CEO gives his insight on how the pandemic has affected the green homebuilding industry and the outlook for the future
Green Home Builder: What kind of affect do you feel that the pandemic has had on the green building industry?
Mahesh Ramanujam: The pandemic has had an impact on everything, from the way we work and learn, to the way we talk to people and consume information. It’s been a very difficult time but I think it’s also a reflective moment.
For us at USGBC, our mission for a better future came into sharp focus. This is what we’ve been advocating for almost 25 to 36 years. It became very clear that the value for buildings, the indoor space quality became critical as the pandemic elevated the importance of health of our buildings, its occupants, and most importantly, the connection back to the environment. People were initially concerned.
Construction was halted. We heard so much news about construction being pulled back and we were not sure if people were going to be moving and buying houses. And we didn’t know that the concept of an office space would exist. So there was a lot of uncertainty and fear.
But today, as you look at the refinancing landscape, the economic landscape, as well as the fact that the vaccination is out there, there is more optimism. We’re seeing more projects picking back up. And then LEED, our green rating system, is more important now than it ever was before the pandemic, because the health of the people occupying our buildings and homes has taken center stage.
A recent Autodesk analysis says that construction bids are about 36% over the pre-pandemic level. In a recent KPMG study, CEO sentiment showed that plans to cut back office space dropped from 69% to 17%. Just a couple of months ago, people were talking about how office space was over. So, the concept of that metric dropping from 69% to 17%. That’s a drastic decrease and it shows that the market is optimistic, it’s going to come back up and these bright spots in the industry that we’re seeing in the industry is going to sustain as we go through the rest of the year — people are ready to get back to normal life.
GHB: The new administration has signed several Executive Orders focused on climate change since the beginning of 2021. What impact will these orders have on the industry?
MR: President Biden came in and signed 35 executive orders directing federal agencies on at least three of the administration’s priorities, including equity and climate change. The climate change orders focus on the role of science in decision making and also calls for reevaluating some of the regulatory actions taken by the previous administration. Most importantly, it starts by asking for technical evaluations to develop the Nationally Determined Contributions (NDCs), also in simple terms, the greenhouse gas (GHG) reduction targets, that the U.S. has to make under the Paris Agreement.
The Executive Order 14008 establishes a whole-government approach to climate change. What this means is first, it directs agencies to incorporate climate considerations through all the activities with transparency and significantly improve and increase stakeholder management to drive climate action across all sectors and we are very pleased to say that buildings is also one of the critical factors.
Now this approach is going to impact particularly the homebuilding industry. There are two key agency programs, particularly EPA and its program of ENERGY STAR, and the Department of Energy (DOE) with its residential building activities. When you look at that from a DOE perspective, the DOE has a tremendous opportunity and the ability to help communicate the benefits of efficiency, resiliency and maybe even equity, and then to demonstrate the value of grid-connected homes. We expect federal agencies to lead by example with to invest in energy efficiency and water efficiency in their own buildings, including their residential space properties. Clearly, we see opportunities for agency support for workforce development to support construction of high-performing, grid-connected homes, products, materials and most importantly, many people find it that we’re still recommending from the workforce development laws from the 2008-2009 financial crisis.
The construction sector is always in debt of skilled demand. So having agency support for that workforce development is going to significantly ramp up our capacity building exercise for building better construction practices, and we like to say green construction practices. Last, but not least, by articulating the goal of carbon pollution-free city sector no later than 2035, the administration signals a clear plan that would work with all electric buildings to produce carbon footprints, which means you’re going to capitalize private sector investments to double down on EVs, electricity, decarbonization, all those aspects, and also being able to come back and really push clean energy all across the board, which means increasing industrial capacity demand, but really to supply clean energy, clean buildings, clean vehicles, everything that fits, with electricity being the primary factor, whether it’s carbon pollution, or a type of regulation that’s very natural.
The one last final point is that we believe the administration’s ability to connect the dots with climate, equity, green jobs and environmental justice, and also look at health and wellness as a long-term solution for environmental health and climate health resonates closely with our vision at USGBC, and our progress and work in the last 26 years with LEED, our green-rating system. We’re very excited to see this whole thing come together and the timing could not be any better. We’re looking forward to engaging with the administration and we’re also looking forward to engaging our members to continue to advance the story we have been advancing for the past decade.
