Spend today, save tomorrow?

Life cycle costing can change the way be build

by David Bainbridge

he goal of the sustainable building movement is to improve comfort and health of the built environment while maximizing use of renewable resources, minimizing life-cycle costs and maximizing life cycle benefits.

What is life cycle value and why don't we consider it today? Life cycle costs and value provide an accounting over the lifetime of a building. This is often 50 or 100 years or more in the United States, and buildings in Europe often are being used more than 200 years after they were built. The costs of maintaining and operating the building are the life cycle costs. The benefits include the economic return as well as the productivity, health and well being of those who live in or work in the building.

We don't consider life cycle value because there is a wide gap between economics as the accountants and developers currently know it and a wiser sustainable economics that considers the future. The gulf between these two world views is perhaps most easily demonstrated by their different treatment of present and future values and costs.

A developer, for example, with a planning horizon of six months to a year, will emphasize the present with a high "discount rate," meaning that a dollar in the future is considered to be worth less than a dollar today. (The discount rate is often more than 10 percent, which means a dollar seven years from now is worth only half as much as a dollar today).

The sustainable economist, with a planning horizon of 50-100 years or more, places a much higher value on the future (children count) and use a very low discount rate (only 1-2%, which says the future is almost as important as today).

Economics seldom ever considers the radical notion that a negative discount rate should be used, which would say the future is more important than today. Some traditional society's have more carefully considered these future impacts, but at the present time the costs to the developer are largely confined to current costs with strong incentives exist to speed development and minimize early costs.


Displacing costs


The sustainable economist would use more complete costs, including externalized costs of environmental damage in production, and maintenance and demolition of the building (these costs are real, but are not charged to the project; they fall on the public or on other interest groups).

The developer also isn't concerned about high utility costs that may transfer to buyers or renters through poor choices of building materials and equipment. And the developer has relatively low concern about the potential loss of productivity from ill health and discomfort from buildings that are unhealthy (chemicals from carpets, building materials, poor ventilation and poor lighting). These priorities often lead to very high costs over the lifetime of a building, which may be 100 years or more. The life-cycle value of the building may be only 10 percent of what it could have been with better planning, design and construction.

In contrast, the sustainable economists goal is to maximize the benefits and minimize life-cycle cost. These includes planning for future changes in cost of utilities, use of microclimate resources for heating and cooling, minimizing maintenance cost and optimizing health and productivity of occupants. This can dramatically increase life cycle value.

These serious and costly problems are not caused by moral failure of the developers, but reflect failures in the political process that have set the rules of the current economic game. It reflects politicians' efforts to please us by providing seemingly cheap energy, water, sewage treatment, building materials and food. The mechanisms used include a variety of government policies and subsidies, primarily tax and investment related, which obscure the actual costs and transfer the direct and indirect costs from the developers to other individuals, groups, or society at large. These subsidies have not been well studied, but are enormous. If these subsidies were removed, energy prices would certainly be three to four times what they are today. The price of water would also double. This would completely change the way we build.


A window on economics


Subsidies and false accounting are crucial, even on a much smaller scale. For example, consider a builder who chooses to add 55 square feet of west-facing window in a hot climate. If this decision cost an initial $4,000 - $6,000, plus an additional 30¢ per kwh in perpetuity for additional air conditioning, they might choose differently.

Yet these costs are real. The $4,000 - $6,000 represents the cost the utility must bear to increase peak power generation capacity to carry the larger air conditioner required for cooling, to offset the heat gain from this window. The 30¢ per kwh is real cost for the electric power to run the air conditioner. But the builder doesn't have to pay - the unwitting buyer does.

Proper building orientation is free and roof overhangs are inexpensive. Degegulation of the energy market and the removal of utilities protections may eventually address these problems.

Progress toward sustainable buildings will be slow until the market more accurately reflects costs and benefits. Attempting to counter the clear market signals from existing subsidies by new regulations or counter- subsidies has not and will not work. We need to acknowledge these destructive policies and work to remove subsidies for non-renewable fuels, incentives for environmental destruction and the neglect of health and productivity.


