It seems lately that every industry in the free world is claiming some stake in the surging green movement. The Baby Boomer generation has been forever passionate about its health and the state of the environment, and both generations “X” and the latest generation “Y” appear to be no less interested. So why shouldn’t residential landlords jump on the green bandwagon? I ask because I see little evidence that we have joined the movement. What’s the reason for this? I think it’s a mindset—one that can change. I’ll let you decide whether it should.
From what I can discern, the primary drawback to our industry’s full embracing of sustainable practices is perceived cost alone. I say “perceived” because there are mitigating circumstances that may offset these costs, thereby relegating this perception to mere myth. Certainly, I need not elaborate on the sensitivities of the prototypical landlord’s bent for profitability. Any landlord that doesn’t get that is either asleep at the wheel or just hasn’t been doing this gig very long. After all, profitability is a rightful pursuit, if not the main goal, from the perspective of most investors. So this concern must be adequately addressed, if those of us who are altruistically motivated wish to see “green” growing in the rental industry.
Let’s take a glance at what sustainable or “green” features look like from the perspective of operating and capital costs for residential properties:
So having highlighted all of these hurdles, what’s the point in going “green” if expense is the primary consideration? Is there any need for further discussion? Obviously, I think the answer is yes, or I would not have troubled myself with writing this article. So before we throw the baby out with the bathwater, let’s please examine this a little further.
I would not advocate that landlords make wholesale changes on their property simply for “green” sake, unless they were just so altruistically moved, which is a virtuous motivation in and of its self. But since the bottom-line seems to be the standard, then maybe we need a thoughtful and perhaps graduated approach that promotes the long-term impact of green-based decisions that affect the bottom-line.
There are more and more homes being constructed from the bottom up that meet green standards established by institutions such as the U. S. Green Building Council’s LEED (Leadership in Energy and Environmental Design) Certification program. In these cases, the simplest solution is for us to simply recognize that the home is green-built, or has been recently retrofitted with new appliances and home systems that meet green standards, and then to promote the benefits of these systems in our marketing programs. These green initiatives can easily translate into higher rent rates. And even if the rent rate is not enhanced, we may get it rented faster, and this is big money in terms of preventing lost opportunity costs. But it can also mean longer duration occupancies because the tenants are more comfortable living in these environments. They may also enjoy the lower cost of utilities, which again goes back to reducing lost opportunity costs.
The good news is that the added costs of green construction may be declining. According to a 2003 report, by Real Estate Journal on-line, the cost premium for new green construction has dropped by 2% as builders, planners, and developers have been learning how to use sustainable building products more efficiently.1 Plus, the federal government, and even many local governments, offer rebates and other tax incentives for constructing or remodeling with green certified products such as EnergyStar appliances and others.
Who can’t understand and appreciate the benefits of energy savings alone? Buyers surely do. And how many times have you been asked by tenant prospects about utility costs? Budget-minded prospects really do care about this. One Texas builder that has been building with high-efficiency windows since the early 1980’s has created a growing competition in his market. He has demonstrated a savings of as much as $150 per month in energy costs for his homes.2
What about existing homes that have not been built or yet upgraded to green standards? It is clearly the harder solution if we want to go green with the extra expense in routine repairs, and this is especially true during turn-over. But at least in these cases, we can at least investigate green alternatives, which will ultimately approach similar benefits as those yielded with green-built homes. And we should always remember that these upgrades will be eventually recognized at the time of sale, having a positive effect on sales price and time on market. So landlords can benefit both immediately and in the long term through application of green products and systems.
Another cost factor looming darkly on the horizon is the impervious surface tax. This tax is calculated on the square footage of area on the property that has water impervious surface, such as a roof or concrete slab. This is happening all across the nation as municipalities are finding a revenue opportunity in the green-movement rhetoric, justifying the tax as an effort to compensate for the cost of dealing with storm-water run off. The irony is that the tax does nothing to prevent the problem—it just pays for the inconvenience. It is a roundabout way of forcing citizens to be more conservative with resources. Nevertheless, the problem is real and landlords will pay. The long-term solution is construction of better engineered driveways that accept the rainwater, and the installation of green roofs or elaborate rainwater capturing systems. These are all good ideas, but they can be expensive and may not be cost effective in terms of ROI captured over even the near long-term. However, that tax will surely add to bottom line expenses. So I think that these solutions must be at least considered for those holding for the long term.
Perhaps not surprisingly, there is growing consumer awareness about environmentally-friendly homes. Survey after survey bears this out. According to a 2004 survey by the city of Seattle, 96% of homebuyers say they are willing to pay more for a home with green features.3 In another Seattle-sponsored survey in 2000 and 2001 by Cahners Residential Group, more than two-thirds of those surveyed reported that they would pay additional up-front costs, by as much as $5,000 for green features. In this same survey 20% said they would even be willing to pay as much and $10,000 in extra costs.4
Thinking “green” is something we, as landlords, can and should be doing. This evolving discipline is no longer a mere aberration perched out on the distant horizon. It is virtually standing at our front door. Perhaps it’s time we get on board, unless we wish to find ourselves in the unenviable position of having to play catch up. And some of us may even find that we feel good about the environmental considerations, despite a possible slight cost to the bottom-line in the near term.
ABR, ABRM, CRB, RMP, EcoBroker®