The Business World -- Especially Home Builders -- Actively Prepares for Climate Change

It seems that nearly every day now, we read another headline about new high temperature records being broken throughout the world. 

Fortunately, like much of the private sector, the building industry is not waiting for a national political consensus to seriously address climate change, and has stepped up with a combination of clever planning, innovative products, and whole-house systems which also help make the case why buying a newly constructed home is smarter than ever.

The challenge seems overwhelming: If the world hopes to keep temperatures rising well below 2.0 Celsius (3.6 Fahrenheit) by 2060 from pre-industrial times, CO2 emissions from buildings will need to drop by 85 percent. Between now and then – and as outlined in a new initiative for the City of Los Angeles -- that means new buildings must be zero-carbon by 2030, with both new and existing buildings becoming zero-carbon by 2050.

The buildings in which we live, work and play demand energy in two forms: The operating energy needed to fuel their daily operations, and embodied energy, which includes everything required to construct them. Globally, almost 40 percent of energy used is related to building construction and operation, and both steel and concrete require enormous sums of energy to produce.

According to the Department of Energy, U.S. buildings account for 39 percent of primary energy consumption and 72 percent of all electricity consumed domestically.  Including embodied energy, the United Nations calculates that our buildings contribute nearly half of total U.S. emissions.

However, since we’re not about to go back to living in caves and hunting for our next meal, what can we do?  Prepare.

Insurance companies, institutional investors and central banks around the world are actively planning for the consequences of more volatile weather across the world.  The EPA recently published a report advising communities on how to plan for the debris left behind by natural disasters, while CoreLogic’s RiskMeter service combines its vast databases with PhD-level scientists to model future risks to property including floods, storm surges, wildfires, earthquakes, wind, hail and more.

Last fall was also the launch of The Investor Agenda, with the motto “Accelerating Action for a Low-Carbon World.”  This group of over 400 institutional investors around the world, which together have $32 trillion under management, provides a framework for them to share actions and commitments for four key areas: Investment, Corporate Engagement, Investor Disclosure, and Policy Advocacy.

Here in the U.S., investing giants BlackRock, Vanguard, State Street Global Advisors and others are backing the Sustainability Accounting Standards Board, a nonprofit organization which seeks to standardize and increase corporate environmental disclosures.

Given that 85 percent of respondents to Harvard Law School’s 2019 Institutional Investor Survey viewed climate change as the most important sustainability topic, it’s likely that both multi-national construction giants and public home builders will eventually face increasing scrutiny.

Central banks around the world, including the European Central Bank and the Bank of England, are also getting involved, with the goal of maintaining financial stability with new standards for financial disclosures and classifications for green assets.

In California, the government is requiring all new homes in buildings of up to three stories to provide solar panels by the beginning of 2020, which is expected to add $8,000 to $12,000 to the sales price.  Based on a 30-year mortgage, the state’s Energy Commission projects that while these new standards will add about $40 to an average monthly payment, they’ll also save consumers about $80 on monthly bills for heating, cooling and lighting.

The building industry itself has already made huge strides tackling climate change, but there is clearly more to do.  Nationally, the percentage of commercial office space certified by LEED or Energy Star in 2017 was 38 percent, up from less than five percent in 2005.  Similarly, the share of green single-family homes rose from just two percent in 2005 to 33 percent by 2017.   The share is expected to increase to nearly 50 percent for both single- and multi-family homes by 2022.

Moreover, those builders which include smart home products which also conserve resources – such as TRI Pointe Homes’ HomeSmart™ and LivingSmart® systems – have found that sustainable homes generally find more demand from buyers, with one study from the Earth Advantage Institute finding a premium of up to eight percent over conventional homes.  This premium extends even more to the resale market, with green homes selling for up to 30 percent more than traditional existing homes, and often selling faster.

That’s a win-win solution for everyone.

July column for Builder & Developer magazine now online

My column for the July 2014 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "Green Building Takes on Climate Change," I reviewed the June report released from The Risky Business Project and what that could mean for the building industry.  An excerpt:

In late 2013, a trio of business leaders including Michael Bloomberg, Hank Paulson and investment fund billionaire Tom Steyer teamed up to found the Risky Business Project with a simple mandate: Determine the potential consequences for the U.S. economy without significant changes in the way we consume and deploy natural resources...