GHB: In response to the pandemic, the USGBC implemented the Safety First pilot as part of the Healthy Economy Strategy. In what ways do you think the pilot helps address the challenges green home builders may be facing?
MR: When myself and our leadership team got together, the first thing we wanted to focus on is how do we help the economic situation, with 14 million people at that time out of jobs, the unemployment rate climbing up and the market pretty much imploding. Except the stock market, everything was a doomsday. It was very bizarre to watch it. On one side, wealth is getting created, on the other side, industries are getting crashed. It was a reality check on whether we’d be around or not.
One reason is how do we really respond. To us, healthy people in healthy places equals a healthy economy. Our economical strategy became very clear and most importantly, a central theme that we are developing our next generation’s vision for USGBC. That is related to the Safety First credits.
The Safety First credits came from an afterthought of evaluating the pandemic impact. If you look at our LEED rating system, it is robust and I think it stands the test of able to comprehensively address the needs of what you’d expect in a pandemic-type of situation. Of course, we need more data to prove it, but the good news is many members have called and said that LEED buildings have so many advanced strategies already that we already feel confident, like the indoor air quality mechanisms and the open space design. All these attributes came in hand to assure the market that LEED allowed many of these projects to get out of the pandemic situation.
But how would we realize they are doing some code instructions specifically related to social distancing, cleaning, infection monitoring — we realized some tweaks were needed. When we started drilling down into it, we realized with Safety First strategies were critical for three reasons.
One is to help our projects be able to make the necessary changes to help with the re-entry. Second is to come back and incorporate what we have learned during this pandemic into the credits. And last is to make these strategies available to all projects, whether they are LEED or not because it was our way of helping the industry, the market, the people who are struggling in real estate economics. So being able to give them assistance and solutions that helps them to a recovery and a reentry. By proving that when places are healthy, people will feel healthy in them. And when people are healthy and the places are healthy, obviously, the economy is going to improve. So this is the fastest way for economic recovery.
When you look at it from a homebuilders, homeowner’s or home renter’s perspective, it goes back to the heart of the conversation. It’s not just about the buildings itself, it’s about keeping the people inside these buildings healthy. And that’s why our Safety First credits are public. Projects, LEED and non-LEED, around the world are using it. More than 350 projects are using it today and we are pushing very aggressively to have every project implement it. And that’s where we are.
GHB: With the rising costs of homebuilding, and cost being one of the obstacles that homebuilders have when making the transition to offering green homes, what would you say to builders skeptical of going green at this time?
MR: That’s the wrong question. The question they should ask is, “how green am I already?” When you really look at it, you’re already more green than you think you are, because the industry has matured over a period of time. The best part of the work that we have done, and one of the things that frustrates me, is the unintended consequences of our work. We can give you stats on LEED buildings and we can give you stats on LEED homes. But we can never give you stats on what LEED and USGBC has been able to influence people who are outside our typical measurement stick. Having said that, let’s go back to the basics, like what is a green building or what is a green home. It saves you money, it improves your asset value and it allows you to make a healthy space for family members and residents. So I think it’s a narrative issue for our builders and industry leaders to double down and talk about the intangible benefits of going green.
Two years ago we ran a public opinion research called Living Standard. And what it showed was people don’t react to things like climate change. People don’t react to the complicated stuff that we talk about, like carbon emissions and all. It’s too much for people to process because they think it’s the job of the government to deal with. But our research showed that if you talked to people in personal terms, which in this case is health, they immediately react to it and they want to engage.
To me, from a green building industry perspective, I think we have a unique opportunity to help the green homebuilding industry to articulate the value and benefits of green building, which is basically the savings of your monthly costs, and adding to your bank balance. Second, it improves your asset value because you don’t want your building to not be one of the best buildings in your neighborhood. Last, it’s a healthy home that keeps you, your children and your elders happy and safe, and most importantly even avoid mortality to a larger extent.
GHB: Recently, the expansion of the LEED Earth program was announced. According to a press release, the USGBC began considering new projects this month. What can you say regarding these new projects? What advice do you have for any project team interested in participating?
