Market Movers

mpg

Contributed by Sonja Gustafson:

Dow Jones Newswires published an interesting article two weeks ago on one national homebuilder’s announcement that it will be measuring the efficiency of all its homes.  Using what it calls an Energy Performance Guide (EPG), national homebuilder KB Homes is positioning the rating along the lines of a “miles per gallon” score we are used to seeing on cars, and hopes to use this to differentiate their homes against the competition.

Although I think the EPG is imperfect because it does not account for absolute house size (that is, a big home can get as good a score as a little one, even though the larger will consume much more energy), the idea of a homebuilder asserting a measurement of efficiency is a powerful tool for both the builder and the eventual homebuyer.  For some builders, it may be a way to differentiate their product amongst plentiful competition, or be a way to highlight the company’s fundamental values.  And for buyers, it’s just another valid piece of information that they deserve as they make a major purchase decision.  In the state of Washington, we are required to disclose if a home has a leaky roof, why not leaky walls and windows?  An EPG score may help to tease out some important information about the quality of the home.

What really strikes me about this article is the reaction of another builder who is ignoring the green position.  “I will build whatever the market demands,” says Eric Lipar, chief executive of LGI Homes, a Texas-based builder. “It’s not what the public wants.”  The sad truth is that many builders have in fact built green homes only to see buyers choose something a bit cheaper, a bit bigger, a bit lower in quality.

But.  Let’s look back in order to look forward.  Remember when the public didn’t want airbags in their cars? (I know, this dates me. If you’re too young to remember, there was a big brouhaha over the “significant” cost of adding airbags to cars).  “People aren’t demanding it”, lagging automakers said.  “They won’t pay the cost.”   Then Chrysler decided to install airbags standard across the product line, and suddenly they had both a differentiating factor that made the competition look a little slow, and also played innovative market mover. Can you even find a new car without airbags anymore?  The market didn’t initially demand them; and automakers actively fought against them.  But then, data showing crash survivability emerged and the market moved, and the laggards scrambled to catch up.

KB Homes is clearly making a bet that people will come to value green, even if over time.  They are smart to use an energy rating to assert their position with measurable data.  (We at Green Canopy are happy to see a national homebuilder take this position, one that we announced in 2009 when we chose the Energy Performance Score.)  Part of why builders have not been rewarded for green is that buyers don’t know what the heck green is.  Taking a measurable position (such as energy efficiency) takes out the mystery and makes your case that much more simple to assert.

So I believe that Mr. Lipar at LGI Homes will be one of the many laggards forced to catch up as the rest of the market uses the transparency of an energy score to tease out the information that helps them make their decisions. In this Google era, people are not asking for less information.  They are not asking for less green.  And as valuable data such as energy scoring becomes more commonplace in the residential market, we think consumers will come to demand this sort of information–and the efficiency measures that drive the scores upwards.  The market is speaking, Mr. Lipar.  Move along.