Sustainability taking roots in the housing market

Takeaway: Sustainability is seen as an important driver for homebuilders.

Environmental sustainability, in the housing sense, means a new way of driving cost savings with energy conservation and appealing to the eco-friendly lifestyles of younger homebuyers or those going green.

In the Green Outlook 2011 report published by McGraw-Hill Construction, government actions – including legislation policies, voluntary programs, and financial incentives – are encouraging green building practices. According to the report, 67% of commercial office tenants reported that tax rebates and standards would drive their investment in green upgrades. Also, market intelligence identifies that corporate America is making sustainability investments for internal competitive positioning and profit reasons. Regardless, I believe commercial building construction and office tenants have been leading the way, and I think companies are taking these actions to enhance competitive advantage, drive cost savings for energy and operating expenses, for instance, and to retain employees and increase productivity. Our focus here, however, is: what are homebuilders doing with respect to going green or seeking energy sustainability initiatives?

The short answer is: not much, at least for most of the publicly-traded and private homebuilders. The housing downturn has negatively affected market demand for new homes, and especially for first-time and first move up homebuyers. However, in my opinion, sustainability leadership is a value-add way that homebuilders can grab competitive advantage over peers, and especially so, once housing improves.

One homebuilder that stands out regarding good efforts for being green is KB Home (KBH 12 **). In fact, the company has made sustainability a key component of its corporate character. At the moment, KB is the only builder to publish a comprehensive sustainability report and has done so since 2007. We see sustainability as a way of differentiating new homes from existing homes, and distressed properties that are for sale. KB Home recently said that the company built its 60,000 ENERGY STAR@ qualified home since 2000. KB is the first homebuilder to meet the ENERGY STAR guidelines of the U.S. Environmental Protection Agency, and the company was the winner of the EPA’s 2011 ENERGY STAR Sustained Excellence Award, which is the EPA’s highest award.

The posts on this blog are opinions, not advice.
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