The Housing Market is on the Rise: Opportunities in Green Building

green housingBy Tali Wee

After years of instability, the fledgling housing market has finally found its footing. Though not back to normal levels, the vacancy rate for owned properties has dropped from 3 percent at the height of the crisis in 2009 back to 2.1 percent, and rental vacancy rates have gone from 11 percent down to 8.6 percent nationally. This change can be attributed largely to builders creating new units at a rate much closer to the rate of market demand, rather than completely outstripping demand.

Declining vacancy rates are beneficial for the economy at large, but also for green building, which gained significant ground last year. With the greater economy picking up, there’s even more money available to invest in green real estate initiatives. For green businesses, real estate is a great opportunity to invest directly in green projects within the industry. Here are a few ways to do just that.

1. Buy a foreclosed property and green it up

This has become a popular activity among eco-minded Real Estate Investment Trusts (REITs). During the foreclosure crisis, REITs noticed an opportunity to snap up and retrofit properties before putting them back on the market at a big mark-up. Green labels, like an LEED certification, carry a price tag that averages about 9 percent higher than a non-green equivalent. Combine that gain with the low cost of buying a foreclosed property, and REITs have a high potential for profit. Lower scale investors can benefit from smaller green businesses using the same buy it, green it, flip it mentality, particularly in locales with a passionate green culture.

2. Retrofit current buildings for increased resale value

Not ready to get into real estate investing? Building owners can retrofit their own buildings to increase resale value instead of investing in foreclosed properties. Green buildings help their tenants live with a green mentality, lowering both footprint and upkeep costs along the way. Take the California EPA Headquarters Building as an example. Efforts to calibrate, monitor and maintain energy systems cuts nearly $200,000 from the building’s energy costs per year, while exterior lighting and after-hours heating and lighting systems save $110,000 annually. Add green initiatives like water-efficient landscaping, reducing paper waste, and eliminating can liners to increase savings. Building owners can add solar panels to their buildings’ rooftops and even earn money by selling energy back to the grid.

Once a building has been retrofitted, the owner should consider holding a neighborhood block party or becoming part of a green building tour to showcase their upgraded office. Such leadership could spark other building and home owners to shift to more eco-friendly practices. In turn, the original building owner may be publicized for industry innovation.

3. Charge premium rents for green apartments

Landlords interested in the green business can recoup costs of green retrofitting through energy savings and higher rents. One study found that adding LEED and Energy Star certifications increased rent prices by as much as 3 percent. This makes green apartments both a good investment and an easy way to spread green building ideas far beyond a single occupant.

Of course, investing in green real estate has more than just monetary benefits. As a green business, it’s part of the company’s mission to operate with an eco-minded focus. Green real estate is proof of the green business model – the concept that profit and eco-consciousness can and should go hand in hand.

[image credit: benefit of hindsight: Flickr cc]

Tali Wee currently lives in Seattle where she handles the Miami community outreach for Zillow. She is captivated by, and appreciates everything real estate related. Tali is also a new homeowner and enjoys spending time on projects around the house.

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2 responses

  1. This is so true. I also am a Realtor GREEN in Seattle. There is an award winning company that Eco flips properties here and commands great prices. Because of the demand (and their great marketing), typically the homes are sold within hours of going on the market.

    As a small scale landlord I market my properties with hard surface floors, efficient energy use and high walkscores highlighting these concepts. They rent instantly even though they are smaller than average units. There is a demand for these in residential rentals. Often the most popular selling point is the fact they don’t have wall to wall carpet. Works for them, and as a landlord a solid surface doesn’t need to be replaced as often as a carpet. They apartments don’t have third party certification, but I highlight what is green about them. They also happen to draw great tenants: win=win.

  2. It’s hard to imagine that building owners can charge even higher rents than they already do in Manhattan, but it does seem like green apartment buildings are becoming more popular. If you think about it, it makes sense for building owners in NYC, because most tenants do not pay for heat – so its in their best interest to improve the building’s energy efficiency.

    However, when writing this article about how to find green NYC apartments, I found that it’s actually pretty difficult to find green rentals. The landlord would also not have access to the utility bills, as those are usually under sole care of the tenant – so it makes it tough to confirm a building’s energy efficiency (among other less easily quantifiable qualities of sustainable buildings, like indoor air quality). I wish there was a database of this data that was easy for renters to access.

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