Finding a financial institution for passive house construction
Hi. I’m in the process of trying to find a financial institution for a construction loan to build our passive solar home. My assumption is that I will come up short in trying to convince them that the initial cost of the structure will be more than a typical build (especially here in northern Maine where building techniques have not changed in decades) and the reasons for such an increase. I would like to find someone who has “paved the way” so to speak with banks/credit unions (in Maine) on the unique characteristics that make up a passive solar home and the subsequent necessity of a more realistic appraisal, etc. If you or anybody that you know has been through this and either has recommendations for me or has a specific financial institutions that have been good to deal with, could you please let me know? Your help is appreciated as we try to get this project off the ground this spring.
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The only thing I can suggest is to show the bank the blog from last year on a house design called "The Rhody" and the comments that followed (https://www.greenbuildingadvisor.com/blogs/dept/green-building-news/net-zero-design-wins-carbon-competition). Briefly, from the numbers given for the two design alternatives, you can show that for the house in question the monthly ownership cost and thus the bank's risk would be LESS for the moderately more expensive but notably easier to heat house. This requires the bank to consider the borrower's financial resources vs not just the usual Principal, Interest, and Taxes, but also Energy. The old PIT rules hardly make sense anymore with today's heating fuel costs. The people at a small bank, which you'd be most likely to find up your way, probably would be easier to convince than a huge lending institution where following guidelines based on "typical" constructions is more dogma than practical.
I suspect you'd have an easier time doing the convincing with a "Pretty Good House" design than with a Passive House design, as the PGH already has achieved most of the available heating cost savings at least cost, vs the Passive House that spends more money to squeeze out every last bit of savings.
Another edit: On reading your post, I may have misread "passive solar" as Passive House. I don't know how that might affect your reasoning. If the house design achieves dramatically lower heating cost, even when the sun isn't shining, then the argument about PIT-E still may fly.
Matthew,
Yes, there is an owner/builder in Maine -- Roger Normand -- who has "paved the way" on this issue. That doesn't mean, of course, that the way ahead is smooth.
Roger Normand faced some of the same hurdles you are facing, and wrote three blogs on the topic for GBA. Here are the links:
Seeing Red on a Green Property Appraisal — Part 1
Seeing Red on a Green Property Appraisal — Part 2
Seeing Red on a Green Property Appraisal — Part 3
Matthew, This is an interesting topic and I hope, as well as being useful to you, that it generates some general discussion around the issue.
My experience securing financing for spec. projects has been the the bank's concerns are fairly straightforward: They don't want to lend more money than they can recoup in selling the house should the borrower default.. Their appraisal isn't based on the quality of construction or features, but on what the project will sell for in the local market. Their relative lack of interest in the lower operating costs of an efficient house reflects the reality that these efficiencies do not represent a significant factor compared to the other reasons people get into financial problems, such as losing a job or excessive consumer debt.
I also wonder whether Passive houses have yet shown any significant increase in resale value over their neighbours which would justify the larger mortgages their more costly construction requires.
Perhaps all this may change if they become more common?
Malcolm,
I am hoping the same thing, that we see some discussion and some success stories from others.
I live in Ontario, and I am slowly planning a build of my own, so this topic is of great interest to me. It is too early for me to sit down with a bank, as yet, but the day is coming.
Today, I mentioned this topic to a friend, and real estate agent of 30+ years. We discussed the merits of having lower operating costs, as well as a building that is both durable and sustainable. While he agreed these things were desirable, he echoed what is often said. Lenders only care about getting their money back if things go sideways.
Oddly, he compared things like extra insulation, or premium quality windows to a swimming pool. "You don't put a pool in because it increases your property value". In one respect, he is right. You put a pool in to swim in it. If you spend $20,000 on it, you would be naive to think it will increase the market value of your home by that amount.
Can we say the same for insulation? Better performing windows? For my own home, the answer is, who cares? I want more insulation, better windows. I see the value in these things, as an investment and a hedge against rising energy costs. Moreover, I want my home to be durable, efficient and sustainable. But this is a green building website. We all want these things.
What about Joe Public, what does he want?
The conversation with my friend really highlighted the disconnect between "the market" and individual buyers. He said, while some buyers might be willing to pay for efficiency upgrades, or swimming pools, they usually do not because - you guessed it, the bank says no. Or rather, the bank says the list price does not compare favourably to the assessed market value.
Another comment he made, which really irked me, but is probably spot on - if buyers can't see it, it's hard to assign a value to it.
.60ach50 sounds cool but you cannot see air sealing tape!
Suffice to say, the conversation left me with more questions than answers. How do we get Joe Public to care about green building, so they can begin driving changing in the market and forcing lenders to get on board?
If the banks, as a general rule, will not support (or are extremely resistant to) green building loans, what expectations can really place on the public to drive this change in the first place?
Where does the government fit in. Incentives & Rebates? These are great but are they financially sustainable?
