Economic Efficiency of Green Buildings - Assignment Example

?Economic efficiency of green buildings: Literature review Environmental awareness has grown significantly over the years, with the result that almost all the sectors in the industry are now increasingly incorporating ‘green’ aspects within their respective business strategies. The construction and realty sector too is no exception. It can be clearly be stated, on the basis of the observations, that the design and operation of the built environment, presents both – an opportunity as well as an obstacle. According to the growing literature regarding the negative impacts of greenhouse gases, acts as a stimulus for the construction industry to increase their dependability on green and environmentally friendly materials, which can help in substantially reducing the harmful emissions (Eichholtz, Kok,2009). Furthermore there is a growing awareness regarding the various ways in which sustainable practices can be incorporated within the industry such as the ‘green rating’ systems for buildings incorporated by governments of various nations, as well as industry wide practices. Such ratings help in measuring the carbon footprints of buildings, and thus provide the owners with detailed information and statistics, which can be used by them as a basis / foundation for implementing suitable changes. However, despite the growing awareness and information regarding the impact of current non-sustainable practices within this industry, on the environment, and the subsequent development of government imposed or industry led practices of rating systems, the success has been relatively lower than expected. This is because, most of the real estate developers and other institutional investors, are skeptical regarding the profits or benefits to them, on adoption and implementation of environmentally friendly practices, since most of the evidence regarding this subject is, so far, highly anecdotal (Eichholtz, Kok,2009). According to research, the building and construction industry are largely aware of the fact that buildings contribute to almost 20 per cent of greenhouse gas emissions, leading to global warming and hence acknowledge the significance of the role this industry can and must play to reduce the carbon footprints and try to eliminate or reduce the negative environmental impacts of their business (Stern, 2008). However, the lack of enthusiasm within the industry or reluctance to implement the green initiatives is largely on account of the contradictions present in the literature and differing views and opinion of experts, regarding the credibility of the issue. There is an ongoing debate within the industry regarding the greenhouse effect of buildings, where deciding whether it is a market-driven approach, or a mandatory environmental regulation imposed by government, for various purposes is relatively difficult. One such example of government imposed obligation is the public display and/ or sharing of Energy Performance Certificates by buildings in accordance with the EU directive on the Energy Performance of Buildings (Fuerst, McAllister, 2008). Furthermore another reason for the lack of acceptance and implementation of green measures within this industry is the fact that there is a sever lack of understanding among the appraisers who are significantly conservative with regard to their approaches and business practices, and display a severe lack of training and knowledge regarding the consequences of non acceptance of environmentally friendly practices such as the use of cooling systems, and better air flow or use of environmentally friendly materials for construction etc among others. However, with the growing literature regarding the harmful side effects and the possible benefits of using environmentally friendly practices, is likely to bring about positive changes within the industry (Fuerst, McAllister, 2008). It has been increasingly established through research that the greener buildings are more likely as compared to their counterparts, to retain more value. This is evident from the fact that many of the green realtors are planning on retaining their property owing to the rise in demand for them in the coming years. It is highly likely that the demand for green buildings is likely to soar, as research regarding their long term benefits pile up, with the result that they will soon outgrow the demand for the brown buildings (Miller, 2011). The key findings regarding green buildings as compared to the conventional buildings can be summarized as follows (Richard, 2009; Buttimer, Ott, 2010): The green buildings tend to charge more rent as compared to the conventional buildings The green buildings require more care as compared to the non-conventional buildings, hence the operating costs for managing green buildings is relatively higher. Green buildings are found to utilize less energy as compared to the conventional buildings The energy costs of green buildings is lower and hence have higher ratings, although due to the higher rents, average consumers find it difficult to invest in such buildings and hence opt for the conventional buildings on account of lower rents. The green buildings offer better and healthy environment, which is evident from research findings which state that most tenants living in green buildings fall sick less often and apply for less sick leaves, thus leading to higher productivity. Although most of the tenants have claimed that they won’t be willing to pay higher rents, but survey and empirical evidence suggest otherwise. The purchase decisions of tenants evidently imply that the green operational practices are in fact important to them. The fact that the built environment and environmental sustainability are closely intertwined cannot be denied, based on the amount of literature present signifying the close relationship between the two. Thus, it is high time that the businesses within the construction industry take active steps to incorporate sustainable practices, in order to reduce their carbon footprints, and contribute towards a global environmental cause. The construction and operation of buildings account for approximately 40 per cent of worldwide consumption of raw materials as well as energy. Research suggests that the built environment offers a great opportunity for reducing greenhouse gas effects, and hence even a small amount of change within the industry by way of implementation of green practices, may go a long way in reducing the carbon footprint (Eichholtz, Kok, Quigley, 2010). References: Buttimer, R., Ott, S. H., (2010). Valuation of green buildings - The effect of green on NOI, Belk College of Business, [Online] Available at: http://renomics.com/wp-content/uploads/2010/04/GreenBlgValuation.pdf [Accessed: May 11, 2011] Eichholtz, P., Kok, N., (2009). Doing well by doing good?: An analysis of the financial performance of green office buildings in the USA, RICS Research [Online] Available at: http://www.jetsongreen.com/files/doing_well_by_doing_good_green_office_buildings.pdf [Accessed: May 10, 2011] Eichholtz, P., Kok, N., Quigley, J. M., (2010). The Economics of Green Building [Online] Available at: http://www.corporate-sustainability.org/.../on-the-economics-of-green-buildings.html [Accessed: May 11, 2011] Fuerst, F., McAlister, P., (2008). Green Noise or Green Value? Measuring the Price Effects of Environmental Certification in Commercial Buildings [Online] Available at: http://ssrn.com/abstract=1140409 [Accessed: May 11, 2011] Miller, N. (2011) Does Green Still Pay Off? [Online] Available at: http://www.costar.com/josre/pdfs/DoesGreenStillPayOff.pdf [Accessed: May 11, 2011] Richard, C. B. [2009] . Do Green Buildings Make Dollars and Sense? [Online] Available at: http://catcher.sandiego.edu/items/business/Do_Green_Buildings_Make_Dollars_and_Sense_draft_Nov_6_2009.pdf [Accessed: May, 11 2011] Stern, N., (2008). The economics of climate change. American Economic Review: Papers and proceedings, 98 (2), Pp. 1-37 Read More