Would YOU Pay More?

[jackellis]

I read a press clipping this morning about how Boston-area builders are upset with proposed energy efficiency standards for new construction that will add about $10k to the cost of a new structure. Of course, owners will benefit in the long run from lower energy bills, but the builders are worried about losing business now.

Since we have a pretty diverse (and often vocal) group here, I wonder...

Would you be willing to pay $10k more now to save money over the long haul? How long would the payback period have to be? If you're not willing to pay for energy efficiency now, how would you feel if your energy bills shot up again two years from now?

This is an informal, highly unscientific poll. No names will be taken. I'm just trying to understand how people who don't deal with this every day think about it.

[Alex Franke]

I probably would. I'd try to estimate the savings over the time I planned to own the home and compare it to the upfront cost plus any investment income I might expect to gain on that money. (Of course my interest-free loan to the IRS last year was unfortunately among my better investments )

Then I'd try to make a judgment on how much the energy efficiency would affect resale value, what the fluff factors are worth to me and my family (environment, karma, feeling good about something), and make a decision based on that.

So a $10,000 upfront cost that would save me $10 a month probably wouldn't be worth it unless I was convinced that I'd get that $10,000 back on resale. But a $10,000 cost that would save me $100 a month would look pretty good to me.

[bthorne]

It depends - If these standards are applied to all new construction, will the additional cost decrease as more new homes are built? Maybe in a few years it would only be $5k additional?

If that extra $10K is rolled into my mortgage, how does the increase in payments compare to the cost savings on utilities? If the savings are > than the increase in mortgage payments, perhaps I could take those savings and put extra towards principal each month, and pay off / down the mortgage more quickly.

As far as my wife and I, we would probably pay for it - since we bought our house, we've made a number of energy efficiency improvements (re-insulating the crawlspace, adding a programmable thermostat, etc) and are beginning to see the savings from those. Our electricity is billed as the average of the previous 12 months, so it takes a longer time for savings to show up, but since we installed that thermostat in November, it's definitely showing up in our bill.

Alex is right as well - there's also a feel-good value that's hard to quantify monetarily, although some economist could probably do it.

[JR]

It sounds like the question is "Would you pay $10k more for a new house, compared to the price of an inefficient old house?" All new houses would conform to the efficiency standards, and some old houses would, too.

You don't identify the efficiencies one would expect to realize, but I'd imagine in the Boston area it wouldn't take much improvement to save a lot of dough.

JR

[BobSch]

If I were going to keep the house for a long time then the extra 10K would be reasonable. If I were planning on moving in the next 3-5 years, no way.

[crokett]

If I were going to keep the house for a long time then the extra 10K would be reasonable. If I were planning on moving in the next 3-5 years, no way.

Yup. Plus you have to factor in time value of money. The cost recovery on the extra 10K I spend now has to factor in the decrease in the value of money in the future AND the extra interest I would most likely pay to finance that extra 10K. My guess is the 10K would be closer to 20K when all is said and done. I am thinking I would just buy an older house and retrofit as best I could to make it more energy efficient.

[Shep]

10k is a lot of money. Anyone know what the new efficiency standards would be? I'm sure better insulation,windows,heating and cooling. If I were building a home I would have those features anyway. Now, they'd be required for everyone. I don't think there needs to be a government mandate on efficiency. If you want it get it, if you can't afford it (or rather risk higher energy prices) that's your decision.

[vaking]

There is a lot of unknowns in this equasion. If your 10K investment lowers your energy bill today by $100 a month, then you save $1200 a year and your investment has approximately 8 years brake-even period. That is a simple math. By historical measures 8 years brake-even isn't considered great. But what will happen to the cost of energy in the future? If cost of energy doubles - your savings will double and brake-even will become much shorter. What will be the inflation rate in the future and what will be reasonable return rates in the future? Brake-even period of 8 years historically was not that great because you could get decent return on your money by investing it elsewhere. But in the recent past people saw mostly negative returns and were happy if they simply did not lose money. In this environment investment that takes 8 years to brake even suddenly looks good. So the answer largely depends on individual perception and optimism. I think that energy cost will be going up over time significantly beating inflation. I also believe that with upcoming wave of regulations investment opportunities will be getting smaller and people will be happy if they can maintain investment return 1% over inflation. In other words - to me today's savings in energy bill of $100 a month for $10K invested looks good. I will take it.

[Kristofor]

To me it would matter if these were passive improvements (insulation, windows, natural lighting, solar efficiency, etc.) that provide "free" and hassle-free savings or if they were active (powered heat exchangers, mechanical systems, etc.) which may require maintenance and may be prone to breaking...

Case in point, I have a power direct vent water heater and furnace, and thus no chimney. These are both somewhat more efficient than the traditional options, but the water heater is probably on its last legs and looking at replacement power vent models adds a 60-80% cost premium (presumably every time you replace the unit). The operating cost saving would take almost forever to recover that cost...

[Thalermade]

I know the point is that the builders want to build inexpensively and make as much profit as possible and this will handcuff them initially.

I will look at it from a different angle.

Since it is new construction, would it be better asked - would I be willing to spend $10 grand more for efficiency, or would I trade off and just downsize my house plans by $10 grand?


Russ

[pelligrini]

One thing to consider is the energy costs. Just comparing a $10K building figure (which is probably on the high side if coming from the builders) with current energy costs wouldn't be a good comparison. You need to consider the ever rising energy costs and greater future demand.

[jackellis]

The article I read was not very specific so I don't know what the $10K covers. Thus far, answers have pretty much covered the range I expected.

I don't think there needs to be a government mandate on efficiency. If you want it get it, if you can't afford it (or rather risk higher energy prices) that's your decision.

I agree to some extent, but then again...

If I were going to keep the house for a long time then the extra 10K would be reasonable. If I were planning on moving in the next 3-5 years, no way.

So, the policy wonks have determined that since on average people tend to move a lot, energy efficiency standards are in the public interest. On a personal level, I'm OK with it and we spent a fair bit of extra money on in-floor heating, extra insulation, sealing the structure, efficient windows, efficient appliances.

I suspect part of the $10k price tag is for more extensive testing and inspection.

[pelligrini]

Actually, there already is a govt mandate on energy efficiency. I'm not sure if it is federal (I think it is), but many states have adoped the IECC - International Energy Conservation Code. It applies to new construction & remodels.

http://www.energycodes.gov/

[crokett]

Since it is new construction, would it be better asked - would I be willing to spend $10 grand more for efficiency, or would I trade off and just downsize my house plans by $10 grand?

For me it would be neither. I would just go find an existing house that had what I wanted that didn't cost me the extra $10K.

[DaveS]

$10k more than what?

$810k vs $800k in San Jose, CA?

or

$90k vs $80k in Wheeling, WV??