics of their projects feasible. To
encourage developers to bring green into their affordable housing equations, subsidies that focus on
affordable housing should be tied to the implementation of green design.
LIHTC is the most important source of affordable housing financing. In the highly competitive,
state-level process for winning LIHTC allocations, a few points in an evaluation process can make
the difference in whether or not the developer receives this critical subsidy. Encouraging state HFAs
to include green criteria in their QAPs would provide essential support to green building though
policy frameworks that influence the developers’ pocketbooks.
Over 40 states include energy efficiency in their QAPs to some degree,65 but the extent of inclusion
varies greatly in substance. Some states just use energy efficiency language in generalities, simply
mentioning it as something that the state would like to see executed in affordable housing projects.
Other states have gone beyond talk and implemented competitive criteria that are clearly linked to
greening. The strongest method is to include greening in the minimum performance criteria
required to even be considered eligible to apply for LIHTCs. A report published by Global Green
USA highlights some of the more innovative tactics states are employing in their QAPs:66
• California awards points for using low to zero VOC interiors (e.g., carpets and paints);
• Nebraska requires a pre-construction energy audit;
• Kansas requires that development plans be approved by a certified home energy rater using
the Kansas ENERGY STAR Home Energy Rating System;
63 “Special Section on Green Building”, Affordable Housing Finance, March 2006,
64 “Can Housing be Green and Affordable”, Partners in community economic development, vol. 16, no. 2, 2006,
and “The Costs and Benefits of Green Affordable Housing”, New Ecology Inc., 2005.
65 “Making Affordable Housing Truly Affordable: Advancing Tax Credit Incentives for Green Building and Healthier
Communities”, Global Green USA, December 15, 2005.
• Tennessee awards points to developments (not including rehabilitation) that meet a 15-year
maintenance-free exterior standard;
• Georgia awards points for the preservation of existing trees and vegetation; and,
• Massachusetts development principles require reduction in construction material waste.
These innovative states should be held up as an example of how a QAP can be used to influence the
affordable housing development mindset. However, to date, such initiatives have been driven
mostly by the local climate. Because LIHTC is a national program, governed by legislative
stipulations, there is a valuable opportunity to encourage the greening of affordable housing at the
national level by putting forth mandatory green criteria that must be included in all HUD-approved
QAPs of all states.
Conclusions.67 While developers wait for policy frameworks to catch up with green innovation,
developers can still push to keep green building affordable at the project level in their own
processes. Including green in the project design from the outset will ensure that these issues are
considered before costs are incurred, and will allow a developer to determine which green features
are truly cost-effective for their affordable housing project. Similarly, developers should be sure to
integrate all members of the design team early on, including local planners, designers, contractors,
subcontractors, property managers, owners, etc. Involving all the necessary parties in the greening
process will help minimize cost, time, design and construction surprises in the future. Additionally,
it will help the project team have a clear plan for how to achieve green goals.
From a cost standpoint, developers should have someone on their team who is continually looking
at the cost benefit of the green aspects of the project. Balancing strong budgetary discipline with
benefit/impact assessment will help the developer prove the case to themselves and investors.
Additionally, developers should be sure to engage in the proper commissioning and testing of
onsite systems during and immediately post construction to ensure that green features and energy
efficient methods are properly executed. Such assurances will help guarantee that operational cost
savings do in fact result from the energy efficient strategies executed. Lastly, developers of
affordable housing should provide sufficient education to the owners/occupants of their green
affordable dwelling units. Doing so will encourage better consumer behavior and ensure that the
energy consumption within the dwelling unit is consistent with the original intent of the green
67 Ideas drawn from a number of readings, but most notably, “Can Housing be Green and Affordable”, Partners in
community economic development, vol. 16, no. 2, 2006, http://www.frbatlanta.org/invoke.cfm?objectid=7E448AB7-
5056-9F12-1273CD2B2C3B6231&method=display_body and “The Costs and Benefits of Green Affordable Housing”,
New Ecology Inc., 2005.