The perception of how much a green building costs to design and build is much higher than reality, particularly given falling technology costs. The World Green Building Council’s The Business Case for Green Building showed that while the actual cost ranges from negative .5 percent to 12 percent higher, the perception is that it is from 1 percent to 30 percent higher.
Developers are reluctant to absorb the additional costs of green design when energy-saving benefits are realized by owners, who focus on immediate affordability over uncertain utility savings or long-term appreciation. Bankers fail to provide additional financing to cover extra capital costs, for fear of increasing non-payment risk, and are reluctant to establish systems to validate savings if there is an insufficient green building pipeline. Adding to this complexity is a lack of a clear definition as to what constitutes a “green building.”
Banks need data on the financial benefits of green buildings, but it is mostly missing in emerging markets. There is analysis that exists in the U.S. and Europe that indicates builders command four to nine percent higher sales prices for green homes, which sell as much as four times faster. Green homeowners save 15 to 20 percent on utility bills and resell their properties at a four to 10 percent higher value than conventionally built homes. Banks enjoy a lower default rate of up to 33 percent from green homebuyers.
The value of green buildings is particularly important in emerging markets, where utility bills can consume up to 20 percent of a moderate-income family’s disposable income, and resources such as clean energy and water are scarce. To address these issues, IFC created the Green Building Market Transformation Program. The program addresses the gap in the market for a clear green building standard and low-cost rating system that outlines the benefits to developers, owners and banks, to unblock the potential for an era of green construction and development.