“Green, Affordable” Housing: A Contradiction in Terms?

June 30, 2008
By  Kathy Moore Cowan

The term "green building" is often used interchangeably with the terms "sustainable building," "high-performance building" and "environmentally responsible building." It is most commonly defined as a process that creates buildings and infrastructure that minimize the use of resources, reduce harmful effects on the environment and provide healthier environments for people.

The term "affordable housing" is often used interchangeably with the terms "low-income housing," "attainable housing" and "subsidized housing." It is used most often to describe single-family or multifamily dwellings that have purchase prices or rental payments affordable to low- to moderate-income individuals, usually with the help of subsidies.

For most people, green building and affordable housing are not considered compatible. However, if the term "affordable housing" is used to describe "sustainable affordability" of single-family or multifamily dwellings for lower-income individuals, then green building becomes a perfect companion.

Affordable and Long-Term

In our current environment of rising utility costs and escalating gas prices, simply building houses that are affordable for low- to moderate-income individuals to purchase or rent is not sufficient. To be truly affordable over the long term, residents must be able to afford the monthly mortgage or rent payment as well as the utilities and transportation costs associated with the home. Homes must be energy-efficient and located close to public transportation.

Residents of green-built housing can realize long-term savings through efficiencies incorporated in the design of the home. Green, affordable housing presents an opportunity to reduce variable costs, such as utility and transportation expenses, which disproportionately affect low-income people.

According to a 2005 report by the Federal Home Loan Bank of Atlanta, in addition to lower utility rates, green building practices improve occupant health and comfort through the use of better ventilation systems and better construction materials. The end result is cleaner indoor air and a reduction in the occurrence of asthma, respiratory diseases and other ailments.

Green Home Features

Designing affordable housing that is also green requires careful consideration of what green features to include and what green features are simply too expensive to maintain initial affordability. Heightened environmental awareness has made fund-raising for affordable green projects slightly less burdensome. However, keeping the homes affordable still requires careful upfront planning.

Some common green features used in affordable housing projects include:

  • compact fluorescent lighting,
  • ENERGY STAR appliances,
  • low-flow fixtures and dual-flush toilets,
  • environmentally preferable products,
  • use of local sources for materials,
  • recycling of construction materials, and
  • homeowner awareness education.

Challenges for Developers

Maintaining a relationship with local green-building experts is essential for developers who want to prevent costly mistakes when undertaking a green built project. State or regional chapters of the U.S. Green Building Council are a great place to start. Chapter locations are listed at www.usgbc.org.

The main challenge to green building cited by most affordable housing developers is the higher initial capital outlay. However, a report by New Ecology Inc. shows that total development costs for green projects reviewed for the report ranged from 18 percent below to 9 percent above the costs for comparable conventional affordable housing. On average, the 16 case studies in the report show a small "green premium" of 2.42 percent in total development costs. These incremental costs are largely due to increased construction, as opposed to design, costs.

Other challenges related to affordable green building include:

  • Capacity challenges and the learning curve: Many affordable housing providers lack the organizational capacity to undertake the additional planning and upfront work necessary to effectively incorporate green building processes. It requires additional training for affordable housing developers, and resources for training are limited.
  • Perceived risk: Affordable housing developers are often risk-adverse because they have little margin for project failure. Any cost increases directly affect developer fees, which are used to sustain the organization and fund future development.
  • Multiple funding sources: Affordable housing developers use many funding sources, each with its own criteria and regulations. It can often be difficult to fit new technologies and ideas into the existing funding criteria.
  • Lack of documented success: To date, energy efficiency has been the only real measure used to show long-term affordability of green building. Lack of research makes it difficult for affordable housing developers to overcome the increased initial investment prejudice with funders.
  • Lack of public transportation and land use planning: Public transportation is not readily available in all areas. In some states (many within our district) only a handful of cities have public transportation systems in place. Therefore, residents must consider fuel costs when deciding where to purchase a home and how much they can afford.
  • Ability to sustain homebuyer educational programs: Resources to sustain homebuyer awareness on how to keep their property green must be taken from existing sources.

New Way to Calculate Affordability

Whether a home is considered affordable has traditionally been calculated based on the upfront initial cost to the homebuyer. In the United States, a commonly accepted guideline for housing affordability is housing costs that do not exceed 30 percent of a household's gross income. Housing costs considered in this guideline generally include taxes and insurance for owners, and sometimes include utility costs. When these combined monthly costs exceed 30 percent to 35 percent of household income, then the housing is considered unaffordable for that household.

Life-cycle costing is needed to adequately assess housing affordability. Life-cycle costing takes into account the long-term costs of building maintenance to provide a more accurate picture of the total costs associated with a structure. Components considered are the total cost of a structure, including initial construction costs, and long-term operating and maintenance costs. When looked at from a life-cycle cost perspective, the operating savings of an affordable green-built home far exceed the incremental capital costs. Traditional costing methods simply do not capture the economic benefits of green building.

Ideas for Funders

Financial institutions should develop mortgage products and underwriting standards that look at life-cycle costs rather than only upfront purchase costs.

Federal, state and local housing finance agencies should give preference to applications for funding for projects that include green technologies.

Philanthropic organizations should support capacity building for affordable housing developers to enable them to effectively incorporate green technologies in their projects. Utilities and for-profit entities should support pre- and post-purchase education for homeowners to ensure that they get sustained benefits from maintaining a green home.

Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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