If you want a sobering look at where the world is headed, google “code for sustainable homes.”

That’s the United Kingdom’s response to the imperative to bring its home building industry in line with a national goal to stop global warming. It carries the notation that homes account for 27 percent of UK’s carbon emissions.

And if that doesn’t convince you the handwriting is on the wall, check on the progress of the National Energy Efficiency Enhancement Act of 2010 (S 3059), sponsored by the Senate’s Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) and the bills of a bipartisan group of senators led by John Kerry (D-Mass.), Joe Lieberman (I-Conn.), and Lindsey Graham (R-S.C.).

China’s Flip-Flop: From World’s Biggest Polluter To Energy Technology Pioneer

All of Europe is moving toward a goal of carbon neutral economies, which probably does not surprise anyone, but the addition of China to the list of aggressive green technology pioneers just might. Earlier this year, N.Y. Times columnist Thomas Friedman wrote, “When historians look back at the end of the first decade of the 21st century, they will say that the most important thing to happen was not the Great Recession, but China’s Green Leap Forward.”

The Beijing leadership, Friedman reasons, has come to the conclusion that the energy technology revolution is, for them, both a necessity and an opportunity. In the midst of the biggest migration ever of people from the countryside to its cities, China is determined to meet the surge in its energy demand with cleaner, homegrown sources to lessen supply shocks and keep from polluting itself to death. Friedman quotes New York Times Hong Kong Bureau Chief Keith Bradsher’s contention that, in the last year alone, so many new solar panel makers emerged in China that the price of solar power has fallen from roughly 59 cents a kilowatt hour to 16 cents.

Meanwhile, China recently tested the world’s fastest bullet train, 217 mph, from Wuhan to Guanzhou, and is nearing completion of a high-speed rail route from Beijing to Shanghai at a cost of $23.5 billion. And China is also engaged in the world’s most rapid expansion of nuclear power. Friedman reports that China will build 50 new nuclear reactors by 2020; the rest of the world combined may build 15.

U.S. clean energy investments, in wind, solar and other technologies, approached $19 billion last year, according to a report by the Pew Charitable Trusts, but China’s investment totaled $35 billion. Five years ago, China invested just $2.5 billion. The Pew study tallied public and private spending for clean-energy equipment and generating capacity as well as venture capital funding of companies involved in green industries and related areas. The figures were derived from the Bloomberg New Energy Finance database. They do not include investments in basic research and development.

What Does All This Mean To North American Home Builders?

In a word: opportunity. Whether or not you buy the science that carbon emissions drive global warming, it’s clear the rest of the world believes it. More important, it’s also clear that energy demand is going nowhere but up, especially as world economies recover from the Great Recession. And that means energy costs, to heat and cool homes (and run cars) are going to spike.

That makes it likely consumers are going to care more about energy efficiency than ever before. I’m not sure they will ever care enough about the other aspects of green to want to pay for them, but energy conservation, in cars and homes, pays off in reduced operating costs every month. It’s already a good way for new home builders to differentiate their product from leaky older homes. Pioneers in energy-efficient homes, like Chicagoland-based Bigelow Homes and Houston-based David Weekley Homes, have been selling guaranteed energy bills with some success (for 25 years in the case of Bigelow, which guarantees it won’t cost more than $400 a year to heat one of its Chicago homes or cool one in Texas). But that might be just a hint of what’s to come.

Perhaps we should send a thank-you note to the Chinese government. China’s massive investments in green technology, given the size of its markets, make it inevitable that the U.S. will get into this competition in a major way. The U.S. cannot afford to fall any farther behind. Congress is going to pass an energy bill (maybe even this year) that will create incentives to reduce energy consumption and spur technology and innovation. New homes are already more efficient than the vast majority of existing homes. The legislation, whenever it comes, is likely to drive that difference to even more pronounced levels.

Will Congress go as far as to institute carbon pricing with cap-and-trade provisions? Will it create anything close to the UK’s Code for Sustainable Homes? It’s hard to imagine anything that extreme making it to President Obama’s desk, especially before the mid-term elections next fall. Builders would probably shudder in their shoes at the prospect of a change so radical, but I’m not sure they should. “What is completely astonishing (about the UK measures) is that in the year 2000, you could build a house in England without any insulation in the walls at all,” says Oliver Drerup, a senior consultant for housing systems with Canada Mortgage and Housing Corporation in Ottawa. “Today, you could not build a code compliant Canadian home in London, because the insulation levels would be inadequate, even though our climate is much more severe. In ten years, the UK has gone from zero to something like R-27 in the walls for new housing.”

