How will the recession affect the green-building market? Peter Morris, principal of the construction consultancy Davis Langdon, tackles the question
The economic recession we're in is having a big impact on the building industry; what do you predict its effect will be on the green-building sector in particular?
Peter Morris: I would say there are two main threads here. The first is the short-term impact: How is the immediate effect of the markets going to change investment strategies? The second is how the current shift will affect long-term planning strategies. In the short term, I think that green will be impacted in much the same way that all investments are, which is to say that I don't expect green buildings to be singled out for special treatment.
In the past it's been possible to make the argument that an initial capital outlay for green features is economically worthwhile because it will save money and resources over time. Does that argument lose potency in a recession economy?
Yes and no. If you cant invest in a premium product, you may make do with a product that's not as good. But I think thats going to be less of an issue both because the premium to go green is relatively small if present at all, and also because most building investors recognize that their investment choice is going to be around for an awfully long time.
If we buy the wrong TV we're saddled with it for a few years. If we buy the wrong sandwich we're only saddled with it for the afternoon. But if we buy the wrong building, we're saddled with it for far longer. What's happening now is that people are recognizing that building green creates long-term value, and that is a little different than long-term savings. It's the equivalent of the old granite countertops—people can't put a number on something like that, but they sense that it'll help their resale value.
You mentioned long-term effects of the recession on the industry—what are those?
The downturn has highlighted both the fallacy of straight-line trend forecasting models and the reactivity of markets. Somehow we got suckered into believing that we really could develop predictive models, and life-cycle cost studies were run showing how smart alternative energy was because oil could never fall back below $100 or $70. But now oil is playing down around $40 and many of these models are being challenged.
The inappropriate use of life-cycle cost studies—especially ones done by practitioners who don't understand sensitivity analysis and risk profiles—to "prove" how smart green is has been a problem, and my concern is that this will have made life-cycle cost analyses less believable. It's very difficult to describe, but it is the sense almost that the emperor has no clothes. People are looking back at the financial analysts saying, "But you told us hedge funds couldn't lose money," and there's been a tremendous loss of credibility; I fear there's a similar loss of credibility in green economics. People are going to look back and say, "You told me these PVs were going to make sense because gas was going to cost $4 a gallon," and now that's not true anymore.
Does this mean that the movement needs to change its tune?
Trying to prove the value of green just on pure economics always seemed to me not necessarily dishonest, but it was like trying to catch people's pocketbooks as opposed to their morality. Appealing to the pocketbook just means that if something doesn't make economic sense, nobody is going to do it. The purely economic argument was a big stick, a handy tool, so this loss of credibility has taken a weapon out of our arsenal. But my hope is that it will lead to a more honest dialogue from here on out.
If you look at the etymological root of the word accuracy, it means honesty, not precision. It may be more accurate to say, "I don't know," than to give someone a number. Cost effectiveness has a high degree of uncertainty in it because we're modeling into the future. It's not that green features weren't cost effective, but that we didn't clearly articulate the uncertainty in their cost effectiveness. What the movement needs to do is recognize that uncertainty, and then look at how we evaluate the other benefits of green.