The net present value of a new home

Looking beyond the price tag essential to finding your climate resilient home

Today’s homebuyers have a much bigger job than just picking out the paint colours and flooring choices. Technologies like geothermal heating, solar photovoltaic panels and a myriad of other considerations can all play a part in not only the cost of the house today but the cost to operate it well into the future.

The 1980s GI Joe cartoon popularized the phrase: “knowing is half the battle.” Over decades of extensive scientific research published, criticized, and validated through grueling academic effort, we have expanded our knowledge of climate science to the point that the role of human influence on the climate system is no longer up for debate.

However, the information presented in publications such as IPCC reports are designed for systematic academic reviews, and not necessarily to guide the general public on climate action. So where can we find information to understand the best actions we can take to help reduce emissions?

That is the focus of the Edmonton’s Change for Climate program—taking complex climate science and turning it into specific actions individuals can take. Given the largest purchase most people will ever make is their home, that seems like a perfect place to start. But there is ongoing debate about the cost of constructing a new emissions neutral building, and for the consumer it can seem quite complex.

The City of Edmonton Emissions Neutral Buildings: Final Report found newly built buildings “can achieve significant energy demand and greenhouse gas (GHG) emission reductions through energy efficiency.” However, due to the high GHG intensity of Alberta’s electricity grid (based on 2019 numbers), “to fully achieve emissions neutrality [or net zero emissions], renewable energy systems must be integrated into building designs.”

The study goes on to highlight an important factor which should be considered: the net present value over 30 years of home ownership. The net present value is a common financial metric that evaluates all costs incurred by an owner over a set period of time. Comparing the net present value of an emissions neutral ready building against that of a 2019 code-built building shows an owner will have 6-9% more money in their pocket after 30 years when living in an emissions neutral ready home.

Those savings, however, are not without cost. The old adage that ‘you must spend money to make money’ holds true. To lock in those savings, the study estimated the upfront cost of an emissions neutral ready home is 10-11% more (excluding the cost of an on-site renewable energy system). This cost though is an investment and long-term commitment to reducing emissions and energy use.

Upfront cost has historically been a primary factor in the decision to purchase a home or not. For example, the 2019 CMHC Mortgage Consumer Survey found 80% of Canadians who bought a home indicated “price and affordability” were their top ‘must-haves’ in a home. However, while the up front price for an emissions neutral ready home is higher, the costs to operate that home are lower and therefore more affordable in the long-term. If you factor in increasing carbon costs, the benefits become even greater. Understanding these differences are important to helping people avoid the worst situation of finding yourself living in a new home unable to afford the energy costs or expensive energy renovations necessary in 5 to 10 years.

With this in mind, the best advice for anyone considering buying a new home is to make sure to consider the ongoing energy cost of your prospective home along with the sales price. Going further, you can make sure that your real estate professional is aware about your perspective of the balance between higher upfront costs versus lower ongoing energy costs, and what you desire in your home. With these important factors in mind you will have the information available to you to make sure your forever home is also a resilient home.