Adjusting the Thinking of Lenders
As exciting as it is to see Vancouver’s Olympic Village with energy efficient dwellings, long-term green initiatives that will become permanent sustainable features of the community, and the great publicity that provides, sustainable building projects continue to struggle to secure mortgages from lending institutions.
The struggle relates directly to justifying the costs to produce a more energy efficient building and the money saved over the life of the building. From a life-cycle perspective it makes perfect sense and is justified. But from an economic perspective it is more difficult to justify the added costs. The reality is, on average, mortgages held by lending institutions are sold every seven years. The banks are not concerned with life-cycle analysis; all they consider is upfront costs. This becomes a negative when you start talking about creating sustainability.
The building community needs to help rephrase that discussion. The truth is, in many parts of the country, homes are not built to the 2009 building codes but are built to 2006 or even 2003 codes. Take the average starter home. Building to the most current codes would generate a positive cash flow of $23 per month in energy savings into the homeowners’ hands. Enforcing the code can reduce the size of the mortgage by about 2 percent, which further insures loan repayment. Lenders should prefer that new homes be built to the most current codes, not only for life safety issues but because that saved money can help to repay the mortgage.
For the banks and lending institutions this is a great way to alleviate some of the concerns they have about borrower volatility, because building to the current codes increases borrowers’ income and insulates them from one of the most volatile expenses they have which is fuel costs.
For the average homeowner, energy bills have more than doubled over the last 15 years. This is largely because of lifestyle. We live in bigger houses with plasma televisions, computers, surround sound systems and many more conveniences.
According to a recent study from Cornell University, if all existing homes and buildings were retrofitted to 2009 building codes–including upgrading systems–and improvements were made to transportation and industry, over the next 10 years we could eliminate 32 quads of energy, which is equivalent to the annual amount of oil imported into the United States. Think about that.
Lucas Hamilton is Manager, Building Science Applications at CertainTeed Corporation.