Green building stalls amid falling home prices

PHOENIX - Homebuilders slapped on solar panels and added other eco-friendly enhancements as energy prices soared earlier this year, hoping greener homes would lure reluctant buyers.

But since July, the cost of oil has plunged from $147 a barrel to about $36, while home prices continued to fall. Together, these headwinds have stalled low-energy housing developments around the country, including projects by Meritage Homes and Shea Homes.

"The program doesn't necessarily pencil out at the moment," said Scott Kramer, a forward planner for Scottsdale, Ariz.-based Meritage Homes Corp., which builds homes in Texas, Arizona, California, Nevada, Colorado and Florida.

"People don't seem to be willing to pay for it."

In 2007, Meritage packed $20,000-worth of solar panels, high performance insulation, low-leakage air ducts and other systems in its first green community in Vacaville, Calif. The "Encore" homes promised to slash electric bills by up to half, and buyers snapped them up even though Meritage offered them at a higher price than nearby competitors.

Sales figures in July showed that the Encore development sold 1.55 homes per week, compared with 0.88 homes per week for similar homes in the same city, Kramer said.

But that advantage disappeared in the second half of the year. Meritage and its closest competitor both sold about one home every two weeks according to sales data for the month of November, and it slashed prices that month to make Encore homes about the same as its competitors.

Though Meritage continues to build Encore homes in its Vacaville community, it's re-evaluating whether to move forward with plans to start new green communities.

"It's been a bad couple of months," Kramer said.

Green — but on the cheap
UBS analyst David Goldberg said most major builders will continue to invest in green developments. But they'll likely need to find cheaper ways of doing it next year.

"If it cost more to put solar panels on there, are you still exploring it? I'd say, maybe not," Goldberg said. "But there are a lot of things you can do in communities that are environmentally friendly."

For example, builders could add Energy Star-rated appliances in homes that can cut utility bills without adding much to the overall price tag, he said.

The economy may have left consumers jittery, but those looking for new homes will still look for energy efficiencies, especially if a builder can show how much it will lower their monthly utility bills.

"If it's a house that has leaky windows, and not enough insulation, I think people will pick up on that," said Elliott Pollack, a real estate consultant in Scottsdale, Ariz.

Phoenix homebuilder Ed Gorman agrees.

"Everybody wants to be green, but nobody wants to pay for it," said Gorman, president of Modus Development. "But when you talk about putting money in our pocketbook, that's important to them."

Gorman's "Galleries at Turney" project, two rows of pricey, ultramodern town homes, sold out this year while similar projects struggled to find buyers.

His secret? The Galleries were equipped with a unique set of cooling systems that lock out Arizona's oppressive summer heat.

"There's sex appeal in good design," Gorman said. "We're probably 50 percent more energy efficient than most buildings of this size."

His boxy, all-gray Galleries showed that people will pay for smart, eco-friendly designs even when there are cheaper alternatives nearby.

Buyers paid between $700,000 and $850,000 for the 2,000-square-foot units. Homes in the same Arcadia neighborhood offered more space, backyards and swimming pools at almost half the cost, but none could compete with the Galleries' environmental design.

The Galleries are all LEED certified and come with radiation-filtering windows, Energy Star-rated appliances, and sturdy, insulated walls made of fiber-reinforced cement. An outer layer of corrugated zinc reflects heat away from the building.

"The average bill over there was $75 a month, and that's without solar panels," Gorman said.

Gorman initially offered the townhouses at 9 percent below their appraised value. But he didn't have to slash prices any further.

So Gorman jumped back in this year with plans for another chic, super-green development around a Scottsdale golf course. But the credit crunch forced him to build apartments this time, instead of condos.

"You just can't get financing right now for speculative first-sale condos or townhouses, unless you have significant pre-sales," he said.

Green projects delayed
Shea Homes, one of the nation's largest private builders, also is putting off more green projects after some initial success with its Trilogy communities in Washington, California, Arizona and Florida. Shea offered dual-pane windows, high-tech ventilation systems, high-performance insulation and other enhancements to its Trilogy homes. In August, it added 3-kilowatt solar panels for free.

The move helped Shea expand its market share earlier this year, said Rick Andreen, president of Shea Homes Active Lifestyle Communities. From January to August, for example, Shea sold 1.8 homes per week this year at the Trilogy Victoria Gardens community in Deland, Fla., compared with 0.5 home sales per week for the competition.

Since then, sales have flattened to about one home per week at Victoria Gardens, reflecting a national drop in home sales, Andreen said.

"We're holding off," said Larry Davis, 65, a retired engineer from Oregon City, Ore., who wanted to buy a Trilogy home in Peoria, Ariz., earlier this year. "We're still trying to sell our home up in Oregon. Things aren't going so well there."

Davis, who wants to spend his winters in sunny Phoenix, searched the city's vast inventory of new homes for a place to retire. He liked the way the Trilogy models were built, and the solar panels put it on top of Davis' wish list.

"As a retired person, you hate to see energy prices continue to go up and up and up, like our gas prices have," Davis said. "I guess they're OK now, but who knows what they'll be in the future?"

As sales continue to slump, Andreen said Shea will delay several new Trilogy communities.

"Once we see sales taking place," Andreen said, "then we'll be able to pull the holding pattern off of these projects and get them done."

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