Mapping the Market Triggers for an Efficiency Tipping Point

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 Performan....  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.

market trans map

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!

Reprinted with permission from NotYetGreen. Original article online.

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Tags: efficiency, market, point, tipping, transformation, valuation

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Comment by David Eakin on February 21, 2013 at 8:44am

First - I've been a fan of Malcolm Gladwell even before he published his books (which are a consolidation of his magazine articles) and have all 3 books.

Second - incentives and education for early adopters already exists (Energy Star for Homes, LEED, NAHB Green, Passive House, "pretty good house", etc.) and those - few - individuals who are interested in advanced building science have already done the research, found the architects/builders and started building. But it is not making much of a difference.  Couple this with the analysis that most of the building stock needed in the next 20 years already exists (or the "code house" new construction is on-going in the mean time) means we are getting further and further away from the goal.

The true target audience for change is not the typical home buyer, but the typical home builder and remodeler.  Home buyers place their trust in the builder/remodeler (or their sales rep) and only buy/remodel homes infrequently (no incentive to research the market or become educated in all sorts of arcane advanced building science). Most builders/remodelers are only concerned that their efforts "meet code" - which is a far cry from high-performance. So the key lever is legislation. Currently our country consists of thousands of local "fiefdoms" determining construction standards/building codes.  Many of those "feifdoms" do not have the resources to police/insure adherence of established building codes The tipping point for the high-performance housing industry will occur when we adopt a nation-wide, uniform high-performance home building code that applies to both new construction and remodeling. A building code that all builders/remodelers will be forced to adhere to and one that the buying public can place their trust for future energy savings and comfort.

Comment by Nate Adams on February 18, 2013 at 8:17am

Awesome analysis. I'm out educating and using every incentive I can find, so I'm on the right path for now!

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