the costs & benefits of green affordable housing

203 Pages·2005·5.53 MB·English

by  William Shutkin

THE COSTS &
BENEFITS OF
GREEN
AFFORDABLE
HOUSING
WILLIAM BRADSHAW
EDWARD F. CONNELLY
MADELINE FRASER COOK
JAMES GOLDSTEIN
JUSTIN PAULY
The Costs and Benefi ts of Green Affordable Housing
A Publication of New Ecology
&
The Green CDCs Initiative
Principal Authors
William Bradshaw
Edward F. Connelly
Madeline Fraser Cook
James Goldstein
Justin Pauly
Researchers
Lauren Baumann
Peter Brandenburg
Sara Donohue
Peter Ericson
Lining Geng
Renee Kaufman
Supriya Kota
Jeremy Shaw
© 2005 New Ecology, All Rights Reserved
Table of Contents
Acknowledgments 7
Executive Summary 9
Introduction 13
Background 15
Organization of This Report 16
What is Green Affordable Housing? 16
Community Based Organizations as Vehicles for Green Affordable Housing 20
Challenges to Building Green Affordable Housing 22
Why Focus on Affordable Housing? 23
Methodology 27
Data Collection Process and Survey Instrument 29
Analyzing Data and Filling Gaps 31
Net Present Value Analysis 34

Case Studies 39
Case Study Summary and Reference Pages 41
Findings 161
What Did We Learn? 163
General Findings 163
Challenges Limiting Our Findings 168
Suggestions for Further Research 169
Recommendations on Data and Information Gathering 171
Recommendations for Project Development and Policy 173
Appendices 179
Original Case Study List 181
Survey Instrument 185
A Note on Present Value and Discount Rate 197
Description of Research Team 203
cover photo credits:
Traugott Terrace (top): Dave Sarti
Linden Street Apartments (bottom): Mostue & Associates

