I guess we have all hear numerous statements about buildings and houses.

"A mans home is his castle"

"There is no place like home"

"Buildings, too, are children of Earth and Sun" - Architect, Frank Lloyd Wright

"A building has integrity just like a man. And just as seldom" - Novelist, Ann Rand

"The only thing that we have to be careful about is to have restraint and to have sensitive and serene buildings" - Japanese architect, Minoru Yamasaki

I am sure there are many additional quotes about buildings and houses from all parts of the world. But today, in the news, the primary thing we hear about "housing" is that we are currently in a "housing bubble" and that at some time in the future, we are going to see it "pop", just as the "internet bubble" did.

Well, I am not sure about a "housing bubble" and I am not sure about whether it will "pop" or not. Only time will tell. But even though people like to equate the current escalation of housing prices with the dramatic run-up of Internet stock prices in the late 1990's, there is a clear difference between stocks and houses.

We don't live in stocks - we live in houses. I think most of us have heard the statement that, for the vast majority of people, their "home" is by far their most valuable asset. In fact, because of the beneficial tax breaks afforded housing over the years (mortgage interest deductions) houses in America have really become the largest personal asset base in the country. It is estimated that there is over $19 TRILLION DOLLARS in residential real estate in the U.S. as of the end of 2005.

Since a person's house is likely their most valuable asset should not the buying of one's house deserve the utmost care and consideration? The answer to this question is certainly a resounding - "yes"!

This brings me to the primary focus of this article - Zero Energy Homes (ZEH). Technically a ZEH is a home that saves a minimum of 50% of the energy that is consumed in a conventional home. In this illustration, the savings are closer to 80%.

My definition of a ZEH is a home that is built with integrity and with sensitivity to its inhabitants and utilizes the most current and proven building techniques to maximize the benefit of solar energy and energy efficiency. So, in a way, I guess you could say it would be a child of the Earth and the Sun.

But since most people are really interested in the monetary benefit to them, let's shift the focus and look at the financial "numbers" to see what they tell us about a ZEH verses a more conventional home. After all, this is probably going to be the most important "money related" decision in most people's life and it should be carefully considered.

Let's take a concrete example and compare the cost and benefits of a conventional home and a ZEH.

Comparison Assumptions:

Both homes will be newly built homes.

Each home will have a 30-year, 6.5% mortgage with 10 percent down.

The ZEH will cost more due to incorporation of solar electric generation (Photovoltaics), solar thermal and numerous energy efficient building techniques such as passive solar building design.

ZEH benefits that will be included are: current tax credits, energy savings (3% annual increase in energy costs), superior price appreciation based upon a recent California study, cost of a back up system for power in the event of a blackout. ZEH will be assumed to be in New York State and will benefit from credits etc. currently available in New York.

ZEH benefits NOT included will be: any interest earned on the tax credit refund, any decrease in mortgage rate that may be afforded to a energy efficient home, the positive environment impact of less fossil fuel burned, additional comfort level afforded by ZEH building techniques, personal satisfaction of owner knowing they are making a positive contribution to the environment and setting a positive example for others and their children.

Comparison Data

Initial Cost: Conventional Home - $400,000, ZEH - $450,000

The ZEH will have approximately $4,176 more per year in mortgage payments

The ZEH will have $5,000 more resulting from the initial down payment.

The ZEH home will be able to receive approximately 60% of the additional cost back in the form of a tax credit.

According to a California study in 2002-2003 the average ZEH would appreciate approximately 20% greater than a conventional home (55% verses 44% over 5 years). There were not a large number of homes in the study, due to the fact that there are not a large number of ZEH built to date. However, it must also be pointed out that the average cost of oil during this time was UNDER $20.00 per barrel. I am sure that current energy prices would significantly expand this 20% differential in a very positive manner.

For the purposed of this illustration we will assume the 2003 number of 20% and assign a 5% annual appreciation to the conventional home and a 6% annual appreciation to the ZEH.

Comparison Results after 5 years * - Conventional Home vs. ZEH

• $20,880 more in mortgage payments for ZEH

• $ 5,000 more in down payment for ZEH

• $30,000 tax credit for ZEH

• $13,272 energy savings over first 5 years for ZEH

• $10,000 for a back-up generator the conventional home will need

• $42,000 price appreciation advantage for ZEH**

Total benefit of a ZEH over a Conventional Home: $69,392.00

Conclusion

The results are clear. It is almost $70,000 "better" financially to build a $450,000 ZEH than to build a $400,000 conventionally built home over a five-year period or over any period of time for that matter.

Given these clear cut financial numbers, which I feel are conservative and do not include a number of factors which could make the advantage even greater (lower preferential mortgage rate, a more rapid rise in energy prices, the possibility of temporary oil shortages and the possibility that the price of an energy "inefficient" conventional home may actually decreasing in an environment of rapidly escalating energy prices).

From a purely financial perspective it makes no sense to build a standard conventional home rather than a ZEH. In fact, on a national level, from a financial and national security perspective, all homes in the future should be constructed as Zero Energy Homes (ZEH).

Notes:

* Note: After the initial period of 5 years the benefit of the ZEH over the conventional home only gets larger as energy prices continue to rise and the resale value of a conventional home may, in fact, decline in value due to the excess amount of energy needed to heat, cool and power the house.

** Note: Conventional home = $400,000 at 5% appreciation over 5 years equals $510,000 = a gain of $110,000.

ZEH Home = $450,000 at 6% appreciation over 5 years equals $602,000 = a gain of $152,000.

ZEH price appreciation advantage = $152,000 - $110,000 = $42,000.00

J. Peter Lynch has worked, for 28 years as a Wall Street analyst, an independent equity analyst and private investor, and a merchant banker in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977. He is currently a financial and technology consultant to a number of companies. He can be reached via e-mail at Solarjpl@aol.com.