We’ve been talking about Market Transformation of energy efficiency for a long time. And the home sale transaction has been long viewed as a lever that can create a tipping point. Last week I attended a meeting focused solely on the High Performance Home (HPH) transaction. Last year I delivered a keynote address for a builders’ conference entitled Seeking the Holy Grail (aka Resale Premium) in a Turbulent Market.
In the interest of a tipping point, many envision a time when every home that’s sold includes a disclosure of its energy efficiency.
Malcolm Gladwell is the king of the Tipping Point. His book is about how change happens. Much of the book is connected to what we know about adoption of change. There are always Innovators and Early Adopters. At the end are the Laggards. And in the middle is the Majority.
Before any discussion of mandated efficiency is even constructive, you have to understand what’s happening within the adoption curve. You need the right tactics at the right point on the curve to create change. This is important because adoption of efficiency is tied to home values. And in addition to the adoption curve, there is a predictable curve in valuation.
Today we have a market that accepts inefficiency in homes. The handful of HPHs that are superior because of better efficiency get slightly rewarded (they sell for more, they sell faster, or today – they sell at all!). As adoption grows and HPHs become the majority, we will see market acceptance of efficient homes. The premium will become more pronounced, eventually shifting to a penalty for the inefficient home, rather than a premium for the efficient. This leads to the final phase of the adoption curve where the Laggards find that their inefficient homes are functionally obsolete and they must sell at a discount to address the deficiency. The image below demonstrates the overlay.
What does this have to do with the discussion of mandated energy disclosure? It creates a framework for which levers will work best to drive demand at different phases.
- Innovators & Early Adopters/Market Acceptance of Inefficient Homes. Best Levers - Incentives, rebates, education and tools that inspire investment despite efficiency being an untested risk. Mandatory Disclosure - Too premature. Mass majority of homes will do poorly, therefore market will reject the information.
- Early Majority/Early Acceptance of Efficient Homes. Best Levers – Market tools like Green MLS and green valuation techniques. Standard tools to signal superior homes to the market. (Good news is that we can and are making progress here prematurely!)
- Late Majority/Full Acceptance of Efficient Homes. Best Levers - Valuation (market penalty for inefficiency begins). Mandatory Disclosure - Could be effective to distinguish the near split between inefficient and efficient homes.
- Laggards. Best Levers – Valuation (penalty for inefficiency). Mandatory Disclosure - Redundant (Market has adjusted to incorporate efficiency.)
Bottom line: This is a classic chicken and egg. Although mandatory disclosure could be a tipping point, we need supply before it would create demand. Mandatory disclosure also has a very short window where it makes a difference.
Instead, now is the time to talk about building the supply of High Performance Homes where the early adopters live. Incentives and education is needed most!