Acknowledgements
This project would not have been possible without the input and assistance
of numerous people from diverse professional backgrounds. We would
fi rst like to thank our Green CDCs Initiative partners, Mathew Thall at the
Local Initiatives Support Corporation’s Boston offi ce and Joe Kriesberg at
the Massachusetts Association of Community Development Corporations.
Their thoughtful feedback throughout this process has kept us grounded in
the goal of producing a useful product for community-based organizations
and other developers interested in the topic of greening affordable housing.
Thanks also goes to William Shutkin for being a sounding-board in the early
stages of this project.
Publication of this report was made possible by a grant from the Local
Initiatives Support Corporation and the Home Depot Foundation. A
special thanks to both of these organizations.
We would also like to extend our gratitude to the following funders without
whose support this project would never have become a reality. They
include: Jesse B. Cox Charitable Trust, James E. Gibbons Educational Trust
Fund, Ittleson Foundation, Merck Family Fund, Oak Hill Fund, Harold
Whitworth Pierce Charitable Trust, Surdna Foundation, and an anonymous
foundation.
This work also owes many thanks for the many insights into the real estate
fi nancing and development world from the Boston Counselors for Real
Estate - John Bowman, Steven Kaye, David Kirk, Richard Perkins, and Peter
Smith. We would also like to thank our fi ne research staff for all of their
efforts. They include: Lauren Baumann, Peter Brandenburg, Sara Donohue,
Peter Ericson, Lining Geng, Renee Kaufman, Supriya Kota, and Jeremy
Shaw. Our peer reviewers – Jon Cherry, Len Tatem, Jake Wegmann, and
Walker Wells – also merit a big thank you.
Finally, but certainly not least, we owe thanks many times over to the
individuals from all of the community-based organizations and their
development teams that were part of our case studies. Their willingness
to share their experiences, their projects, and their vision with us made this
report possible. Without them, we would not have been able to show how
greening affordable housing can become a reality.
COSTS & BENEFITS OF GREEN AFFORDABLE HOUSING 7
8 GREEN CDCs INITIATIVE
Executive Summary
Green building has emerged over the past decade as a robust movement to
create high-performance, energy-effi cient structures that improve occupant
comfort and well-being while minimizing environmental impacts. Supported
by organizations such as the U.S. Green Building Council and its Leadership
in Energy and Environmental Design (LEED) standards, both public and
private entities are increasingly pursuing green buildings in the institutional,
commercial, and residential sectors. While this progress is impressive, for
a number of reasons it has not included signifi cant numbers of affordable
housing projects. These reasons, several of which are unique to affordable
housing, include: an almost exclusive focus on “fi rst costs,” the existence
of per unit cost caps, regulatory rigidity that limits green innovation,
and a fi nance system that fails to recognize the long-term value of green
investments.
A common perception has been that green costs more and is, therefore, not
suitable for affordable housing. Recent studies have documented the costs
and benefi ts of green building in the commercial and institutional sector,1
reporting that green buildings have a modest initial cost premium, but that
long-term benefi ts far exceed the incremental capital costs. These fi ndings
have bolstered green building activity in these sectors, but their applicability
to affordable housing development has been viewed with considerable
skepticism.
Until now, however, no such systematic study has evaluated the costs and
benefi ts of greening in the affordable housing sector. The current report
attempts to fi ll this gap. We have surveyed green affordable housing projects
around the country and conducted detailed case study analyses of the costs
and benefi ts of sixteen projects for which adequate data was available.
Notwithstanding signifi cant data gathering and methodological challenges,
analysis of these case studies have led to several key fi ndings, including:
•
Community development corporations (CDCs) and other mission-
driven community-based organizations are natural leaders in the effort
to build green affordable housing.
•
The current system to assess fi nancial viability of green affordable
housing, focused on initial capital costs, is deeply fl awed. Life-cycle
costing in which both capital and operating costs are considered over the
expected life of a building provides a better understanding of project
economics.
•
Using a life-cycle approach, green affordable housing is more cost
effective in net present value (NPV) terms than conventional affordable
housing.
•
The existing fi nancing system for affordable housing is complex and
rigid, and typically does not recognize the long-term value of green
investments. This serves as an impediment to widespread development
of green affordable housing.
COSTS & BENEFITS OF GREEN AFFORDABLE HOUSING 9
Total development costs for the green projects reviewed in this report
ranged from 18% below to 9% above the costs for comparable conventional
affordable housing. On average, the sixteen case studies show a small “green
premium” of 2.42% in total development costs.2 These incremental costs
are largely due to increased construction (as opposed to design) costs.
From a life-cycle net present value perspective, the case studies show
that the benefi ts of green affordable housing are real and, in some cases,
substantial. In virtually all the cases, energy and water utility costs are lower
than their conventional counterparts. In many cases, decreased operating
expenditures alone more than pay for the incremental initial investment
in greening the project in present value terms.3 The use of more durable
materials and equipment in several of the case study projects result in
reduced replacement costs and provide additional life-cycle fi nancial
benefi ts. Moreover, the value of improved comfort and health for residents,
as well as reduced environmental impacts, is substantial, although not
captured quantitatively in our analyses.
While the case studies presented in this report demonstrate that life-cycle
green building benefi ts exceed costs in almost all cases, those economic
impacts are not the same for all parties. Developers, owners and residents
experience different life-cycle costs and benefi ts of green affordable
housing. For example the costs to developers range from about $9,700
more per unit to $34,800 less per unit in net present value terms than the
non-green alternative. This wide range and whether developers experienced
gains or losses depends largely on whether the developer retains a long-term
ownership interest and whether the owners or residents are responsible for
utility costs (and savings). In fi ve of the sixteen case studies, developers
received net benefi ts from greening, in two cases greening the project had
no net fi nancial effect on the developers, while in nine cases the developers
experienced net losses relative to investing in comparable conventional
projects.4
For residents of affordable housing units, the life-cycle fi nancial outcome is
almost always positive, ranging from a NPV of -$140 to $59,861 per unit.
This is the case largely because owners/residents are not responsible for the
incremental capital costs of greening, but they receive the benefi ts of lower
utility costs, not to mention the unquantifi ed benefi ts of improved comfort
and better indoor air quality. In 14 of the 16 cases owners/residents receive
a net benefi t from greening; in one case, there is no impact on the fi nancial
condition of residents, since they are not responsible for any of the utility
costs; and in one case residents experience higher net costs from greening,
though the project developer attributes this to anomalies in project design
and resident demographics.5
Several factors have limited the scope of this research. First and foremost,
there are a limited number of completed green affordable housing projects
with comprehensive data, particularly with respect to green operating costs
and the capital and operating costs of comparable conventional projects.
With this small data set, broad conclusions from this research must be made
10 GREEN CDCs INITIATIVE
cautiously. Moreover, when cost data are available they are often in non-
standard formats and stored in disparate locations.
The fi nal section of the report presents a number of suggestions for further
research, which if carried out, would provide a larger set of reliable data in
a consistent format and help address the limitations of the existing data. We
offer additional suggestions to improve understanding of non-economic
benefi ts of greening, the importance of building commissioning, and how
the fi nance system can support greening of affordable housing.
Finally, we provide recommendations for green affordable housing
developers and policymakers. We suggest developers focus on assembling
an experienced green team, employing an integrated design approach,
and utilize life-cycle costing in evaluating the economics of a project.
For policymakers, we suggest creating innovative funding mechanisms
that recognize the long-term value of green projects, instituting higher
mandatory standards for energy effi ciency in building codes, and adoption
of minimum green standards for affordable housing.
It is our intention that this report informs the broad range of actors
involved in developing affordable housing and provides a solid starting
point for a better understanding of the costs and benefi ts of greening these
projects. We believe that it makes a strong case that greening affordable
housing is cost effective and should be pursued with vigor.
(Endnotes)
1 The most defi nitive analysis is contained in a report commissioned by the Sustainable Building Task
Force, a group of 40 California state government agencies. The Costs and Benefi ts of Green Buildings, was
authored by Greg Kats of Capital E and others, and was published in October 2003.
2 This premium drops to 1.73% if photovoltaic panels are not included. Often inclusion of such
technologies would not have occurred without targeted grant funding support from public agencies or
utilities. We calculated the fi rst-cost premium of greening based upon the non-subsidized costs.
3 Throughout this report, life-cycle costs and benefi ts are reported in present value terms to account
for the time value of money and express the net results in present day dollars. We assume a 30-year
life for projects studied.
4 These results change when green subsidies are included. After grants and rebates specifi cally for
green building features, seven developers have green building benefi ts that outweigh costs, three break
even, and six have costs that outweigh benefi ts.
5 See the Brick Capital case study for details.
COSTS & BENEFITS OF GREEN AFFORDABLE HOUSING 11
12 GREEN CDCs INITIATIVE