Created Shared Environmental Value through Green Lending

Homes account for a large part of our energy and water use; on a macro level, residences are responsible for between 15-20% of the energy used by the human population and about 10% of water use. It is typical for the buildings that we live in to have a lifetime of several decades. There is a clear environmental benefit in identifying ways in which we can ensure that our homes are built environmentally.

Much of the effort surrounding sustainability in the built environment has focused on the supply side of real estate – convincing developers of real estate the financial benefits of incorporating environmentally sustainability into their buildings based on an assumption that there is a larger and more reliable market for “green” homes. However, consumers’ willingness to pay more for environmentally sustainable homes can also be influenced. Since most people finance the purchase of their home, one way of doing so is by explicitly incorporating sustainability measures into financing available to home buyers.

Conventional mortgage underwriting makes assumptions as to a reasonable proportion of one’s income that can be allocated to mortgage payments using assumptions that are often outdated. For instance, homes built with water and energy saving features will lower the resident’s utility bills, leaving a larger proportion of their income available for mortgage payments. Infonavit, the largest mortgage lender in Mexico, has pioneered a “green mortgage” program in which the utility savings of purchasing a green home are quantified and incorporated into the size of the loan that a borrower qualifies for. Within five years after the program had been created, Infonavit had originated over 900,000 green mortgages, prompting homebuilders to include their recommended sustainability features into new homes. In 2011, based on the program’s popularity, Infonavit updated their mortgage requirements to make a green mortgage compulsory for all borrowers.

mexico-houses

Expanding green lending to incorporate sustainability metrics beyond energy and water conservation would have an even larger impact. For example, transportation is both the second highest cost for most households (after housing) and the largest contributor to greenhouse gas emissions in most cities in the world. By incorporating location and transportation mode choices into their underwriting, mortgage lenders could have a large role in not only increasing environmental sustainability but in shaping the way cities develop.

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