Here is a thought for home owners and lenders

November 21st, 2012 by Tim Eian

Client Comment:

I discussed financing with my credit union. It seems the practical constraint is the value that the neighborhood can support.

My reply:
This is all too often the case and can be very limiting. It really depends on the lender, though. Some are able to use the significant reduction in operating cost as an asset to lend against. It may take the right lender and a bit of creative thinking to pull a project like this together. In many cases, however, I have seen the challenge be the ability to pull together financing for any project in the first place, and not specifically for the added cost to make it a green, high-performance project.
In most neighborhoods it does cost more to build new than to buy used, much in the same way that a new car is more expensive than a used one. In some neighborhoods the difference can be significant. If the decision to lend is purely based on neighborhood value, many neighborhoods cannot be built in other than by those owners who can afford to pay cash. These people, however, are likely to build elsewhere. So in short, if we can agree that a decent neighborhood deserves new people to come in and make an investment, we have to get beyond the point of the simple neighborhood cost comparison and agree that in some cases, a new home will cost more than an old, used homeā€”but at the same time represent a greater value and asset to the owner, society, and the lender.
In addition, we need to take a closer look at total cost of ownership over a given lifecycle or time-period, which may show that a more expensive home may be the cheaper home in the long run, and therefore present a more desirable proposition for future owners, which in turn are likely to pay more for it. That is of course, if the added cost went towards things that actually reduce the total cost of ownership. The two main investment categories that will produce this kind of cost advantage are the cost of operation (mainly energy and other services), as well as the cost of maintenance (materials and systems) including replacement cost. I would call this resource and risk management, and ultimately sustainability. I think that sustainability is worth something, and propose to lenders to recognize that.

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