Housing USA: Net-Zero Mandates: Worth the Cost?

6 min read

Encouraging net-zero home construction is an increasingly common tool cities and states seek to reduce their carbon footprints. Buildings account for a substantial share of carbon emissions in many cities and the U.S. in general. Accordingly, several jurisdictions have introduced requirements and incentives for increasing net-zero construction, focusing on residential development. An Urban Land Institute-affiliated consortium of developers, for example, has committed to bring half of their projects to net-zero compliance by 2030.

But this has faced pushback from other developers, and from affordable housing activists, such as yours truly, due to cost concerns. Do the goals of expanding affordable housing and reducing carbon emissions conflict with each other?

It’s important to first define “net-zero.” According to New Buildings Institute communications director Stacey Hobart, during a Zoom interview, “A net-zero building has traditionally been one that is a highly efficient building that consumes only as much energy as can be produced by on-site renewable resources.” The first aspect of a net-zero building is that it uses modern technology to consume less energy on-site, whether through geothermal power, optimized insulation and more. The second aspect is that the building also generates power on-site that is equal or greater than what it consumes. Net-zero buildings usually do this through solar panels or wind power that is hooked to a larger community grid and consumed by other households. As Vikram Sami, director of building performance for Olson Kundig Architects, told Architectural Digest, “Think of it like a checking account for your building where you’re taking some money out and giving some money back.”

The net-zero cost premium over conventional construction is around five to ten percent; for a standard American single-family home, this can work out to over $20,000. The main costs come from installing the renewable sources. Home solar systems typically cost over $18,000 to build and hook up to a system. Geothermal systems can be another $12,000 to $45,000. There are also opportunity costs; adapting to net-zero takes time and resources, both in manpower, and in figuring out the tax and accounting benefits. Hobart, too, notes that the “first cost challenge” of installation is typically a barrier, particularly for retrofitting existing properties.

But advocates argue that net-zero buildings pay for themselves through savings on utilities. Solar power costs, while not negligible, have decreased significantly, a trend, which is projected to continue; the California Energy Commission (CEC) claims that consumers can enjoy $40 in monthly savings from solar installation. The ULI group concurs, arguing that “reducing carbon and driving energy efficiency in their real estate portfolios makes good business sense.”

This cost vs. benefit analysis should certainly be taken into account, especially if cities or states are going to mandate net-zero buildings. We’re already headed in that direction.

California, for example, mandated in 2015 that by 2020, all new residential development and redevelopment in the Golden State conform to zero net emissions rules, with the same requirement for commercial construction kicking in a decade later. In addition, the state passed a similar requirement three years later concerning installation of solar panels for all new residential construction.

In Massachusetts, legislators established that municipalities could opt into enforcing net-zero construction, in an effort to meet a 2050 goal of net-zero emissions for the entire state. This measure, however, was vetoed by Governor Charlie Baker, citing housing cost concerns.

In Washington, DC, the DC Council passed a bill in 2018 that challenged new and existing large buildings to meet green energy code standards by 2026. Local planning blog Greater Greater Washington hinted that this could raise housing costs, even citing the director of the city’s Department of Energy and Environment.

In an email, Hobart listed over 70 other jurisdictions, which are implementing net-zero construction policies. New York City is another, as it passed a law calling for its largest buildings to have 40 percent emissions cuts by 2030 and 80 percent by 2050. Fines for non-compliance start in 2024, and could exceed $1 million annually for some buildings, reports the New York Post.

Notice that in each of these cities and states listed, there is already an affordable housing problem due to high demand and tight regulations that limit supply. Passing green building mandates—even ones that supposedly “pay for themselves” through lower utility bills—seems intuitively like they would increase home costs, especially if they come with the force of financial penalties.

For their part, at least some affordable housing and construction industry lobbying groups backed California’s solar construction mandate. But Hobart expressed concern for firms that are hesitant about these mandates, given their tight margins and the cost required in educating their work crews on net-zero construction.

“I have a lot of empathy for the home builder,” Hobart says. “It definitely is a change, so I do understand the pushback. But I think there are solutions that are available.”

Mainly, it can involve a carrot rather than a stick approach. One method is to subsidize the cost of installation, as California does for both single- and multifamily properties that meet certain income or affordability criteria. A second is to streamline permitting for these net-zero projects, a policy that Hobart says California has also pursued. But the main path may be through tax credit policy: when states are writing allocation guidelines, they can use energy retrofits as a basis for awarding Low Income Housing Tax Credits. Large projects that, in addition to providing affordable housing, promise net-zero energy consumption could win allocations over ones that don’t. Project Open, the mixed-use Salt Lake City project that I covered in TCA’s February issue, was an example of this. The net-zero building enjoyed a $1 million LIHTC allocation.

Incentive-based policies like this could do more to enhance net-zero construction, at less cost, than policies that try to mandate it. Otherwise, for all the advocacy around net-zero, it’s unclear that the concept produces environmental benefits that outweigh the potential costs to new and old housing. More research is likely needed to determine how costs can be reduced and how the concept can be scaled. Until then, a net-zero mandate will likely add five-figures to the final sticker price of homes, in cities already plagued by affordability problems.

Story contact:
Stacey Hobart, Communications Director, New Buildings Institute, stacey@newbuildings.org