cost savings of building sustainably
Are green buildings more expensive than traditional buildings? We often read about the high up-front costs of designing and developing green buildings. Sustainable materials, energy-efficient equipment and specialized labor can cost more initially. However, green buildings often operate at a far lower cost in the long run. Plus, many green building and renovation projects qualify for density bonuses, tax credits, fee deductions, low-interest loans and other financial aid. Increasing demand for sustainable architecture can boost the eventual sales price of a green building – or rental rates for units in that building. In this post, we conduct a casual cost benefit analysis of green buildings. Read on to learn about the green building tax credits, deductions, bonuses and other savings available to developers who prioritize sustainability. As AVLV Architecture I Development is based in Philadelphia, we pay particular attention to the cost benefits of green building in Pennsylvania.
AN INTRODUCTORY COST BENEFIT ANALYSIS OF GREEN BUILDINGS
Green building construction costs are typically higher than building costs for traditional construction. Across the globe, green building costs usually outweigh costs for conventional building by 0 to 10%.
However, a reduction in operational costs and a hefty rental or sale premium results in significant lifetime cost savings for green building owners.
A report developed for the Sustainable Building Task Force by researchers at Capital E underscores the former. Its authors note that lifetime savings far outweigh upfront costs of green construction.
According to the report, “minimal increases in upfront costs of about 2% to support green design…result in life cycle savings of 20%.” This is due in large part to how sustainable architecture and development can seal the building envelope and reduce energy usage.
Rental and Sale Premiums
As we will explain in further detail below, sustainable buildings also tend to achieve higher rental rates and sale prices than conventional buildings. Referencing data gathered by the U.S. Green Buildings Council, this resource from the Building Codes Assistance Project underscores this.
The BCAP notes that the ROI for green building projects is “often between $50 – $65 per square foot.” Between energy savings and tax incentives, the financial benefits of building green often outweigh the costs.
Falling Construction Costs for New Buildings and Renovation Costs for Existing Buildings
Since this research was conducted and its results were published, there have been significant advancements in the technology. This has led to increased affordability and availability of green building materials and equipment.
Each of these has helped close the gap between the cost of green building and that of conventional building. Today, green building costs only 2 to 3% more than traditional building in the United States.
Whether a commercial building or single family home, up-front costs have fallen. This is due in part to the creation of tax breaks from federal, state and local governments. Alongside the Energy Policy Act and other laws, these tax breaks were designed to encourage a shift towards sustainable architecture and lower energy usage.
COST BENEFITS OF GREEN BUILDING
From density bonuses to tax savings, we outline several cost benefits of green building below. There are many more partial deductions and other incentives available to building owners. Check with a local expert for information about cost savings beyond the following categories.
Density Bonuses for Urban Development
First on our list of cost savings for green building owners is density bonuses. Many states offer density bonuses and other incentives for sustainable new construction. For those unfamiliar with the concept, the World Bank defines density bonuses as “incentive-based tools” for developers.
Density bonuses allow “a developer to increase the maximum allowable development on a site.” Typically, they exchange these extra units for “funds or in-kind support for specified public policy goals.” Developers are able to build more units – or larger units – than they would have if constructing a traditional building instead of a sustainable building.
In particular, the State of Pennsylvania encourages green building design and development through the Pennsylvania Commercial Property Assessed Clean Energy Program. According to Mike Turns in this resource from the PCAA, C-PACE “is an innovative financing program launched in 2018.” This program “provides business property owners access to low-interest, long-term loans.”
These loans are approved for “energy efficiency, renewable energy and water conservation projects that are repaid as property tax to benefit the community.” Learn more about C-PACE eligibility, potential fees and other details here. In addition to these tax breaks, Pennsylvania-based developers can also apply for low-cost loans and county-specific “permit fee deductions.”
Green Building Tax Incentives
There are dozens of green building tax credits and deductions available to green building owners and developers. While the federal government issues legislation regarding certain tax incentives, others are offered by state and local governments. Below are just a few green building tax incentives designed to limit your tax liability while making our built environment more sustainable:
For US-Based Building Owners
- Solar Investment Tax Credit
- 179D Commercial Buildings Energy-Efficiency Tax Deduction
- Section 45L Tax Credit
- Energy Star Rebates
For Pennsylvania-Based Building Owners
- Act 129
- Permitting and Fee Reduction Incentives for Solar, Geothermal and Other Renewable Energy Systems
- Local Property Tax Incentives
About the 179D Commercial Buildings Energy-Efficiency Tax Deduction
Perhaps most recently implemented are the green building tax incentives included in the Biden Administration’s Inflation Reduction Act. The Act offers deductions and credits for both home builders and commercial building owners.
