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Location Efficiency Trumps Home Energy Efficiency

Savings from an energy-efficient home go out the window with long commutes

Posted on Nov 5 2012 by Allison A. Bailes III, PhD, GBA Advisor

My last article here at Green Building Advisor was about my perception that the USGBC is out of touch. Apparently, quite a few others feel similarly, including many who work in the program.

But there was also some valid criticism of my article, including this comment by Tristan Roberts: "LEEDLeadership in Energy and Environmental Design. LEED for Homes is the residential green building program from the United States Green Building Council (USGBC). While this program is primarily designed for and applicable to new home projects, major gut rehabs can qualify. correctly recognizes that a large proportion of a building's overall environmental benefits (or harms) are related to its location, and it gives quite a few points for buildings in transit-friendly locations." Indeed, location turns out to be very important, and LEED wisely promotes locating buildings in places where the people who live in, work in, or use those buildings can reduce their transportation impact. The New Construction, Homes, and Neighborhood Development LEED rating systems all recognize this in their Location and Linkages and Sustainable Sites categories.

Putting transportation costs in perspective

At the 2010 RESNET conference, I heard David Goldstein speak on some of the issues he'd written about in his book, Invisible Energy. Goldstein is the Energy Program Co-Director at the National Resources Defense Council (NRDC) and past-president of RESNET, and in one part of his talk, he threw out some numbers that floored me.

He was discussing the mortgage crisis that has gripped the US since 2008 and wanted to put the cost of buying a house in perspective. At the time he wrote the book, the median price of an existing home in the US was around $175,000. If the buyer put down 20% and financed $140,000 over 30 years, here's about what they'd pay over the life of the mortgage:

  • $350,000 in loan payments (PITI)*
  • $300,000 commuting from suburbia
  • $75,000 for utilities

I don't know about you, but that middle number is shocking to me. I knew that those folks who were spending hours a day driving were were paying with more than just time and frustration, but for the cost of commuting to be nearly as much as they're paying for the house stunned me.

Also, I'd never really thought about these numbers before, so if he'd have asked the audience that day, I think I would've guessed that utilities would add up to more than the cost of commuting. Now that I've thought about it, though, it makes perfect sense. Cars are dang expensive, and the more you drive 'em, the more expensive they are.

This is an example of how cheap and plentiful oil over the past century and a half has reduced our location efficiency. Those who do long commutes from the suburbs to the city are impoverishing themselves, but they've done it for what seemed like a good reason: The further outside the big city you go, the less expensive the housing gets. There's even a name for this: the drive-till-you-qualify housing market.

Location efficiency affects mortgage security, too

In the book, Goldstein gives other measures of location efficiency, too. For example, when he looked at the most location-efficient places in the San Francisco Bay Area, he found that the mortgage default rate was less than 0.1%, whereas out in the Bay Area sprawl, it was 2.5%. Whoa! Save all that money on reduced driving expenses, and you get to keep your house. What a concept!

Not only have you been more likely to keep your location-efficient house, should you have one, you've also suffered much less in lost value over the past few years of declining house prices. Goldstein found this to be true in major metropolitan areas across the US in addition to San Francisco.

Getting back to the main point, it turns out that location efficiency can be much more important than home energy efficiency. With peak oil, expect the cost of poor location efficiency to cause more and more financial pain. The drive-till-you-qualify housing market, which reduces our energy security, will come to an end.

* Actually, Goldstein just gave the cost of the house ($175,000), not the sum of their loan payments.

Allison Bailes of Decatur, Georgia, is an energy consultant, RESNET-certified trainer, and the author of the Energy Vanguard blog. You can follow him on Twitter at @EnergyVanguard


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Image Credits:

  1. epSos.de from flickr.com, used under a Creative Commons license

1.
Mon, 11/05/2012 - 10:13

Edited Mon, 11/05/2012 - 10:17.

Ending the Addiction to Transportation
by Ron Keagle

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I have done a fair amount of commuting, and it is expensive. But there was never an alternative other than not taking the job. The most popular vision for a solution is that society will be reordered with the creation of walkable cities and mass transit for every destination. While that solves the problem, I can’t imagine a larger task.

But something has to give. Car insurance seems to be increasing at about 15-25% per year even with no claims or violations. Add in fuel and maintenance, and the cost of driving is rising like a rocket while the economy and wages contract. However, I believe that another trend will eclipse the long range vision for replacing cars with transit, bicycles, and walking. The new trend will be the reduction of the need for transportation.