Invariably, I think the answer is to educate our children to be better custodians of the planet than we are, and do the best we can in the meantime.
It is plausible that it will happen eventually, once it becomes so mainstream in other countries (Germany?), that it cannot be ignored here in North America any longer.
Perhaps I am rambling. In my defense, it is a thought provoking topic.
Keep us posted on your build Matthew!
Jason, You bring up some interesting points about the realities we face in our current real estate model. It may not be the right or logical way to do things, but that's how they are. A couple of other things come to mind:
When I think back over past improvements in construction practices, the majority appear to have been driven by regulation. Here in B.C. the two most important recent changes affecting the long term resilience of buildings were the mandating of rain-screen walls and seismic measures. I don't think either of these would have occurred simply due to market pressure without their being included in the code. The banks are entirely indifferent to them - and strangely, so is the insurance industry.
I think it is too early to conflate the improved energy efficiency of buildings built to standards such as Passive House with increased resilience or longevity of the structure. A lot of the research by Building Science and the NRC show that poorly insulated houses that the occupants throw heat at often have a long (if inefficient) life. The jury is still out on how some of the super-insulation strategies will effect the lifespan of houses and banks may well be right to sit on the fence for a while before offering a premium for such structures.
If the debate is really about being a good custodian of the planet to the exclusion of our own preferences as to how we would prefer to live, then most of the single family projects featured here simply can't be justified, as whatever gains in efficiency they may have over their conventional neighbours pale in comparison with the gains available by constructing multiple-unit buildings and not building in the suburbs or country.
I think there may be a danger in concentrating on the intricacies of air-sealing rim joists, to the exclusion of examining the larger picture of the place our projects have within our communities and society in general.
Now who is rambling?
Malcolm,
Market change driven by regulation. That is interesting, though not entirely surprising. The two recent articles about what is happening in Germany (Energiewende) might well be giving us some insight into what is to come in our own countries.
https://www.greenbuildingadvisor.com/blogs/dept/guest-blogs/energy-efficiency-conference-germany
https://www.greenbuildingadvisor.com/blogs/dept/guest-blogs/german-deep-energy-retrofit
To me, the link in the second article that highlights a tour through the German version of HD was especially telling.
Your points about multi-family housing are well taken. In the purest sense, it would be the most efficient - there is less redundancy when multiple dwellings can share overlapping resources. Where do we draw the line between making gains in sustainability and living a lifestyle we prefer? How do we strike that balance between conservation and excess?
Part of me acknowledges that such buildings would be a more efficient use of resources. Concentrating in urban centres would be a reduction in transportation footprints, and help to prevent infrastructure overlaps/redundancies.
However, to be honest with myself I must admit I do not want that. I want to have a modest home, in a rural area, that I can call my own. There is something visceral and instinctive about the idea that I have always been drawn to. It satisfies base level desires and societal conventions that we place upon ourselves (A man must provide shelter for his family, etc). The details of it (the home, property) are important, but only in so far as that it is safe, sustainable and durable. Somehow, living in a condo/apartment, even an efficient & sustainable one, does not satisfy those needs for me.
I am not sure what place a passive house, or any other similar building, has in our communities. Right now, here in Canada, they represent an idyllic version of the future. At least to me. Can we do better? Defining better is probably a whole new conversation, but I will answer simply, yes. Are they a significant improvement over our current building standards? I think most would agree tentatively that they are. Individuals may object to particular aspects, details or requirements, but as a whole? Is this level of improvement "enough"? I have no idea.
Lets forget certified passive houses for a moment and try to define these homes we all discuss here. Healthy, efficient, durable and sustainable. HEDS? Can we drop the efficient, is it implied when we say sustainable? HDS? Ok, we need more acronyms like another hole in the head - it's early, only on my first coffee. Still, we are describing a building that (presumably) lasts for a long time and takes care of itself, in addition to providing basic requirements that we expect from buildings (shelter, security). Some of these buildings even produce "profit".
You make a valid point about how long super insulated buildings (aka HEDS) will last. We don't really know yet. We have modelling to tell us they will last longer than buildings built to current standards, but even those who created those models will likely admit it is still theoretical. Is that all we have?
No, we have Hollywood. Those futuristic movies that depict visions of Utopia never seem to tell us what these houses cost (resource, currency, societal). Typically, these advanced societies changed their ways in the wake of some kind of cataclysmic event. The details and outcome of a given fiction vary, but one thing is always the same. We were faced with a disaster, often brought on by ourselves, and at least a portion of us overcame it.
What do these films say about our society? Is a testament to human ingenuity, that necessity truly is the mother of all invention? Or is it some kind of indicator of human arrogance - that we assume we can deal with, and survive impending doom. And more importantly, that until that doom is actually personal, and imminent, it is business as usual?
Is this green building or philosophy? Ok I need another coffee.
Jason, The spirit of full disclosure dictates that I confess to living in the middle of nowhere on an acre lot 30kms from the nearest store and I wish that the house I built here was a lot more efficient.