Green building stalls amid falling home prices

updated 1:00 p.m. ET Dec. 28, 2008

PHOENIX - Homebuilders slapped on solar panels and added other eco-friendly enhancements as energy prices soared earlier this year, hoping greener homes would lure reluctant buyers.

But since July, the cost of oil has plunged from $147 a barrel to about $36, while home prices continued to fall. Together, these headwinds have stalled low-energy housing developments around the country, including projects by Meritage Homes and Shea Homes.

"The program doesn't necessarily pencil out at the moment," said Scott Kramer, a forward planner for Scottsdale, Ariz.-based Meritage Homes Corp., which builds homes in Texas, Arizona, California, Nevada, Colorado and Florida.

"People don't seem to be willing to pay for it."

In 2007, Meritage packed $20,000-worth of solar panels, high performance insulation, low-leakage air ducts and other systems in its first green community in Vacaville, Calif. The "Encore" homes promised to slash electric bills by up to half, and buyers snapped them up even though Meritage offered them at a higher price than nearby competitors.

Sales figures in July showed that the Encore development sold 1.55 homes per week, compared with 0.88 homes per week for similar homes in the same city, Kramer said.

But that advantage disappeared in the second half of the year. Meritage and its closest competitor both sold about one home every two weeks according to sales data for the month of November, and it slashed prices that month to make Encore homes about the same as its competitors.

Though Meritage continues to build Encore homes in its Vacaville community, it's re-evaluating whether to move forward with plans to start new green communities.

"It's been a bad couple of months," Kramer said.

Green — but on the cheap
UBS analyst David Goldberg said most major builders will continue to invest in green developments. But they'll likely need to find cheaper ways of doing it next year.

"If it cost more to put solar panels on there, are you still exploring it? I'd say, maybe not," Goldberg said. "But there are a lot of things you can do in communities that are environmentally friendly."

For example, builders could add Energy Star-rated appliances in homes that can cut utility bills without adding much to the overall price tag, he said.

The economy may have left consumers jittery, but those looking for new homes will still look for energy efficiencies, especially if a builder can show how much it will lower their monthly utility bills.

"If it's a house that has leaky windows, and not enough insulation, I think people will pick up on that," said Elliott Pollack, a real estate consultant in Scottsdale, Ariz.

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