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Why this Colorado land developer is prioritizing zero energy homes

The incremental costs compared with traditional construction are shrinking.

Southwest Colorado soon will become home to one of the first cold-weather net zero energy (ZE) home developments in the United States. The first 750 lots for sale by land developer David Resnick at North Vista Highlands, a 1,140-acre project outside of Pueblo, will go explicitly to builders committed to zero energy construction.

Resnick wouldn’t label himself an environmentalist, but he considers "heating a home with solar instead of other energy sources" the right thing to do — which is why he’s prioritizing organizations with a focus on combining net-zero design practices with affordable housing. Given that homes across the "southwest, west, and southeast all receive enough sun to power a home forever, with only 50 percent of the roof covered in solar panels, it would be insane not to do it," Resnick said.

Morality aside, from a business perspective, he considers it a "no-brainer" to encourage affordable zero-energy construction. Developing California lands for 20 years taught Resnick two things: Developers and builders still can profit even under stringent environmental protection policies; and an exodus of lower-middle-class Californians to states luch as Colorado soon may occur. Those buyers will have an interest in homes with zero-energy features, he believes.

Indeed, it’s clear that zero-energy homes are attractive to particular consumer segments. Zero-energy homes are designed to conserve energy loss, use less energy and decrease upkeep costs. Add in more affordable housing when many middle-class Americans are struggling to purchase a home, and there is definite appeal.

But what’s in it for the land developer or the builder? Given that zero energy homes have not yet reached cost parity with traditional homes, how do they bring in the same or greater return on investment (ROI) for developers and builders?

Zero energy homes are approaching cost parity

In calculating the ROI of zero energy developments, builders and developers typically focus on incremental costs or the cost of adopting zero energy features — such as solar panels, specialized heat pumps and envelope structural designs — versus traditional homes, according to a recent report by Rocky Mountain Institute (RMI).

According to RMI’s analysis, those incremental costs are decreasing. The organization’s projections conclude that incremental costs in Houston, Atlanta, Baltimore and Chicago will decrease from a delta of 6.7 percent to 8.1 percent to 3.1 percent to 5.5 percent by 2030. It is important to note that RMI’s report did not analyze cold-weather locations, which North Vista Highlands certainly would fall under. Those locations need the specialized heat pumps mentioned above, thus creating additional costs in those geographies.

As builders new to zero energy work through the learning curve, the costs involved in implementing technical solutions will go down. That learning curve is less steep for those already building to Energy Star standards, as opposed to those simply building to minimum code requirements.

Funds from utility and government partnerships that help cover some equipment involved, in conjunction with third-party-owned solar financing, can help zero energy homes achieve cost parity. Bridging the final gap to cost parity may rely on city policymakers' facilitating solar power purchase agreements (PPAs), by both "working with utilities to offer favorable interconnection and net-metering policies, and by providing clarity around any legal or regulatory requirements for third-party solar ownership models."

North Vista development concept

Identifying the cracks: developer and builder risks

For Resnick, it’s still a little early in the game to predict whether North Vista Highlands will have adequate demand from builders and consumers. He’s hoping construction will begin on the first group of lots in the spring. Pueblo's planning commission approved those lots in December.

While Resnick is concerned with consumer preference, he first must address whether home builders will embrace building on the low end. He’s established connections with several builders ready to buy plots, in part because, as the land developer, Resnick can "afford to give up some profit upfront." Still, Resnick recognizes that a land development project focused on affordable zero-energy homes is a future case study in the making.

Jacob Corvidae, principal at Rocky Mountain Institute (RMI), identified several risks to the land developer and builder:

  • Consumer blowback from novel features: Builders and developers must ponder, "Can I sell a home that doesn’t have a gas stove?"
  • Particularly cold climates may have issues with heat pumps, but the technology is coming around fast.
  • First-time zero-energy construction projects could incur higher costs related to new equipment investments, employee skills investments and other corporate learning curves.

Corvidae swept consumer concerns under the rug as he personally came around to zero-energy best practices. For example, he previously could not accept an electric kitchen range over a gas one. But, Corvidae argued, "Even die-hard gas folks recognize that new generation induction stoves are superior."

The learning curve is less steep for those already building to Energy Star standards.
Developers and builders will find themselves "competing with similarly priced homes, which lack these new ‘sexier’ features," posited Corvidae. That competition should be an easy win for zero-energy developers.

Likewise, Corvidae didn’t see local building codes across the United States as a hindrance to zero-energy home construction. While solar panels do sometimes face limitations in historical districts, new construction does not typically face opposition, he said. If neither consumers, codes nor technology are the greatest risks to builders and developers, that leaves the as-yet-unresolved issue of cost parity.

Is the time right to break ground on zero-energy homes?

In any industry, early adopters face greater risks and costs associated with a learning curve. There is no getting around it: Zero energy home construction is still under development, and not yet at cost parity with traditional homes. That means risky business for developers and builders constructing new business models around this practice.

However, zero-energy home builders and land developers today are laying the foundation for a future of zero energy and all-electric homes built at cost parity, or better.

Changes may have been a little slow in coming to the building sector, but Corvidae sees a major transformation on the horizon: "We are in building, where solar and electric vehicles were 5-10 years ago. Electric and zero-energy homes are going to be a viable choice."

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