GREEN IS GOLD Once experimental and on the fringe, the sustainable and green building movement is well on its way to becoming mainstream. Driven by federal and state tax incentives, rising energy costs, and the socially conscious investment goals of large institutional investors, green features are showing up in luxury and affordable housing properties across the country.
Green building is fast emerging as a prominent corporate trend beyond the housing industry, which will put further pressure on apartments to get with the program. As is the case with mixed-use development, reluctant adopters of green building principles may find themselves pushed into it by state and local officials.
The green building movement also will be hastened by the capital markets. As it becomes more commonplace for lenders and institutional investors to quantify green building factors into their valuation methods, owners of standard buildings will have to adopt green features to protect their investments.
Fortunately, with technological advances and a growing demand for green building materials, the extra cost to build green can be as low as 1 percent to 2 percent above traditional construction costs. That small additional investment can yield a big payoff in lower operating costs and, in some markets, rent premiums.
While many apartment firms agree that building green is the right thing to do for their businesses, their residents and the environment, there are still challenges ahead. Firms face a significant learning curve to master everything from the simple (high-efficiency lighting) to the complex (on-site power generation). The other main challenge involves working with local officials to ensure that concerns over costs, product availability and technical and operational limitations are properly addressed before any mandatory green codes are implemented.
IF NOT US, WHO? The 2002 Millennial Housing Commission report identified affordability as the “single greatest housing challenge facing the nation.” Unfortunately, little progress has been made on the affordability crisis in the intervening five years. According to Harvard University, 35 million households spend 30 percent or more of their annual income on housing, a common definition of affordability.
Affordability problems don’t discriminate; they now exist in urban, suburban, and rural counties. Economists tell us that in a perfectly functioning market, housing providers would simply increase production to meet the tremendous demand for affordable housing. But the housing market is far from a perfectly functioning one, in large part because of the various regulatory barriers imposed by state and local governments. To be sure, high land and construction costs make it difficult to build new housing and keep rents affordable, but regulations, density restrictions and neighborhood opposition also inhibit affordable housing production.
A decade of declining rental housing subsidies has made it clear that the federal government cannot be relied on to solve the affordability problem. Instead, the problem falls to state and local authorities, who too often turn first to misguided answers that they consider “free,” such as rent control.
Indirectly, the housing industry is being called upon to solve the affordable housing problem. Unlike the other major trends driving the apartment industry, the affordable housing shortage cannot be solved by simply adapting our business models. It requires collaboration among the housing industry, the larger business community and local leaders.
Ultimately, there will be no single solution to this problem. The solution lies in our country’s ability to harness the power of the private sector to produce and preserve workforce housing. To do that, we need creative financing tools, a plan to address community opposition, fewer regulatory barriers and less red tape.
Moving beyond conceptual discussions to actually housing the nation’s workers will require bold and innovative action by the nation’s apartment firms. But if we don’t do it, who will?