The British code is performance-based, not prescriptive, but it is demanding, so the R-27 walls Drerup postulates may in fact be necessary. “And,” Drerup adds, “the government did that without alienating the housing industry. The builders are cautious,” he says, “but they are all of a mind that something had to be done to meet the government goal of a zero-carbon economy before 2020.”

What America Should Do…

Rather than carbon pricing or a strict set of energy performance standards in building codes, America could induce a profound change toward energy efficiency in its housing markets without subsidies or amendments to the tax code. One simple change in mortgage qualification rules would make all new home buyers, and the owners of existing homes, value energy efficiency much more dearly. It’s an idea energy-efficient housing pioneer and past National Builder of the Year Perry Bigelow came up with more than a decade ago. The time is now right to do it and watch the magic it would work.

Today, the maximum monthly housing cost a home purchaser is allowed to carry in the mortgage is calculated using a formula that combines the principal of the mortgage loan, interest, property taxes and insurance cost: PITI. That formula must total no more than 33 percent of the purchaser’s gross income or 43 percent when all other debt payments, such as a car loan, are added in.

Why are energy costs to operate the home not included? Does anyone believe that operating costs are not just as significant as property taxes in calculating the probability of default? Does anyone suggest selling houses to people who can’t afford to heat them? Bigelow believes passionately that including energy costs in mortgage qualifying—PITIE—would dramatically alter the motivations of buyers and sellers in the marketplace.

“Right now, the mortgage system is rigged against energy efficiency,” Bigelow charges. “People buy as much house as they are allowed to carry, and if they can include extra features they will pick options and upgrades to improve their lifestyle and/or the resale value of the home,” he says, “like a granite countertop in the kitchen or an extra bedroom or a home office.

“But if energy costs were included in the mortgage qualifying formula, suddenly it would be important to them that their house is very efficient. The more energy efficient the house, the bigger or better house they could buy,” Bigelow maintains.

This would bring the motivations of buyers and sellers in the housing market into alignment with national goals to reduce energy consumption in every corner of the country. The first impact would be to create an advantage for efficient new homes over leaky old ones, so new home sales would go up at the expense of existing home sales. But soon enough, home owners would catch on that, in order to maximize resale value of their homes, they need to retrofit them to improve energy performance. In the long run, this change would:

1. Lessen mortgage risk.
2. Increase energy efficiency in the entire housing stock.
3. Create jobs in environmental energy conservation technologies.
4. Create jobs in home building and remodeling.
5. Lessen dependence on imported oil.
6. Reduce global warming.

And all of this would happen through efficient operation of the marketplace, without government subsidies, tax code changes, or the creation of a new bureaucracy. Existing homes would have a record of several years of gas, electric and oil costs to determine a monthly average. For a new home, projected monthly averages would be determined using computer modeling software such as REM by Architectural Energy Corp. The current target of 33/43 percent of gross income would be revised upward, based on how the data runs in each region of the country with energy added to the equation.

What About Transportation Costs?

Some in the housing and development industry believe we should not stop with housing energy costs, but also add transportation costs into the mortgage qualifying equation. If that were done, it’s interesting where it leads…to new forms of housing and mixed-use development, and a lot more public transportation.

Ed McMahon, Urban Land Institute’s Washington, D.C.-based senior research fellow for sustainable development, has studied the relationship between housing costs and transportation costs in the D.C. area. “For a long time, we’ve had this phenomenon called ‘driving to qualify,’ where people are willing to just commute as far as necessary to qualify to buy a home,” he recounts. “But we now find there’s a point on the map where the savings in the cost of a home are overtaken by the increasing cost of transportation. When this recession ends, we anticipate a spike in gas prices that could once again really change consumer behavior.

Combined, transportation and housing now average 57 percent of household income, McMahon says. “But if people live in a compact, mixed-use community, and can get rid of one of their cars, they can afford to pay more for housing. So the idea of factoring transportation costs into mortgage qualifying is really not so far-fetched.”

In Europe, McMahon notes, gas prices have always been three times what they are in the U.S., but transportation as a percent of household income has always been much lower. “They don’t drive everywhere. Their communities are more compact,” he says.

