A Canadian Perspective Green Valuation – A Canadian Perspective Peter McLean AACI, P. App President – Appraisal Institute of Canada Lorem Ipsum

Canada – Some Quick Facts Current population is just over 37 Million people – two million less than the State of California. At just under 10 Million km2 Canada is the second largest country in the world. An estimated 60% of Canadians live within 200 km from the US – Canada border. Canada is a federation of 10 Provinces and 3 Territories: Under the Canadian Constitution, Provinces have authority over many day to day aspects of Canadian life including the application of environmental regulations and programs.

A Country of Climate Extremes

Construction and Operation With the extremes in climate, Canadian construction and building standards need to include robust heating / cooling capacities and energy efficiency. Energy efficiency programs, in construction and ongoing operation, have become more common and programs exist in both non-residential and residential applications.

The Current Green Market Despite the existence of these types of programs, and an increasing awareness of the need for “green” buildings the marketplace has not fully responded in meaningful ways. Response to date has been more “social” in nature and much less so in “dollars and cents” – resulting in major challenges in appraising the “value of green”. Less than 10% of Canadians are prepared to pay a significant premium for green features / benefits. Purchasers, operators and tenants appear to appreciate and value energy efficiency – but it has not fully manifested itself throughout the market. Governments have provided incentives but many of those have been phased out or reduced in recent months.

Why is the Market not Responding? With our land mass, Canadians generally have a wide variety of choices when it comes to the house they live in or the building they own / occupy. Office space is plentiful in most major cities – and prospective tenants are offered any number of choices. While “being green” has some value it is one of many considerations purchasers or tenants will consider. Location, amenities, fit / finish and so on are all factors – and in many cases, they rank ahead of environmental considerations. Put another way, to date there has been limited evidence indicating a willingness to pay a premium for “being green”.

An Example - Net Zero Homes

Non Residential Examples

Cost = Value? Not necessarily.. For residential buildings: According to the Canadian Home Builders Association the incremental cost (for an average home) for a new Net Zero home is approximately $45,000. A growing number of builders are now in this market – but the marketplace has not fully embraced the offering. For non residential construction and operation: Building owners and managers are increasingly implementing “green initiatives” that improve environmental efficiency. Costs vary widely – from relatively minor to very significant The resultant impacts– though desirable – are not yet manifesting themselves on a “dollar for dollar” basis.

Canadian Energy Production Historically, Canada has relied on a mix of fossil fuels, hydro electricity and nuclear to provide electrical power. Alternative sources – such as solar and wind – have had limited uptake – and, in general terms, governments have “primed the pumps” to encourage their implementation.

Energy Costs Costs for fossil fuels and electricity (for heating and cooling) range widely across the country – but are not, generally, seen as excessive. In 2018 residential electricity costs ranged from 7 cents / kWh (QC) to just over 16 cents / kWh (SK). Quebec electricity is produced by hydro electric generation while Saskatchewan relies more on fossil fuel generation Last week, gasoline prices ranged from $1.23 / litre (AB) to as high as $1.55 / litre (BC). Provincial governments apply varying tax rates to fund environmental initiatives and other efforts. The impact on operating costs varies widely but, to date, there has been limited financial incentive to focus on reduction – and therefore, a reduced impact on value.

Water Conservation Canada is blessed to have an abundance of fresh water - Approximately 20% of the world’s fresh water reserves lie in the five Great Lakes. It is estimated that 60% of the Great Lakes are in Canadian territory. As a result of this abundance, to date Canada has not seen water shortages. Water pollution remediation and prevention has long been a priority and is well established in Canada. Water use reduction is beginning to take hold – low flow shower heads and toilets are essentially commonplace in residential and commercial applications. Only a small number of commercial facilities have invested in water recovery systems.

In Summary Canada has take numerous steps to integrate “green technology” into both residential and non-residential construction. Marketplace acceptance of these efforts has been good but the willingness to pay a premium has been limited. Environmental performance is a contributor to value – but is not the only contributor nor is it, in the minds of many, a top contributor. Until purchasers or tenants begin to look more actively – and are prepared to pay a premium for – “green technology” Canadian appraisers will be faced with a challenge arriving at the value.

At the end of the day, sometimes..

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