A lot of people make their living in the information business, and that seems to be increasing as manufacturing declines. The obvious solution to the rising cost of transportation is to end the need to move to and from a central hub each day just to sit behind a computer, talk on phones, or meet around tables. Technologically and practically, this is rapidly becoming unnecessary. Right now, the alternative is called telecommuting as companies cautiously dip their toe into the water and wonder how they can supervise employees they can’t see. Once employers get over that stigma, they will see that the cost of employee commuting is a cost to their business.

A business that can eliminate commuting and put the commuting cost back into the pockets of employees as added compensation can attract higher performing employees. Employers will grow to lose the old school perception of the need to stand over employees and crack the whip in order to get them to perform. Employers will begin to see their employees as business subcontractors whose only purpose is to deliver performance. The enormous enticement of eliminating the drag of commuting cost will be irresistible to both businesses and workers.

In this new world, location will not matter. People will not need to move kicking and screaming into some high density urban core. They can stay in the suburbs in a house that contains their job, or they can move further beyond the suburbs. Today, the suburbs represent a ring of flight from the core city, but the ring is also defined by its outer boundary, which represents the cost effective commuting limit from the core. With the end of commuting comes the end of the commuting boundary that gives definition to the suburban ring. Without that outer commuting boundary, the suburban ring loses its definition and ceases to exist.

Furthermore, as we diffuse workers into independent home based work stations, we eliminate the need for the central hub where employee’s used to gather every day. So once we move beyond the need for suburban rings, we also move beyond the need for urban cores. As we move into worldwide completion, business has to get lean and mean, and commuting will soon clearly be seen as an absurd extravagance.


2.
Mon, 11/05/2012 - 11:43

Default rate
by K Willets

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The default rate in different areas is more related to elasticity in supply in sprawl areas, which leads to lower prices during a bust, compared to dense areas. There are studies that show a lot of economic benefits to living in urban areas, especially with respect to automobile expenses, but default rate isn't the first statistic I would reach for.

Now, if you'll excuse me, I have to walk to work.


3.
Mon, 11/05/2012 - 12:59

One size don’t fit all…
by Armando Cobo

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In many large cities, the price of building or remodeling any house is astronomical. Lots of folks are buying existing homes, tearing them down and building new homes making the final price exorbitant; some other folks are remodeling homes on the cheap and for pure decor, leaving the existing leaky, moldy, unhealthy and bad HVAC systems in place, but with new granite and Subzero & Wolf appliances.
I can also understand why moving to the suburbs can have the add-ons of less pollution, or less crime, or better schools in many instances.


4.
Mon, 11/05/2012 - 13:03

default rates
by Frank R.

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Sorry, but it think Goldstein's findings are a gross over-simplification of our problems. His bias had effected his "research". He may be right about overbuilt area's of California (and Los Vegas, arizona and florida), but that is not the case for most of the country. For example, in the rust belt midwest (buffalo, cleveland detriot) the cities are dying, while the suburbs are thriving. Unlike Ron Keagle I don't believe we should all be a slave to the "state" and be forced "Kicking and Scream" where the privleged few get to decide what is best. No offense Ron, but I could never live with your version of "government".

If you want more people to move into cities, give them good reasons to move back. Most people move away to get into a better school district, get away from crime or get more land. You can't add more land area to a city, but you can improve the schools and lower crime. Start by making cities a better place to live and people will sacrifice other benifits of living in the suburbs.


5.
Mon, 11/05/2012 - 13:26

Edited Tue, 11/06/2012 - 07:10.

Reply to Frank R.
by Ron Keagle

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Frank R. said:

"Unlike Ron Keagle I don't believe we should all be a slave to the "state" and be forced "Kicking and Scream" where the privleged few get to decide what is best. No offense Ron, but I could never live with your version of "government".

Frank,

You misunderstood me. I did not say what you ascribe to me in your above post. I am certainly NOT advocating that we be forced out of the suburbs and into high density urban living. The point I am making is that there is another option. Not only does that option solve the problem of commuting expense, but it is also the very essence of freedom.


6.
Mon, 11/05/2012 - 22:28

Edited Mon, 11/05/2012 - 22:33.

