How Does the Green Premium Influence Sustainable Construction

One of the emerging trends about “green” products is that people are sometimes willing to pay more for them. That reality has led to what some analysts call the “green premium” and discussions about whether it costs people more to build sustainable homes.

Some debates are broader, asserting that this premium affects people who plan to rent homes or sell the ones they own. Is there really a green premium, and if so, how much does it influence individuals and the construction industry in these ways?

Tariffs May Slow Existing Projects

One driver of the potential green premium is economic shifts rather than people’s increased desire for sustainable living spaces. Professionals working on current projects indicated that proposed tariffs in the United States due to President Trump would make sustainable building projects more expensive. 

One issue is that while the U.S. can produce and distribute many goods subjected to tariffs, others are European-specific. One expert who has written a book on how to build low-carbon communities products such as airtight membranes and energy-efficient windows typically come from Europe. 

Problems could also arise for homes made with significant amounts of imported wood. Builders in the United States often import the material from Canada or Europe, and Trump intends to apply tariffs to both. 

Many people with projects underway know that economic shifts can affect how much they must budget to get their intended homes built. Those especially committed to sustainability may have calculated for substantial fluctuations in advance and determined that they can still afford the green premium the tariffs may cause. 

However, others who are less motivated — or underestimated the tariffs’ effects — may tell builders they have changed their minds about specific sustainable plans. It is too early to determine the overall impact of the potential tariffs. However, once evidence begins emerging, people in the construction industry can expect some clients to respond accordingly. 

An Initial Green Premium Could Be Cost-Effective Overall

A materials company executive offers a different perspective on the green premium that debunks people’s belief that sustainable construction is always more expensive. He clarifies that they must think of a building’s entire life cycle when calculating the costs. 

The executive elaborated by explaining that what a household saves on energy efficiency could make up for extra construction costs in the long run. He believed that would be true even if the sustainable materials were 10% more expensive than their counterparts. Additionally, the leader said people could make up for extra costs by recycling materials at the end of the life cycle, potentially creating another revenue stream. 

Indeed, energy efficiency is one of the main reasons people want to live in sustainable homes. Although many households make conscious decisions to live more frugally when needed or desired. However, most agree it is unfeasible to use their lights, cooking appliances or climate control equipment substantially less often. The more convenient solution is to switch to energy-efficient options. 

Suppose a household has already budgeted for a new build. In that case, it likely makes the most sense to include energy-efficient features. That approach will be much less disruptive than making changes once people have occupied the home. 

It’s also true that recycled construction materials are becoming more in demand due to the increased interest in sustainable buildings. Concrete is a common example, with many companies using recycled materials as aggregates. Business leaders wishing to participate in the circular economy could determine that selling some old materials after a demolition could make good economic sense if it reduces waste and returns some of the initial investments to companies. 

Geographic Differences in the Green Premium

Another important clarification regarding this topic is that people’s feelings about the worthiness of sustainable buildings differ by area. Suppose a nation’s leaders have especially ambitious sustainability goals. Then, many of its corporate leaders may determine it makes good business sense to construct new buildings and revamp existing ones, making them as sustainable as possible. However, if green construction is less of a priority, executives may decide to delay or cancel plans to pursue it. Even if a green premium exists in some parts of the world, it is not universal. 

Australians Will Pay More For Green Homes

A 2024 study found Australians are willing to pay an average of 14.5% more for residences with sustainable features. The percentage is also significantly higher in some parts of the country, such as in Melbourne, where it is 28.8%.

The perceived green premium also increases interest in listings, with properties more likely to sell if they have relevant keywords linked to energy efficiency or sustainability. Besides influencing the property market for sellers, this trend could cause people to opt for green characteristics when building. Many people hiring companies to construct new homes have long-term goals to sell those properties. They know including numerous desirable features could give them the strongest returns on investment. 

More Variation in the United States

The effects of the green premium are less straightforward in the United States, with some evidence suggesting the impact depends on building usage. An October 2022 study showed LEED-certified offices benefit tenants and owners, potentially making them more appealing. The data indicates that even after accounting for a building’s age, location and renovation history, this certification brings a 4% rent premium on average. 

However, sustainable construction is less of a sure bet in some U.S. cities. For example, feedback from Greater Boston residents indicated they appreciate the financial and environmental perks of sustainable features. However, they would not pay more to get them. 

Some also felt neutral about solar panels, which many sustainable homes include. While some homeowners recognized the potential energy savings, they disliked the contracts that give solar companies the right to their roofs. 

Another takeaway mentioned by real estate agents in the area is that walkability was even more important to some people than built-in features. That could mean some people want to be sustainable by becoming less car-dependent. 

The Green Premium Is an Emerging Concept

This overview shows people should not feel overly concerned about a potential green premium attached to their current or planned construction projects. Various factors may make them more expensive, especially in the beginning. However, that is not the case everywhere. 

Plus, even if higher upfront costs occur, people could more than make up for them with reduced energy costs and end-of-life recycling opportunities. Construction professionals, current or potential homeowners, investors and others should stay tuned to how things develop and apply that knowledge before making substantial decisions.