Taking The Temperature of Green Building, Economics – Part II

In Part I, we reviewed some interesting findings within a survey of real estate developers and corporate executives conducted by National Real Estate Investor (in partnership with the U.S. Green Building Council (USGBC)) at the 2010 Greenbuild International Conference and Expo in Chicago.

We concluded that economics still wins out over “Green.” In order for developers and real estate professionals to fully embrace the green movement, one of two things must happen:

  • Make it mandatory (the “Stick”), and/or
  • Make it economically justifiable (“the Carrot”)

In this case, “mandatory” means “by Code” or “by legislation”.  In other words, by incorporating environmentally friendly requirements into the Building Codes, creating a separate “Green Construction Code” (as was recently enacted in California, and as is currently being proposed throughout the U.S.), or by simply dictating certification through a known program (such as USGBC’s LEED) for all new projects, “green” will be mandated.  By codifying green, it will not be optional, and the market will be forced to adapt.

Codifying green is a heavy-handed way of requiring buildings (and their developers) to embrace the environmental movement.  This is the same way they were forced to embrace insulated glazing (Energy Code), fire sprinklers (Fire Code) and handicapped-accessible restrooms (A.D.A.).  Bottom line is it works, but drags everyone kicking and screaming.

By way of a subtler approach, we currently have the option to strive to make it economically justifiable to choose to build green.

As we have heard many profess, it supposedly doesn’t cost more to be green.  This may be true for a small percentage of projects, even if you remember that “green” is a relative term.  But, in our experience, “green” costs green.

I recently attended a seminar with 60 other Architects.  The group was asked, “How many have worked on a LEED project?” 15-16 hands were raised.  “How many have completed a LEED project?”  Only two hands remained raised.  Since the cost of the certification process can raise the cost of the building substantially, that process is the first to go when budgets get squeezed.

Instead, it makes sense to offer incentives for developers and real estate professionals to pursue green.  By offering economic stimulants, green programs are not only affordable, but economically necessary. In the form of tax incentives, utility rebates, fee reductions, etc., developers can voluntarily choose “green” and fully embrace the movement.

Even in the current economic environment, governments can justify incentives.  Buildings conserving water require less infrastructure demands from the jurisdiction.  Same for power companies when the building’s peak load is decreased substantially.

That said, codes will continue to evolve, and energy standards will continue to restrict wasteful usage.  Developers and Landlords with “Triple Net” leases (where Tenants are responsible for their own utilities), tend to view energy efficiency as unnecessary since they don’t pay the utility bills.  It is for the sake of these folks that we need the “stick.”

As history has shown, the “stick” can be used when industry does not come willingly.  However, the “carrot” tends to produce a more positive experience all around.  In this case, however, I think we need both.

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