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Maryland’s New Home Construction Costs About to Rise: Impact of 2012 IECC Codes

Residential construction companies who build energy efficiency into branding will have an advantage.

Steve Seawright is our guest MacRo Report blogger this week while Rocky Mackintosh enjoys some extreme vacationing in Patagonia.

On January 1, 2012, Maryland became the first, and currently ONLY, state in the union to adopt the 2012 International Energy Efficiency Conservation Code (IECC) in its entirety. (No surprise there.) Since 2006, the combined IECC code updates will have increased energy efficiency in new homes by a whopping 30%!

In terms of lead time before the 2012 IECC takes effect in Frederick County, you had best, “Get it in gear!” Permit applications made before July 1, 2012 will be processed under the current code (2009 IECC) and those occurring after July 1, 2012 will be processed under the 2012 IECC.  Full field inspector enforcement of the 2012 IECC for permits processed under that code will begin on September 1, 2012.

For residential construction, the changes are numerous, but the ones having the most significant effects on building practices are as follows:

  • Increase in insulation R-values (walls from R-13 to R-20; ceilings from R-38 to R-49)
  • Air seal beyond 2009 IECC code standards
  • 3rd party duct blast and blower door tests of air infiltration levels
  • Whole-house mechanical ventilation to insure healthy indoor air quality
  • Several days of construction cycle time added for testing and inspection compliance

The fact that residential mechanical ventilation air exchange is now a requirement of the 2012 IECC is clear testimony to how much these tightened insulation and air infiltration standards will affect historic home building practices.

Implications of the 2012 IECC for commercial construction will prove at least as significant and (proportionately) costly as for its residential counterpart, but it is not my intent to address that subject.  Suffice it to say that time is short for understanding how a tectonic shift in the requirements for energy efficiency in adopted building codes will affect you.

Altogether the direct costs of implementing the new code for residential construction are estimated to run between $4,100-$4,200 per home for a builder who previously built solely to the stated requirements of the 2009 IECC.  For those builders who have been delivering homes with energy efficiency exceeding mandates of the 2009 IECC, construction cost increases could be much less.

Where will this end?  Perhaps only when incremental costs exceed incremental savings. Although, in Maryland that is anything but a safe bet.

The good news, at least until 2015, is that if you compare on-going energy savings associated with a 2012 IECC code-built home against the additional investment and associated interest expense of code compliance, savings more than exceed incremental costs. Thus, it remains true that energy efficiency, even at the higher standards of the 2012 IECC, does not cost. It pays!

With respect to remodeling and home renovation energy saving investments, there are numerous air sealing and insulation improvements a homeowner can initiate that result in a guaranteed, double-digit, risk free rate of return. Where else can you find a risk-adjusted return like that? The answer is “nowhere”, which is why it continues to baffle me that every existing home owner of a home built more than 6-10 years ago is not having an energy audit accomplished.  Such an audit will identify the low-hanging fruit that provides the type of risk free, guaranteed returns that can be found in no other investment opportunity available today.

Unfortunately, consumers have long been in the habit of purchasing homes based on the lowest up-front purchase cost.  As energy prices continue to rise, it no longer makes sense (if it ever did) to buy a home based solely on the goal of obtaining the lowest initial cost.  Some existing homeowners already have seen monthly utility bills  rival or exceed mortgage payments and more will do so unless there is greater appreciation for how lower utility costs of an energy efficient home can make that home, even with its higher initial cost, the investment that provides the homeowner with the “lowest total cost of ownership”. That is the real objective of a smart home buyer, not lowest initial cost.

By way of understanding the growing role that energy efficiency plays in recognition of home value, take a look at the KB Homes website and watch the large scrolling images on the homepage. Energy efficiency, particularly for many of their West Coast and Sunbelt product offerings, now is an intrinsic part of their corporate branding.  Insuring that this type of information is shared with home buyers is critical to helping consumers understand the effect of energy efficiency on the true cost of home ownership.

Current and increasingly strict energy code standards already have made comparison between today’s new homes and existing homes one of “apples and oranges”.  The more initially costly, superior energy performance of a new home is something no pre-existing home can match; and the informed home buyer will know and value that difference once the economic and comfort benefits are understood.

The challenge for new home builders and REALTORS alike is to encourage clients to approach the purchase of their next home with the same analytical thoroughness most of us apply when purchasing a new car. For that new car we of course consider initial purchase cost, but we also concern ourselves equally with features, performance, operating costs inclusive of fuel and maintenance, product reliability, service and re-sale value. And, so it should be with that next home. Accomplish this and we will have made great strides towards energy independence, not only as a nation, but individually.

Steve Seawright is managing member of Seawright Homes LLC, a real estate development firm now in its 38th year of business. He is currently president of the Frederick County Builders Association, and also was president of the Maryland State Builders Association for calendar year 2011.

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