Going green doesn’t add up for buyers

Jason Orme, editor of Homebuilding and Renovating, sheds light on the issues affecting the housing industry

The idea that a green home might be worth more than its non-green equivalent seems to make sense. After all, what potential purchaser could fail to be impressed by a house that not only promises to cut your energy bills but also, thanks to the raft of government cash-for-energy schemes, comes complete with its own annual stipend which is tax-free and index-linked?

Well, as it turns out, quite a few. There are few hard facts to back up the argument that green technologies such as solar panels add value and it’s something that is beginning to become an issue with lenders, estate agents and the green industry.

When it comes to the crunch, will property buyers pay extra for a home that is cheaper to run in the long term?

Let’s take a look at the marketing material for a select bunch of solar panel installers.

“Future home buyers are going to want the ones with the eco-friendly options first,” says one. “This will put the home at the top of the list if and when it is put up for sale.”

“Britons are willing to pay more for a home with a renewable energy source so investing in a solar panel or a wind turbine could add to the resale value of a property and be as attractive to house hunters as a new kitchen or solid wood floors,” says another.

Just 33% would be more likely to buy a home with a photovoltaic solar system, while it would put off 17%

A lot of conjecture but precious little in the way of concrete evidence, not least as the above quotes come from the vendors of the kits themselves.

Recently, however, an impressive and compelling set of data has come out of the University of California that supports the argument. By analysing the sale of 72,000 or so homes in California2,000 with solar panels over nine years and factoring out the fluctuations accountable to location, size, age and style of the home, the study found that homes with a typical 3kW photovoltaic solar installation enjoyed an extra sale price of $17,000.

There are two caveats to this though. First, the green agenda is more advanced in California than it is in the UK, meaning that people are more used to seeing solar panels on roofs.

Second, it’s worth noting that the premium itself, which translates through to about £10,000 at today’s exchange rate, is about £5,000 less than the cost of a typical installation.

So what about Britain? Well, the green industry is still in its nascent stages here and data is difficult to come by. A survey by the Energy Saving Trust a couple of years ago came complete with the headline ’One-third of British adults would pay extra for a home kitted out with a green energy source’.

This, if you think about it, is a little underwhelming. It means that two-thirds of respondents wouldn’t pay any more and I wonder whether the third of people who responded positively to the idea would come through with the cash and by how much when the deal went down.

Meanwhile, a recent small-scale study in Oxford by Housing Energy Advisor found that 47% of prospective property buyers would be more likely to buy a property if it had a solar hot water system. Interestingly, 10% said they would be less likely.

When it comes to a PV (electric) solar system, just 33% said they would be more likely to buy the property while 17% of respondents said it would in fact put them off. Even among those who responded positively, the news is slightly depressing on average the additional premium they would be willing to pay was just £290.

Anecdotally, developers are equally cynical about the effect of installing green measures. One top-end house builder I spoke to claims that there is not the appetite on the part of potential vendors to justify the additional expense, as proved by the Oxford study.

He said that other factors, primarily location but also house size, style and even type of kitchen, were more important to purchasers. The feeling was that the small number of people who might be attracted by green features would be offset by the number who would treat it as an unknown and unwarranted technology.

There is still the feeling that people don’t like to buy what they don’t understand. I suspect that developers of mass market homes are even more reluctant to invest.

The government’s Green Deal, which it is piloting at the moment and is likely to be launched nationwide in 2012, allows home owners to take out an upfront loan to fund green improvements such as solar panels. The loan is repaid with interest out of future savings in energy bills achieved as a result of the installation.

But there is one aspect of the Green Deal that is vaunted as a benefit which might have significant implications for the future saleability of the property. This is that the loan repayment stays with the house, not the individual.

So future home buyers will be expected to fund a previous owner’s purchase out of the energy bills they pay.

Now, while those bills will be at regular levels until the loan is paid off, won’t a new home owner be reluctant to fund the decisions of a previous occupier particularly if the solar panel itself is getting a little tired after a decade or so of use? I can’t imagine many buyers treating it as a benefit worth paying a premium for.

And that, I’m afraid, is where we are at. It’s all rather depressing but we appear to be stuck in a position where builders and home owners are encouraged to invest in a technology that has proven benefits but comes at a price that doesn’t make sense in pure value terms.

Lenders, of course, follow public opinion on this issue, so until green technology becomes significantly cheaper it looks like we’ll have to make do with swallowing up energy price rises in the short term.