MR: First of all, I’m very excited about this LEED Earth program because it allowed us to really take LEED everywhere and around the world. So LEED started like, “only people in New York can do it,” or “only people in California can do it.” Then slowly it became, “now America could do it.”
We could now say LEED could be done by anybody in the world. Interestingly when we launched this in 2012, we were in 140 countries and territories. Today, we have 181 countries and territories. That tells you a very powerful story. When people start the first certification, then 100 certifications are formed. We use this as a way to really expand the market and say, “We need a leader and everybody follows a leader.” It’s a very simple logic that they all know very well, so we just deploy that trick.
But the interesting part is not about project transformation, it’s about people transformation. What is special about LEED is that people don’t want to come claim the certification — they want to be associated with LEED. They want to be contributors to LEED. Most importantly, they want to be able to come back and take ownership for LEED. What that means is if they take ownership and implement it in other projects, they bring people to think about it. We have learned to build market transformation. We always say one building at a time and in this case one person at a time, or one country or territory at a time. That’s one big part of the news.
The next part is, why did we recently expand this program? This program was always been there obviously and offers the first building registration and certification free. We’re not funded enough to just give people their whole construction costs, so we do what we can to invest back into the community. And when we did that, besides the program details, what we see is three opportunities: homes, communities and cities. These three programs are added and why homes? Because last year, 8.4 million homes got refinanced. More people this year, another 8.4 million — an average American gets refinanced every five years. So doubling down on that market transformation aspect, around the world, now we’re talking millions, probably billions of homes, impacting billions of people’s lifestyle was very attractive. Same thing with communities and cities.
Last but not least, from our point of view, this is about us really bringing to the center the conversation of why everybody must own sustainability and everybody has to make it their priority. USGBC is there to support them, but we need leaders of their market and that’s how you lead transformation.
To your other question about what I would suggest or offer to projects that want to participate in this program, I have three things to say. One, if you’re going to do the first project in the country, congratulations because you’re taking a big, bold step for your country. It’s a great leadership premise because that’s how USGBC got built, with the first LEED building, and now we’re 106,000 buildings around the world.
Second, engage with us. We have a dedicated team, we have resources, the ability to support you and we’d love to engage with you to get you started as quickly as possible. Third, the beauty is you’re probably the first project to do it in your country, but you’re not the first in the world. That means that there’s so many resources, so much knowledge, so many examples are there. It’s important that they really recognize that. These are the three things I offer to them, and the best way to do that is to engage with us and make that first phone call and we’ll take you through the rest of the journey.
GHB: USGBC also recently announced USGBC Live, an online event aimed at discussing the future of green building. What do you hope to accomplish with this virtual event?
MR: We are excited about USGBC Live. It all started with the introspection of the last few years. We’re able to influence so many people around the world, that it became clear we were to do a little bit of pull back and focus our community and our leaders to think about the basic tenants of our strategy: educate, implement, celebrate. That’s our core methodologies that we repeat over and over again.
When you think about educate, implement, celebrate, this is about bringing our community, our family together. This is our annual Thanksgiving dinner, that we’re pulling together family members, and saying, “Okay guys, let’s hear from one another. What are you doing in the market? What’s working? What’s not working?”
LEED was developed by our community for the community, and it is the biggest gift we have received from our community. So what we wanted to do was bring them in and do a user conference, which involves inside communication and talk leadership to really align our internal perspectives. And why do you want to do that? Because these strategies require a robust technical guidance, technical support and thousands of advocates around the world that educate, implement and celebrate project progress and project developments.
These are the leaders who got us here, who maybe in charge with the next set of agendas — what we call the second generation agenda — to be able to advance this conversation. So if the first generation of LEED, in our case, was about connecting the dots, educating the market, helping the market go through the baby steps, the complicated steps, and the leadership steps to really get the market transformation, the second generation should focus on climate changing goals from 2013, 2014 and 2015, and really bringing them to 2025 reality. We need the road map and USGBC Live will be the platform where our community will set the tone, or take ownership and most importantly deliver their commitments back to the larger work, because our goal is green buildings for everyone within the generation, and I believe this is the second generation.
GHB: Where do you see green home building going in these next few years and what does the industry need to look out for?