There’s a mistaken perception that Americans spend most of their transportation costs on commuting. Not true, says McMahon. “That’s not what’s using up our fuel. It’s trips to the grocery, the school and the soccer field that do the damage, and we find that people who live in compact, mixed-use communities use their cars 30 percent less than suburban subdivision dwellers.”

In electrical power, California offers an interesting contrast with the rest of the country that illustrates the power of legislated energy standards. After the 1973 oil price shock, California instituted the highest efficiency standards of any state for buildings and appliances. As a result, California’s per capita rate of electric power consumption is now half that of the rest of the country and it has remained flat for 30 years. “If California’s consumption had grown at the same pace as other states, it would have required 25,000 additional megawatts of power,” says McMahon. “That’s 50 large power plants that California never had to build. On the transportation side, the same logic works. The most efficient car is the one you don’t have to drive, or even buy.”

Walkable, mixed-use communities cut auto use by 20 to 40 percent. This is something the New Urbanists have been telling us for 25 years. If consumers start to think this way, builders may have to give them what they want. If you have to think about energy costs when you qualify for a house, you will buy a different house. If you think about transportation costs, you may buy that different house in a different place.

How To Plan Your Next Move

If and when Congress passes an energy bill, what you do next may be shaped by that legislation. If it includes carbon pricing or radical changes to energy standards for new homes, like the UK code, housing markets may change profoundly very fast. Changes to the mortgage qualifying formula would also create watershed differences in the market. But change is coming, even if no legislation passes Congress, and all we see is an economic recovery that drives a spike in energy costs.

You will not want to be caught with obsolete product in bad locations, so perhaps the best advice is to start thinking like a suddenly enlightened energy consumer and home shopper. Scarfing up cheap lots in the boondocks just because the price is right does not look smart from this perspective. Looking for land positions near new light-rail rapid transit stations makes more sense.

Looking at how some of the pioneers in energy-efficient housing build houses is also logical. Check out the Web sites of builders like Perry Bigelow (www.bigelowhomes.com) and David Weekley (www.davidweekleyhomes.com). You’ll find one common thread between the two, building science maven Joe Lstiburek.

The maverick, Westford, Mass.-based energy efficiency consultant works with both, as well as many other builders, and he developed Masco’s Environments for Living program, which Weekley uses and Lstiburek says is based on concepts Bigelow pioneered. “I developed Environments for Living for Masco,” says Lstiburek, “but a lot of the ideas can be traced back through Louisiana Pacific’s Engineered for Life program to the things Perry Bigelow did in Chicago 30 years ago.”

Find anything Lstiburek wrote back then and you’ll find the same message he’s preaching today: the house as a system, an integrated bundle of complimentary products, technology and construction practices, not a collection of unrelated elements working independently. “That was the big ‘aha’ moment we got from Joe,” Weekley says today. “And the really hard part is putting it all together in the field, rather than just in theory. We’ve had to do a lot of training with each of the trades.

“It’s one thing to just say, ‘Let’s do it,’ and another to train and team all your trades to reach these performance levels.”

Weekley also points out that different markets present different challenges. “We learned in Florida that, until just recently, double-paned windows were so rarely used there that to go to double-paned windows would cost you $4,000 to $5,000 extra, while the same conversion in Texas only added $400 to $500 in additional costs.”

Weekley’s vice president of operations, Mike Humphrey says the decision to embrace Masco’s Environments for Living program and metrics was an easy one after seven years of working with Joe Lstiburek. “It’s the most efficient measure,” he says. “If you want to positively impact the environment, use less energy. Conserving energy is what Joe’s all about, and that’s also what consumers want, the most bang for their buck. Some of the other programs have components that we don’t think consumers care about…They only care about their monthly utility bills.”

Weekley is rolling his EFL system out at different levels in different markets. The Houston market, closest to home, is the most advanced at EFL platinum level. “It’s all standard,” reports Humphrey, “and I just did a series of focus groups with buyers who have now been in their homes for a full year. I had people tell me they moved from a two-bedroom apartment into a two-story, 3300-square foot home and their energy bills went down!”

Build that kind of house in a mixed-use community on the rail line and you’re in business.

Bill Lurz has been reporting on every aspect of the home-building industry since 1970. A former editor-in-chief of Canadian Building and senior editor of Professional Builder, Bill is currently editor-in-chief of AvidBuilder.com. He can be reached at bill.lurz@avidbuilder.com.