In Texas, buying a home built to high standards of environmental friendliness may cost more than a conventional one. But when it’s time to sell, the more efficient home stands to bring in a lot more green: $25,000 more, on average.
That was the conclusion of a University of Texas and U.S. Green Building Council study released Tuesday that was aimed at determining the value of green construction in the state.
“Buyers are apparently aware of the benefits and are paying for them,” said UT’s Greg Hallman, the lead researcher and author.
The study, which looked at more than 3,800 green-certified homes built in Texas between 2008 and 2016, found homes built with green certifications, including so-called LEED standards, commanded a 6 to 8 percent premium over homes that didn’t.
LEED, a national program administered by the Washington, D.C.-based building council, stands for Leadership in Energy and Environmental Design. Homes and commercial buildings are awarded certification for things like renewable energy systems, water conservation and recycled materials.
The study, conducted by the Real Estate Finance & Investment Center at UT’s McCombs School of Business, was based on an analysis of more than 230,000 home transactions in Texas. It used a regression model that considered square footage, number of bedrooms and bathrooms, garages and the age of the home, as well as whether the homes were built to green standards, including LEED.
The increase in resale value was significant considering the size of the market.
The number of LEED transactions among the data was only 143. That number’s expected to grow.
“Many of them were built in the last three years, so there’s evidence that it’s starting to pick up,” said Hallman, senior managing director of the real estate center.
The average new home in the data used for the study sold for $311,000.
“While our sample size for LEED homes was pretty small, the statistics showed there was a statistically significant increase in the price,” Hallman said.
The size of the market in Texas was too small to determine differences between cities.
The U.S. building council, which commissioned the study, identified 288 single-family LEED-certified homes in Houston.
Houston-based custom builder Frankel Building Group started developing to LEED standards since around 2010. But it wasn’t because customers were asking for it.
“It’s a commitment we made just to have somebody checking our tracks while we’re building,” co-president Scott Frankel said. “We knew it would lead to less callback and higher satisfaction.”
“And we’re reaping the rewards,” he said, referring to customers who later want a second Frankel home.
The company emphasizes energy and water efficiency in its homes, along with irrigation systems, roofing materials and insulation.
“Our entire design staff and construction staff and sales staff are constantly thinking about the program,” Frankel said. “It also makes you feel like you’re doing something better.”
While Houston’s market for green homes is small, its commercial real estate sector is a leader.
Local office buildings certified under the EPA Energy Star label, the LEED program, or both accounted for 53 percent of the Houston area’s overall office space at the end of 2016, according to a study from CBRE Group and the Netherlands’ Maastricht University.
Scott Davis, senior vice president of the real estate consulting firm Meyers Research, said earlier attempts to develop environmentally focused communities in the Houston area weren’t successful, which may explain the lack of green home building.
Cost is also an issue.
“Those LEED materials are more expensive,” Davis said, referring to things like tankless water heaters and solar panels. “For the owner there may be a payoff, but for the builder putting them in just makes the house more expensive.”