MR: So of course the industry is facing three challenges. Cost, capital, and unfortunately with the pandemic, the ability for a lot of these builders to invest and maintain that kind of stock becomes a challenging topic. We’ll never downplay that. Those are beyond out of our control but we can lobby for those things too.
Make sure the ease of capital is always available for builders. Of course capacity we touched on. Construction capacity is also super constrained because of various reasons. And of course, supply chain issues are happening. From material demand to manufacturing issues to all the things that has happened during the pandemic. All this existed but has been exacerbated by this pandemic. Technically, the industry is going through a very stressful moment, but at the same time, there is demand. There is so much refinancing going on, so much improvement going on, so much construction going on.
Having said that, a tremendous amount of people are spending more time at homes — it has becomes our office, it has become our playground, it has become our school, it has become our broadcasting center. There’s a significant amount of expectation of the home.
But also, as I touched earlier, people are able to finally connect things like indoor air quality, particulate matter, and being able to understand that the environment has got something to do with health. These things are very well known to commercial sector clients, now the home side is doing a lot more understanding, but also a lot more probing or finding what solutions to apply. “How would I need to rethink my place of living for myself and my family?”
Where do I think the industry will go?
I think it’s important to understand that green homes are going to become the norm. There is an increased push that is happening.
And it’s not happening because the whole world is demanding it. This is happening because investors are demanding that there are assets become a lot more sustainable, a lot more resilient and involving a lot more health and wellness. This is a risk conversation for them — it’s about risk. At the end of the day, you and I want 80/20 — our money is only 20%. 80% is in the bank. So the risk is with the bank and not with you. The risk is from the bank, which means that the bank needs to really prove and say, “look, I need more green because should there be a climate disaster or pandemic, the value of my home could go up.” An average home five years from now is going to be more green than it is today.
Second part of the conversation is we are being able to get the attention of the homeowner over health and wellness, and be able to really look at environment and the asset from a different perspective. What we’ve been pushing for the past two decades is a holistic thinking. But what they’re asking them is to take a little bit of a holistic look and say, “How do I think this design to construction to operations to sustenance?” And that education is going to happen in a rapid manner in the next two or three years because of everything else that’s going on in the political climate, the investor phenomenon, and most importantly the emergence of the residents being able to get that. That trend is going accelerate the demand for a home, which we have been anticipating for a long time. Most importantly, people are going to expect the head construction leaders to prove to them that that is what they are receiving, which means that not only are you going to meet consumer demand, but you will prove to the consumer and commit to the consumer that you are delivering to the demand, which means third party certifications like LEED become a lot more relevant, important and most importantly, homebuilders are able to bank on our credibility to deliver that value to the consumer.
Last but not least, an average home in America goes through refinancing every five years, or resold every five years. It’s an opportunity for all of us to think about how to integrate green features during changing times, because you’re always making some improvement to your home. Existing homes will become more relevant and important, and it is the greatest opportunity for us to drive transformation to be smallest transformation we can drive. The future for green in the home market, I feel very bullish about it. I think having this pandemic is going to change the game for the green home sector.
GHB: Is there anything we didn’t go over that you’d like to touch on?
MR: Right now, there is talk about sustainability, there’s talk about health and wellness, there’s a talk about equity, there’s talk about resilience. Four macro drivers that are controlling our life beyond all geopolitical considerations. And the foundation is economy. So if you take the five paradigm, the core focus for our second generation of USGBC is to focus on the intersectionality of sustainability, health and wellness, equity, resilience, really trying to prove that our foundation which is return on investment, is robust. That’s what we’re working on in the second generation. Stay tuned. There’s more information that’s going to come out from our end to really be able to unpack this. What we’re trying to do is very simple. Through LEED and its strategies and results, we’re trying to prove that we can deliver and maximize the economic health and environmental benefits to the environment, to the people, and of course, to the bottomline, being the homeowner or the business.
This concept isn’t new to USGBC, because the bottomline is world that came from our house. But today, we’re not just a narrative, we’re not just a language. It is important that we let people lead with what they understand better and help them connect the dots so that they can continue to maximize the benefits for themselves and for others. That’s our aspiration and our vision for the second generation.