Certified LEED Exurban developments
by Andrew Henry

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Allison,

Your post has reinforced something I have only come to recognize, which is that I spend three times as much on energy for transportation than I do for energy used in the home. With a relatively energy efficient house, and with a long commute I now recognize that I need to pay more attention to transportation. There are much greater emissions reduction and energy cost savings to be had on that front. That said I couldn't have built an energy efficient house in the city. Here's hoping for oil free transport solutions.

Anyway, I thought the following was relevant to Tristan's point about LEED paying attention to transportation.

What does ‘net zero’ mean? Sprawl by another name?

The LEED page on the developer’s web site mentions, after the passage quoted above, that “LEED for Neighborhood Development extends the benefits of LEED beyond the building footprint into the neighborhood it serves.”  Well, yes, if you meet the requirements.  But look where Prairie Ridge is.  This photo was taken right across the county road from the entrance:

Picture of the cornfield that is the future site of the LEED development

This is not true green development but exurban sprawl.  One can earn LEED building certification pretty much in the middle of nowhere, unfortunately, so they may well accomplish that part. The developer seems to be claiming that the homes-to-be already have qualified for LEED-gold and that a builder can make easy adjustments to a building plan to enable the purchaser to aim higher and obtain a LEED-platinum rating.


7.
Tue, 11/06/2012 - 12:16

eye-opening figures
by Tristan Roberts

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Allison, thanks for sharing these eye-opening figures on the costs of commuting. It's one thing to tell people that they should pay attention—it's another to tell them what a location is costing them.

Another good resource on this topic is an article by Alex Wilson on "driving to green buildings" that includes some great information—and, written in 2007, is ahead of most of the rest of us on this topic.

Relative to the note about Prairie Ridge, I want to point out, since it's not clear from the posts, the this development is not certified under LEED for Neighborhood Development and would be ineligible due to its exurban location. LEED-ND's Smart location prerequisite is one of the more restrictive measures in any LEED rating system, and for good reason. LEED for Homes does not have this kind of restriction on location—an energy-intensive just means you'll have to earn points through other measures.


8.
Tue, 11/06/2012 - 12:59

Musings
by Gavin Farrell

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Martin Holladay on his GBA blog also did a very interesting article on this subject maybe a year ago, comparing the energy cost of your car versus your house with some good numbers. Tried to find a link - couldn't - but everybody should also read that one.


9.
Tue, 11/06/2012 - 13:12

Response to Gavin Farrell
by Martin Holladay, GBA Advisor

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Gavin,
Here is the link you are looking for: Houses Versus Cars.


10.
Wed, 11/07/2012 - 19:05

Duhh!
by Ed Dunn

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Been saying this for 40 years! This is why New York City may be the greenest city in the US. A lot less cars per capita and a great mass transit system.


11.
Sat, 11/10/2012 - 07:48

LEED Logic
by shane claflin

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I'm not sure how you can quantify "location". The commuting "cost" is based on the user, not on the building. If LEED gave you credit for driving an all-electric car, that would make sense, because you are impacting the environment less. But LEED only addresses one static variable; "location". The mass transit system of NY is dirty and inefficient, as is the entire city itself. Rats and cockroaches only thrive in cities. Why? Because the environment is densely populated with crumb-spreading, litter-producing humans.


12.
Sun, 11/11/2012 - 18:27

Frequency Factor
by Stephen Colley

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Depending on the urban area, some are better than others regarding transportation/commuting alternatives to the single passenger car. For those like mine, San Antonio, mass transit options are poor while sprawl continues to exist. It's ideal to live close to where you work, but what if the nature (or career choice) of your work involves frequent changing of jobs and therefore location? I've worked in four places in the past ten years and have not had the ability to sell my house and move that often. Should I radically change the way I live and rent an apartment instead? Another option would be to live in a home that can easily be moved. We all know what kind of home that conjures up. I don't have an answer, just observations. But it is good to better understand the financial impact of commutes. Happily, I just left the job I had for two years 22 miles from home and now work from my home. Thanks for the article and comments.


13.
Thu, 12/13/2012 - 11:03

What are the economic assumptions?
by Jonathan Teller-Elsberg

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I haven't read Goldstein's book, but if I had to guess, I would guess that he followed standard economic procedure in calculating the commuting cost. That method includes an imputed "labor" cost for the time that the commuter spends in their commute. If that's true, then the actual dollars spent on commuting don't add up to the big number you cite. I don't mean to disparage that approach--time is worth SOMETHING even if money is an imprecise proxy measure. But I throw that out to keep in mind. For many choosing to live in the suburbs or exurbs, the constraining factor in their lives is access to actual money. They can find the time to drive an hour each way each day (even if it makes them kind of miserable) but they can't find the cash to afford a home closer to work.

