First-time homebuyers are ideal customers because they don't have a home to sell in a tough real estate market, said Rene Oehlerking, marketing manager for Salt Lake City builder Garbett Homes, in a session at the National Home Builder's Association (NAHB) National Green Building Conference & Expo on May 1-3.
"The first-time homebuyer might not be the best market in a boom, but it's a fantastic market in a recession," Oehlerking said.
Innovation and affordability
The demographic of a first-time buyer, typically someone about 25 years old in the Salt Lake City market, is someone interested in finding green components in an affordable home. The key is to innovate and be able to offer them a home that competes with the short sells and foreclosures already on the market, Oehlerking said. Garbett has done this with homes it has built in Daybreak, a sustainable community developed by Kennecott Land in South Jordan, Utah, with 2,500 homes already built, and up to 20,000 allowed for development on the 4,200 acre site.
"Interest rates are artificially low. They are fantastic. In a recession when home prices drop and interest rates for mortgages drop, rental rates usually increase, and the occupancy in rentals go up. So, a first time homebuyer can come out of a rental and move into a brand new home for relatively little money down. And so it's really nice. They don't have a home to sell, they're eager and they have a lot of options," he said.
However, he said that one thing that poses a problem is the affordability factor.
"There is a $250,000 ceiling in the U.S., and to be able to innovate with homes under $250,000 poses a really big challenge. So, we had a really good hard look at this to see how we could make affordable homes."
First-time homebuyers want an instant return on their investment into green.
"Here in the state of Utah, we've hit a perfect storm. Major utility companies have put in very large rate increases. Of course, you see gas prices where they are right now. So, it's on everyone's minds," Oehlerking said.
These increasing energy rates are tangible. And since a tight home uses less energy, and renewable energy, such as that created by solar panels, generate free energy, and then conservation and efficient equipment further reduce energy usage, Garbett opted to target those components to deliver green homes at an affordable price.
Garbett uses the Home Energy Rating System (HERS) to show customers how green a house is. The HERS Index, established by the Residential Energy Services Network (RESNET), shows that a home built to the specifications of the HERS reference home has a HERS Index of 100, while a net zero energy home that uses no energy other than what is produced by the house, scores a HERS Index of 0. The lower a home's HERS Index, the more energy efficient it is in comparison to the HERS reference home.
Each one-point decrease in a HERS Index corresponds to a 1 percent energy consumption reduction compared to the reference home. So, a home with a HERS Index of 80 is 20 percent more efficient than the HERS reference home, and a home with a HERS Index of 30 is 70 percent more energy efficient than the HERS reference home.
"We're currently delivering homes from the $160's to the $250's that are super green homes," Oehlerking said. "In our mind we've related super green to under a HERS 40. We've looked at all the technologies out there and decided we would stake our future on HERS, not LEEDS...not Energy Star. We determined that HERS was the way to go. We think that HERS will be adopted as a mandate throughout the United States."
Having a home with a lower HERS index means that it will cost less to live in the house because energy usage will be lower, and that makes the home more affordable to buyers.
Oehlerking compared it to buying a car, saying that people will choose to buy a 100mpg car over a 14mpg car. People say, "What is the total cost of owning this car. It's not only the cost of monthly payments, but the gas money I will have to spend out of pocket to keep this car on the road. We are betting that mindset will come into home ownership very quickly."
Builders can benefit now from this mindset by creating products that will work in this environment, he said. Creating a tight building envelope to control air flow in and out of the house helps reduce energy costs, and this can be done by using a combination of blown-in insulation topped with spray foam insulation to air seal and insulate areas with the potential for air leaks. Another way to lower costs is to use advanced renewables in the house to heat water and generate electricity. Water usage is reduced with low-flush toilets and low-flow faucets, and energy use is further reduced by installing CFL lights.
The trick is to be building these homes and coming in at the same price point as a competitor building a non-green home, and still make a profit. "You've got that $250,000, ceiling and you have to be smart about how you get there," Oehlerking said. "Educate the buyer that low flow isn't low performance. The buyer doesn't know the difference, but they are using less water. Use a 95 percent efficient furnace. Be as efficient as you can with your equipment. If you put in a 98 percent efficient furnace you're looking at a tremendous jump in cost. So, help the buyer understand what a 95 percent efficient furnace really means."
Geothermal is within range as well.
"We're one of the pioneers in attached homes with geothermal as standard," Oehlerking said. Low-E windows, indoor air quality that replaces indoor air with outdoor air six times a day are also crucial. Geothermal is also standard in some single-family homes, and solar photovoltaic thermal is standard in others.
Oehlerking said another key is to make a home look visually appealing.
"A beautiful, amazing green home that no one lives in is a waste of money. You cannot underestimate the power of design," he said. "Don't put style on a back burner. Color comes into play as well. It's the whole package. Lancscaping, the community design, open areas for families are all essential for Garbett.
He also said selling the "same old design you sold two years ago or four year ago it's not going to work. you've got to look at the whole package and innovate. You can affordably build a home with a HERS under 40 and you can price it at about the same price as your competitor. It's that simple."