According to Teri Samples in an article for WIPFLI, commercial building owners can benefit from a Section 179D tax deduction increase. Samples writes that “Section 179D allows qualifying building owners…to receive an immediate first year tax deduction for a new or remodeled commercial building.”
In addition to total and partial tax deductions offered to building owners, the Act also allows building partners to cut their tax bills. Samples notes that the Inflation Reduction Act lets “tax-exempt building owners…to allocate deductions to architects, engineers and design build contractors.” As long as the partners in question participated in designing or implementing the new systems, they can benefit from tax incentives too.
For more information about the IRA’s climate change prevention package, check out this article from the US GBC.
Long-Term Operational Savings
In addition to density bonuses and tax incentives, sustainable development can also result in long-term operational savings. Green buildings are far more energy efficient than traditional buildings. As such, they typically have lower operating and utility costs. Some even generate their own on-site renewable energy.
According to Patricia Lloyd in an article for RE Journals Midwest, “owners of green buildings report [significant] operating cost savings.” These savings average “13.6 percent for new construction and 8.5 percent for existing building projects.”
As green building materials and equipment have become more widely available, their cost has fallen. Lloyd notes that today, “using green building practices, materials and systems can actually cost less than conventional building and provide immediate and long-term savings.”
Building owners can also make their properties more disaster-resilient through the implementation of renewable energy generation and storage systems. In the period following a natural disaster, access to solar, wind or geothermal energy can make an enormous difference in cost, health and safety.
Short-Term Cost Savings
Last but not least, many green building projects produce significant short-term cost benefits to developers and other owners. You might plan to retrofit an existing building or design a brand-new structure. Both projects often produce sales prices and rental rates higher than those of traditional buildings. Some researchers refer to this as the “green premium.”
Increased Demand and Market Value for Sustainable Buildings
Over the past ten years, buyer demand for sustainable, eco-friendly homes and commercial office space has skyrocketed. According to this report from Deloitte, “buyers are willing to pay a premium for green features that can save future utility costs.” They are also willing to pay premiums “for homes certified for health and wellness.”
Pointing to several different studies in an article for Forbes, Mark Zettle elaborates. He notes that buildings with “green certifications” like LEED and Core Green Building Certification sell for more than traditional buildings. Zettle writes that “green building certifications…[bring a] sales premium of 7.6% across commercial and residential properties.”
Increased Demand and Rental Premium for Green Buildings
As for rental rates, surveys have shown that commercial office buildings and multi-unit apartment buildings both achieve higher rents when billed as “sustainable.” In their 2011 paper “Eco-labeling in commercial office markets” for Ecological Economics, Franz Fuerst and Pat McAllister elaborate.
According to Fuerst and McAllister, “office buildings with Energy Star or LEED eco-labels obtain rental premia of approximately 3–5%.” Buildings with “dual certification” average an additional 9%.
FINAL THOUGHTS ON THE COST SAVINGS OF SUSTAINABLE DEVELOPMENT
At AVLV Architecture I Development, all our projects are designed and developed to be sustainable, restorative and long-lasting. By installing renewable energy systems and appliances that prioritize water conservation, our projects protect the planet’s finite resources.
Through thoughtful spatial design, we promote social interaction and maximize functionality. Smart technology ensures each space is safe, healthy and supportive for all residents and lessees.
Long-term cost savings are just one of many benefits to sustainable building design. Learn more about our approach to cost-effective, eco-friendly building design here.
ARCHITECTURE I DEVELOPMENT
We are AVLV (“Avolve”), a vertically integrated sustainable architecture and real estate development company.
We offer cost effective sustainable architecture and development services to our developer clients.
We offer short and long term sustainable real estate investment opportunities to our investor clients.
For architecture services
For development services, acquisitions, and dispositions
For financing and investments
For marketing, public relations, and advertising
For the shop
Sign up to our newsletter
Receive monthly blog & project highlights