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What am I paying more for?

So here’s the thing. The whole reason we are all talking about how to build more sustainably is that there isn’t often a quantifiable ROI for doing so. If building a net-zero building cost less than building a regular building, everybody would be building one. But that is not the case, which is why our industry, and others, are grappling with how to justify the added costs, even though we all know it’s absolutely the right thing to do.

The questions we are asking ourselves look something like this: If I spend X% more on this build, what kind of rent premium could I command? And in some cases this premium is quantifiable and in some cases it matters a great deal. For instance, in the case of a new office building, you might need to spend the extra money so that you can attract the right tenants. While in other cases/asset classes, you might feel as if there’s no rent premium and nobody will ever pay more.

But I like how Seth Godin thinks about it in this recent post: people never pay extra. If you’re paying more for an electric car, for example, you aren’t actually paying extra. What you are paying is a price that you feel is fair for what you are receiving. And what is it that you’re receiving? Well, in this case, you’re getting an electric car, but you’re also buying in Seth’s words, “sustainability, community awareness, cachet, status, safety, quiet, and the feeling of being an early adopter.”

These things have value to some people. And as long as you can deliver on your promises, extra isn’t extra at all. But perhaps more importantly, this early adoption can help encourage change. Electric cars are becoming cheaper and cheaper, and I think it’s pretty clear that they will soon replace combustion engine vehicles. This model of starting at the top of the market and then moving down seems to have worked.

Now, the auto industry isn’t perfectly comparable to the building industry. They have been good at improving productivity and bringing down costs, and we have been awful at it. Depending on how you measure it, construction productivity growth over the last half century is sitting somewhere between flat to some negative number. But I don’t think this dubious achievement changes Seth’s message. Think about what you’re offering. Maybe extra isn’t extra.

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