The B&D Interview – CR Herro

Meritage Homes is the nation’s 7th largest homebuilder and pioneer of sustainable and energy-efficient building, operating in 21 markets across nine states. Through thoughtful designs, quality products, management, and technologies, Meritage delivers homes that promote health and sustainability throughout all products. Builder & Developer caught up with CR Herro, instrumental  in Meritage’s environmental conscience, to ask where he sees green homebuilding heading.

Builder and Developer (B&D): Green has gained firm traction in regards to homebuilding but it’s not quite mainstream—what do you think is the green sector’s biggest hindrance?
CR Herro (CH): The difference is that people who buy homes infrequently, they buy what is safe. And what is safe is what their grandparents have, what their parents have, and what their last home had. That reduces the innovation that the average consumer expects from homes, opposite of their phones and their cars and every other gadget they buy. They don’t look to homes to be innovative.

B&D: We’ve heard a lot of columnists discuss how green really should be a standard and not an option. To what extent do you agree with that statement?
CH: There’s a challenge, and the quick answer is that I absolutely agree, with a caveat. The challenge is that the marketplace isn’t equipped to differentiate the superior benefits of a green home. Now I’m going to give you the long answer, which is it costs you more money to build an energy efficient home than a conventional code home. It creates ten times more benefits in reduced operating costs and high durability for that home, so it is absolutely, fiscally, the right thing to do. In fact, it’s cheaper than the total cost to build an energy efficient green home than it is to build a code build home. The challenge is that the appraisal process, the real estate process, and the mortgage process still haven’t evolved to create the value of a hundred thousand dollars of reduced operating costs that a green home provides in the way it’s assessed and mortgaged. Once we start getting energy efficient features properly assessed in the appraisal process, and once we get mortgages underwriting energy efficiency, like it is proposed to do in the SAVE Act, then I think we will have a much easier, quite honestly downhill slope because the value will be its transaction when you buy and sell a home, instead of people having to have confidence that I can pay $10,000 more for a really well built home and save $100,000 over that mortgage.

B&D: How is Meritage Homes, who is well known for being green, pushing what it means to be energy efficient and sustainable?
CH: We’ve created a brand around it. Part of our promotion of purchasing a Meritage home has been a call to live better, as who we are and what we do. That means that we constantly have to evaluate what that means to us, and what do the experts say is possible for homes. Every year, we iterate. We go through and we implement new changes that are better than the year before, and some of it is through developing pilot programs, some of it is waiting for technologies to mature so the cost comes down, so that it is creating value. I think the big example that everybody would recognize is LED lights. When we started this seven years ago, CFLs were hands down better than traditional incandescent, so we went with CFL standard. LEDs, even though they’re more durable, and they work better than even a CFL, they cost 25 times more than CFLs did. They only created maybe 50 percent more value. So, we couldn’t look at an average customer and say this is what we’re going to mandate, this is what we’re going to standardize around, and this is what we recommend our mothers do, or somebody we care about. So we had to wait and work with the technology and the supply chains to finally get LEDs which are incrementally better for the same cost range as the benefits they provided. And now, recently, we’re shifting all of our homes to 100 percent LEDs from 100 percent CFLs because the value’s finally there. Whether solar or home automation, or better insulation, efficient lights is – all of them are opportunities that we work very hard with to bring into a positive cost-benefit ratio.

B&D: California’s mandating that by 2020, homes be built to ZNE standards—do you think more municipalities will take California’s lead in building green?
CH: I think so, but something’s going to have to change and we’ve been in the middle of it for the last 18 months, which is solar is like a scalpel – it can hurt, or it can heal. It can be a tremendous benefit or it can cost utilities a tremendous amount of money that they’re then going to have to go back and recoup from the utility payers. So, solar needs to be done really carefully, not just to make energy, but to make energy that reduces the utilities’ peak energy demand. And that analogy is like kind of when solar came out, you could put solar on a barn and reduce utility bills, but the right way to do solar was to improve the barn, to make it energy efficient to reduce the demand for energy, then add renewables.

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