Size matters


Life-cycle considerations are particularly important for institutions that cannot count on increasing income in the future to offset large increases in the cost of energy, water or other resources. Comfort and health, energy and water use, waste, recyclability and cost are key issues. Systems considerations are critical in the building design and operation.

At the USIU campus, the utility costs are almost 3/4 of a million dollars a year because life cycle costs were not considered when the campus was built in the 1970s (when utilities were promising energy so cheap it wouldn't have to be metered). Had better choices been made then, the utility cost could have been reduced by 75 percent or more. As a result, students costs would be lower and money could be more productively spent on scholarships, staff salaries, books, computers and education.

Dartmouth College provides an excellent example of life cycle considerations in their policies of maintenance and repair, which reflect a very long history and anticipation of a successful future. Many buildings have copper roofing ­ high initial cost but low life cycle cost ­ and painting and repairs are timely and well done. This improves the appearance of the campus and helps keep enrollment high.

These policies reach down to the small details as well. To place a memorial park bench outside on the campus, it has to be endowed with a $5,000 fund, to provide future money for repairs, paint, and eventually, replacing the wood in 20-30 years.


Why ask why?


Why are buildings so unhealthy, costly, and expensive to maintain and operate?

Amory Lovins of the Rocky Mountain Institute has developed a clear description of some of the perfectly perverse incentives that encourage almost everyone in the process to do the wrong thing. Small but important signals and incentives make it most profitable for the designers, builders and installers to make inefficient, costly and unhealthful buildings. This has been compounded by poor training in schools, both architecture and engineering, and government subsidies that artificially reduce the cost of energy, water, and building materials.

Ten key problems include: dominance by the developer rather than users or clients; financing pressure ; minimal planning; failure to consider system integration; tax rules on depreciation and investment; incentives for minimal innovation are incorporated in percentage based fees; subsidized power and material costs; liability fears; ignorance; and poor operation and management.


Leading by example


What happens when life cycle value is considered? Remarkable buildings illustrate what can be done by good design, including a 500,000 square foot passive solar, sustainably designed Dutch bank. The construction costs of the bank were the same as conventional construction but it uses less than one tenth as much energy, absenteeism is 15 percent lower, and the bank business has dramatically increased due to the visibility and success of the building. Most buildings could realize similar savings - San Diego buildings should require minimal cooling systems and no heating systems.

Productivity gains often outweigh energy savings 10-20 times. Revised lighting at the Pennsylvania Power and Light drafting office reduced energy use enough to save only $2,500 dollars a year, but productivity increased more than 10 percent and the rate of errors dropped, saving more than $40,000 a year. Sick days declined 25 percent. The net return on investment was a striking 1,000 percent.

In Davis, California, the Village Homes solar development (built in the 1970s) included pedestrian and bicycle orientation, natural heating and cooling, narrow streets with off-street parking, and above ground storm drains. These were all considered radical at the time and were made possible by planning guidelines I was responsible for, as a consultant to the city. Developers Mike and Judy Corbett made many other innovative details an integral part of this remarkable project, and still live there today. Village Homes has become the preferred place to life in Davis, and maintains a $10 - $15-per-square-foot premium in value. Village homes use much less energy and water than conventional houses, and life cycle value remains dramatically higher.

What we have tried: regulation, subsidy, moral persuasion.

What we should try: improving the market, education, investment.

For more information, attend the Sustainable Community Action Network lectures at Green Hall, USIU 6:30-8:00 PM on the first Thursday of every month.


Reading: Bainbridge, Corbett and Hofacre. 1978. Village Homes' Solar House Designs. Rodale press, Emmaus, PA (at many local libraries)

David Bainbridge is an assistant professor and coordinator of environmental studies at United States International University. You may contact him by writing: DB, Environmental Studies Program, 10455 Pomerado Road, SD, CA 92131. Email: bainbridgesunstroke.sdsu.edu.