Similarly, I would be careful with Goldstein's correlation between default rates and location efficiency in San Francisco. Again, just making guesses here, but my guess is that people who can afford location-efficient housing in San Francisco tend to be those with comparatively secure (and high-paying) jobs. In comparison, so I guess, those living in location-inefficient housing endure higher rates of job loss and other such economic issues that are the triggers for mortgage default. If Goldstein can control for risk-of-unemployment in his statistics and still find a default reduction associated with location efficiency, that would be an impressive and important finding. Is that what he's done?


14.
Fri, 12/14/2012 - 07:20

Response to Jonathan Teller-Elsberg
by Allison A. Bailes III, PhD, GBA Advisor

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Jonathan, it's probably a good idea to read the book before guessing. According to his explanation, the commuting cost is based only on EIA estimates of average consumption for each fuel multiplied by the average fuel costs. Many who live in the suburbs and exurbs can afford to live closer in but choose the allure of the bigger house and the bigger yard over the misery of the daily commute.

It doesn't appear that he's controlled for 'risk-of-unemployment.'


15.
Fri, 12/14/2012 - 14:52

Response to Jonathan Teller-Elsberg from David Goldstein
by Allison A. Bailes III, PhD, GBA Advisor

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Jonathan, I forwarded your comment to Dr. Goldstein, and here is his response:

~~~~~~~~~~~~~~
It’s dangerous to make guesses about someone’s argument and try to refute the guesses, rather than reading the original source material. Reader Teller-Elsberg makes a number of reasonable--but incorrect-- guesses, some implicit and some explicit. I explain what the actual evidence is below:

1) The transportation costs I refer to are direct, monetary costs to the household, not even counting indirect costs such as the provision of highways, and are based on two different computational methods that both give the same result. Both are cited in Invisible Energy. The first is the regular Bureau of Labor Statistics survey of consumer expenses, a top-down approach; the second is John Holtzclaw’s statistical analysis of driving patterns and costs per car and per mile, a bottom-up approach. Both agree within 5%.
2) The study of default rates is based on a peer-reviewed study also cited in the book, which analyzes over ten thousand mortgages in three metro areas. If finds location efficiency is statistically related to defaults with 99% confidence after controlling for income, credit score, and other conventional wisdom variables. And the magnitude of the location efficiency term is large. Even casual analysis looking at maps shows the same pattern. The data for the San Francisco region show a mixture of very high incomes as well as middle and low incomes in most areas, from high to middle to low location efficiency.
3) Another indirect assumption that is wrong is that commuting matters a lot. In fact, trips to work represent less than 20% of travel and we analyzed total travel costs, not just trip to work. So distance to downtown is not a very statistically significant variable.
4) The most dangerous indirect assumption is that lower-income workers “can’t afford” to live in location efficient areas and “choose” to live in sprawl. The evidence is more consistent with the observation that lenders won’t permit them to qualify for mortgages in the more location efficient areas that they prefer (higher housing costs are economic evidence of higher preferability) and thus force them in to remote locations that eat up their cash and lead to defaults because the combined cost of housing and transportation is actually higher.


16.
Mon, 12/17/2012 - 14:20

Touche!
by Jonathan Teller-Elsberg

Helpful? 0

Making a guess is absolutely dangerous, but in a case like this where you have been kind enough to reply with full clarifications, terrifically satisfying. My genuine thanks for setting the record straight on how the commuting costs were calculated and on how the default risk vs. location efficient correlation was measured.

On your 4th point, I meant in my original comment to be saying something similar. That is, that those who live in location-inefficient homes may often do so because they cannot qualify for the larger mortgages associated with location-efficient homes -- by "can't afford" I meant precisely this inability to access financial capital. What I didn't know was whether the correlation on default and location had controlled for a factor such as different security of employment as a reason for this failure to qualify for such mortgages. Whether credit scores and the other standard-issue control variables cover this sufficiently, I can't say--I don't know all that much about the intricacies of creating credit scores, and I'm going to shy away from making more guesses for the time being.

Regardless, it's a convincing case that location-inefficient housing is a poverty trap, as you point out without using the phrase, and I'm glad that you've exposed it.


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