Several years ago, the NAHB conducted its own research into the effects of housing and homebuilding on GHG emissions using data from the Department of Energy, the Census Bureau and other agencies. The association hired its own researchers and economists to review existing data on density, land-use patterns and vehicle usage.

What they concluded was that given the complexity of building communities, caution is strongly recommended as choices are made about the future due primarily to the law of unintended consequences. Solutions that may seem simple on the surface are actually much more complex, and would involve various tradeoffs that could create new problems to solve...

To read the entire column, click here.

To read the entire July 2014 issue in digital format, click here.

Green Building Takes on Climate Change

In late 2013, a trio of business leaders including Michael Bloomberg, Hank Paulson and investment fund billionaire Tom Steyer teamed up to found the Risky Business Project with a simple mandate:  Determine the potential consequences for the U.S. economy without significant changes in the way we consume and deploy natural resources.

To achieve this goal, the group hired The Rhodium Group to provide an independent analysis of the economic risks from a changing climate.  In June 2014, the Risky Business Project released their first report from Rhodium’s analysis entitled “The Economic Risks of Climate Change to the United States.”

The report is quite sobering, and few industries will be impacted by these changes as much as home building, even though housing reportedly accounts for just 18 percent of greenhouse gas (GHG) emissions. Yet there is still plenty of hope, as the most severe risks can still be avoided by early investments in resilience and immediate action to reduce the emissions which have been found to increase global warming.

In terms of geography, the Risky Business report concludes that the two main impacts of climate change – extreme heat and a rise in sea levels – will likely affect certain regions of the country more than others.

In the states along the Gulf Coast and in the Northeast and Southeast, higher sea levels and stronger storm surges could lead to increasing property losses by 2030 which could total as much as $35 billion each year. For states in the Midwest and Southwest, a larger number of high-temperature days could threaten human health, reduce labor productivity (especially for those working outside in land development and home building) and strain already aging electrical grids.

Yet there will be some areas which will benefit from a warmer climate, such as northern latitude states including North Dakota and Montana. With higher winter temperatures, both frost events and cold-related deaths will decline while the growing season for certain crops will lengthen.

So just what can the building industry do to be resilient and protect its own interests while continuing to house a growing population?

Several years ago, the NAHB conducted its own research into the effects of housing and homebuilding on GHG emissions using data from the Department of Energy, the Census Bureau and other agencies. Similar to the Risky Business Project, the association hired its own researchers and economists to review existing data on density, land-use patterns and vehicle usage.

What they concluded was that given the complexity of building communities, caution is strongly recommended as choices are made about the future due primarily to the law of unintended consequences. Solutions that may seem simple on the surface are actually much more complex, and would involve various trade-offs that could create new problems to solve.

For example, increasing building density alone was shown to have minimal impacts on vehicle miles traveled (VMT) unless it was also paired with providing access to regional transportation centers. In addition, there are also the issues of consumer choice and housing durability which provide a huge reality check: Even if the combination of higher densities, land-use diversity and access to transit was maximized to reduce potential VMTs by 25 to 30 percent, those gains would be slow to achieve given the existing housing stock of 133 million units, up to 60 percent of which are still located in mostly car-dependent suburbs.

As a consequence, the nation’s builders and developers can’t solve this problem alone: they also need cooperation from residents who vote with both their ballots and wallets, and that’s where an “insurance policy” argument could assist.

Back in the late 1980s, when Risky Business Risk Committee member George Shultz was President Reagan’s Secretary of State, he urged Reagan to take action on the scientific controversy of that period: the shrinking ozone layer which protects terrestrial life from harmful solar radiation.

Rather than take a confrontational tone, Shultz’s team instead suggested a type of ‘insurance policy’ in the event that the science was correct. That policy, formally known as the Montreal Protocol on Substances that Deplete the Ozone Layer, was hailed by former U.N. Secretary General Kofi Annan as "perhaps the single most successful international agreement to date.”Eventually ratified by 197 countries, if the international agreement remains in place, the ozone layer is expected to recover by 2050.

While addressing the ozone layer is arguably much easier than general climate change, convincing various parties to cooperate rather than confront is perhaps our best hope for a sustainable planet.