Beyond Energy Efficiency: The Future of Sustainability in the Housing Market

by Kermit Baker
Director, Remodeling
Futures Program

For the past 40 years, since the OPEC oil embargo in the early 1970s dramatically pushed up international crude oil prices, energy conservation and energy efficiency have been national economic and policy priorities. Households have directly borne the brunt of these higher prices. Since 1973, while overall consumer prices have increased fourfold, housing costs as measured by the consumer price index have moved up at the same pace, but home energy prices have jumped by half again as much; six times as high as they were in 1973.

In response to higher prices, households have reduced their home energy consumption. The initial reaction was to cut back on heating in the winter and air conditioning in the summer, but as energy costs remained high, households have made investments to improve the energy efficiency of their homes. (A recent blog post by Mariel Wolfson describes how early efforts to address energy efficiency gave rise to concerns about indoor air quality.)  More recently, state and federal tax incentives have encouraged even greater levels of home energy efficiency spending. Joint Center analysis indicates that almost a third of homeowner improvement spending at present is for projects where there is likely to be an improvement in energy efficiency, such as window replacements, adding insulation, or upgrading the HVAC system. This share is up from a quarter of spending a decade ago.

The results of these investments have been impressive: between 1980 (when households started thinking more seriously about investing in energy efficiency retrofits) and 2009 (the most recent national survey on energy consumption) per household energy consumption has declined almost 22%. Since home sizes have actually increased over this three decade period, the per square foot decline in home energy use has been an even more impressive 30%.

However, given changes in the domestic energy situation, the days of strong incentives from rising energy costs to improve home energy efficiency are likely behind us. While the controversy surrounding the environmental and health concerns of hydraulic fracturing have generated a lot of discussion, its impact on energy production generally has attracted less attention. For example, a 2012 report from the International Energy Agency predicts that the U.S. will become the largest global oil producer by around 2020, becoming self-sufficient in net energy terms later that decade and a net oil exporter by 2030. We’ve already seen the impact of this increased production on home energy costs: since 2008, overall home energy prices have remained stable, while natural gas prices for home energy use have declined by a third.

If rising and uncertain home energy prices drove the interest in energy efficiency investments, then the expected stable prices moving forward should remove many of these incentives. Where does that leave sustainability as a priority for homeowners? In fact, growing sensitivity to environmental concerns has created a lot of momentum behind energy efficiency as well as other sustainability concerns such as the use of renewable building materials and the use of recycled products in the homebuilding and home improvement process, water conservation and reuse, indoor air quality and healthy homes, home automation, and even renewable energy sources. Beyond the third of expenditures on energy efficiency measures noted above, Joint Center surveys of home improvement contractors have determined that somewhere between 20% and 25% of home improvement projects on a dollar basis have environmental sustainability other than energy efficiency as a stated goal of the project.

If consumer demand exists for increasing sustainability in housing, the likelihood is that the market will respond, and there is evidence that it is doing so. Entrepreneurs are developing new products in these areas. A recent Joint Center survey of home improvement contractors asked if they were seeing new products or technologies related to sustainability emerge in recent years, and if so, in which areas. Despite declining energy costs, energy efficiency and insulation techniques still topped the list, with about half of respondents indicating that they were installing or seriously considering installing new products or technologies in these market niches. However, also high on the list were products and technologies related to other sustainability objectives. As manufacturers figure out ways to produce them in a cost-effective manner, and contractors receive training and market their skills at installing these new products, interest in these areas is unlikely to diminish regardless of what happens to home energy prices.