The Real Cost, The Real Deal

Published by Martha Danly on November 21, 2008 under Design, Green Building, Inside Design, Sustainability

Michelle Kaufmann is the real deal. Recent winner of the Social Venture Network’s 2008 Innovation Award, Michelle is known for her prefabricated green home designs that brilliantly balance our need for sustainable design, beauty, and affordability. For Michelle, there’s no need for tradeoffs when operating within the right set of principles.

In the midst of the economic, housing, and energy turmoil, Michelle wants to help us look beyond our fears, to make every dollar count. Michelle’s white paper, “Redefining Cost: A Beacon of Hope Shines through Housing Market Gloom” (co-authored with Kelly Melia-Teevan), clarifies the real cost of home ownership. It spells out in plain English what we already know in our gut but need to see spelled out in black and white-the sticker price of a new home is only one of many factors contributing to its real cost.

Monthly cost, not upfront cost, is the mindset we need to build—a way of making decisions that will ultimately point us toward a healthier environment and economy both. The actual fully loaded cost is the genuine article, and the sooner we can help consumers think this way, and make purchases this way, the better.

After reading the white paper, I had a few questions for Michelle. She kindly contributed answers, which she shares with us here:

Martha Danly:

Your white paper does a great job of presenting the facts about the challenge of home ownership amid rising costs and sinking incomes. How did we get so stuck on thinking in terms of sticker price and not of monthly cost? Whose interests have been driving the conversation and how can we change it?

Michelle Kaufmann:

The tricky thing about discussing cost in terms of the sticker price or the price per square foot is that it can make a house seem like a really good deal when it actually isn’t. Take a McMansion, one of my favorite examples of contemporary building practices gone wrong. Here is this grandiose house with tons of square footage and that “new car smell,” all for the low, low price of $X per square foot. That is sexy and it sells (or at least it did once upon a time before the housing collapse).

Never mind that it’s way more space than you could ever need or that the “new” smell is actually the off-gassing of VOCs, or that the sticker price has little to do with what you’ll actually pay to live there.

I think we also get sticker price-obsessed when home buying, because that’s how we buy almost everything else: check the price tag, make a quick decision about whether or not it’s worth it, and then bring it on up to the register if we decide it is.

When we couch the cost of a home in terms of the sticker price, it’s easier to decide it’s worth it, just like a seemingly good deal on a TV. But buying a house is like no other purchase most of us will ever make.

Besides being the biggest expense in most of our lives, it is also likely to be the most complicated, with so many variables playing into the real cost of ownership.

Unfortunately, certain housing industry players have something to gain when buyers ignore monthly costs. They benefit from encouraging the wrong-minded habit of looking at the sticker price alone.

That’s especially true of those selling big cookie-cutter homes in big sprawled-out developments where it’s possible to achieve a substantially lower price point—though often at the price of a whole lot else, including the environment.

But as awareness of the tremendous importance of monthly costs grows, so too will the demand for homes that are created to be transparent about helping us manage these costs—so they remain affordable. That’s when we’ll start to see the same players who once took advantage of sticker-price addiction begin to steer the conversation toward monthly costs.

This explains why I’m such a big believer in consumer education. Homebuyers will be a driving force in turning the tide.

Martha Danly:

In your white paper you ask everyone to “stop talking about dollars per square foot.” How can we do this?

Michelle Kaufmann:

In a lot of ways, I think what needs to happen is already happening. People are beginning to understand the motivators for switching the conversation to monthly cost—an understanding that’s coming in spades, thanks to the convergence of the housing, energy, and financial crises.

Record-high foreclosure rates, record-high energy prices, and record lows in economic well-being are making people wake up and ask, “What went wrong?” Sadly, sometimes it takes a crisis for us to really see what’s happening.

We now have a prevailing sense of insecurity that has people reevaluating a lot of the old ways of thinking about things, including housing costs. Once is enough when it comes to the collective national experience of watching our homes, our American Dream, become unaffordable. Surely, some of this fallout could have been avoided had we taken a more realistic approach to discussing housing costs a long time ago.

Here’s the silver lining, though: we’re now in the middle of what I see as a “perfect storm” (the one-two-three punch of the housing, energy, and financial crises) that is capable of catapulting green housing into the mainstream, because a greener home offers an owner more predictability, manageability, and security in terms of monthly costs.

It’s no coincidence that green building is poised to take off at the same time when traditional choices are looking less and less appealing. The financial catastrophe has been on the horizon for some time, and while most have been blind to it, many others have been preparing the solution.

Martha Danly:

For every time you hear that green costs more, don’t you want to shout from the highest mountain: “No, you’re saving, saving, saving!”

Michelle Kaufmann:

Not only that, but I want to ask how exactly cost is being defined in each instance. Yes, you might pay a premium for a green product like a CFL or LED lamp, but it comes back to you many times over in energy saving and in not having to purchase replacement bulbs nearly as often.

Same story with a green home—even if the price tag comes with a premium, it’s more than likely that you’ll actually be saving money if you compare it to a comparable conventional home based on the monthly cost of ownership. That’s something we explain in depth in the white paper.

Moreover, there are additional indirect cost-savings related to going green that we didn’t address in the paper, primarily because they are somewhat less tangible than, say, your insurance premium. I’m talking about the indirect costs of sticking to conventional, inefficient, wasteful, and polluting practices.

For example, many economists are hard at work trying to put a price on the health and environmental benefits of going green (money saved on medical care, dollar-cost of one ton of carbon dioxide emissions)—which is fantastic. It’s also essential that more and more of us are beginning to see the intrinsic value of preserving natural resources, ecosystems, the climate, and all the other wonders of our planet that we are putting at risk.

Martha Danly:

I’d like to challenge the commonly held belief that the initial cost of a green home is always higher. It my be safe to assume there’s an average premium for green (you use $1-$2/sq. ft.), but is a premium necessarily the case? Have you seen any examples of green homes that were equivalent in upfront cost?

Michelle Kaufmann:

A green home with no premium attached is a very real possibility, for several reasons. First of all, many of the green materials out there actually cost less than their conventional equivalents, usually because they’re made out of what would otherwise be waste, rather than new raw materials.

Plus, demand for green materials is growing at an impressive clip and, as any Econ 101 student can tell you, rising demand brings down the price at which suppliers are willing to sell their products—an effect that has already begun to happen.

In addition, as both the green building material and green home building industries evolve, new techniques, methodologies, and economies of scale will bring costs down even further.

True green design also incorporates building techniques and practices that reduce the total amount of material needed to build a home, and that contributes to lower costs as well.

I think it’s time that green builders take a (smart!) page out of the cookie-cutter suburban developer’s handbook and start incorporating some of that tried-and-true streamlining into their own practice. Of course, green builders need to take a more sustainable approach, but being able to mass-produce green homes will go farther than anything else to get rid of the green premium.

That’s exactly why we use prefabricated modular construction to produce our homes. It not only allows for reduced costs, but also reduces timeframes and construction waste (as much as 50 to 75 percent less than with conventional homes). It’s helping us to get closer to achieving our mission of making thoughtful, sustainable design accessible to all.