The economics of a Passivhaus
Economic culture, energy costs and supplies, factors affecting property prices, factors affecting Passivhaus costs, methods of determining cost-effectiveness
Economics is an uncomfortable topic for many people. Unfortunately, few of us can afford to ignore money constraints in a build project – particularly now, in the post-2008 credit-crunch era. As the financial system retrenches in an attempt to recover stability, access to capital has become much more restricted and expensive. The brief period of spending significant additional sums purely to ‘save the planet’ seems to have long gone. However, counterbalancing this is the growing impact of persistently high, and increasing, energy prices. A few years ago, the energy costs of a home probably didn’t figure on most people’s agendas, but for growing numbers of buyers this is now becoming a significant factor.
Culturally, we in the UK seem to be somewhat averse to capital spending (one-off spending on durable items or infrastructure) – even if not making the investment means much higher ongoing costs and poorer performance. This was probably true even during the years of relatively strong economic growth up until 2008, when borrowing was easy and cheap. We also appear to have lost the ability to make strategic, long-term decisions to commit to capital-intensive infrastructure projects that would bring medium- and long-term benefits. In the construction sector, where there is a choice between spending the minimum capital outlay needed to meet regulatory and legal obligations – irrespective of the impact this has on ongoing running costs – and spending a few per cent more to achieve hugely lower running costs and other quality benefits, the choice made is usually to spend the minimum. At the same time, many willingly increase their build costs to fund a luxury, high-status or high-profile item, such as a luxury kitchen, without any attempt to assess its cost-effectiveness or payback. Clearly, as house builders and purchasers, we do not act as purely rational economic players.
Energy costs and supplies
In a world of apparently never-ending, cheap energy delivered without environmental impacts, the economic arguments for Passivhaus would be weaker. Most of us in the rich world have got used to living with easy, affordable energy and find it hard to conceive of a different reality. However, we are at a turning point in our history. After 200 years of low-cost energy that could be produced year-on-year at ever-greater flow rates, we are facing a period where energy is much more expensive and where energy supply rates shrink year-on-year, constrained by physical limits to the rate at which energy can be extracted from our environment1 (this is discussed further in Chapter 5). There is a strong correlation between global economic growth and growth in energy flow rates.2 Ultimately, it will not be possible for the overall level of economic activity to increase globally if the energy supply is decreasing. This most profound change in our society will change the economics of Passivhaus (and many other things!), making ultra-lowenergy buildings extremely attractive. The higher cost of energy, and supply scarcity issues, will change the economics of all building to discourage indiscriminate use of building materials that have a high embodied energy or have travelled long distances.
Macro factors affecting property prices
In Chapters 6 and 14, we touch on the some of the factors that influence the cost of a build – for example, the effects of planning requirements and VAT policy. However, the cost of buying a home or business premises is determined most significantly by the following factors.
• Land prices, particularly in the most densely populated and economically vibrant areas. In the UK, land prices are comparatively high owing to the concentration of land ownership, the practice of ‘land banking’ by large building developers (where land on the edge of towns is bought up and held in anticipation of a future change in planning status), green belt legislation and other planning controls on development. This particularly impacts on the cost and availability of building plots for self-builders and small-scale developers.
• Changes in the average number of occupants per household and a growth in UK population. Until the 2008 downturn, the trend has been towards fewer occupants per household. This trend increased demand for homes in a market with relatively slow supply growth, thus increasing house prices.
Overlying these are the large cyclical property price fluctuations experienced by the UK and many other countries (see Figure 2.1). The impact of all these factors dwarfs any price differences between Passivhaus and a standard build.
Factors affecting Passivhaus costs
As we will see later in this book, there are costs and savings involved when building a Passivhaus, compared with the cost of an equivalent standard build that just meets current Building Regulations. The additional cost of building a Passivhaus has been estimated by the Passivhaus Institut3 at between 3 and 8 per cent, and by the Passive-On Project4 (having examined costs across a number of European countries) at between 3 and 10 per cent. However, the trend is towards cost parity. This is because:
• building codes are setting tougher energy performance standards
• knowledge and experience of successfully building Passivhaus is expanding
• products associated with Passivhaus are becoming more mainstream.
Figure 2.1 Historical UK house prices. Prices are adjusted for inflation, based on 2012 pounds. Source:
Ventilation and heating
In a Passivhaus, where the ventilation system can also be used to supply heat, the cost of a heat recovery ventilation system – the Passivhauscertified MVHR unit, ducting and other components as well as commissioning costs – can be offset against the money saved by not having to provide a full central heating system and extract vents for the kitchen and bathrooms. Even if the MVHR system is not used to supply heat, whatever heat source is used can be simple and very small-scale – a low-powered wood burner, perhaps. The trade-off is also true in an apartment block, as the economies of scale that apply to conventional communal heating systems also apply to their Passivhaus equivalents.
A Passivhaus requires more insulation than a standard build. The Passivhaus Institut has estimated5 extra insulation costs of between €0.40 (30p) and €1.20 (£1) per 10mm per m² of opaque building element area. As we saw in Chapter 1 (Table 1.2, see page 21), buildings with an efficient form factor require less insulation – the U-values can be higher – in order to reach the Passivhaus standard, so are cheaper to construct.
Where practicable, using insulation that is quick to install on-site or is pre-installed should help keep costs down. Board-based insulation has to be cut very accurately to avoid thermal bridging. This takes more skill and time, adding to costs. Blown-in (‘pumped in’) insulation such as Warmcel® (cellulose) can also be cost-effective, as it requires very little labour to install and there is no waste.
As we discuss in Chapter 8, managing thermal bridges at building element junctions is primarily a question of detailed design and careful, accurate execution. An architect or building designer new to Passivhaus will need to spend additional time finding solutions that design out thermal bridging, but this extra cost diminishes significantly as experience is gained in how to do this. Similarly, a builder new to Passivhaus may need to take longer to ensure that unfamiliar details are built correctly. The junctions between the base of the external walls and the floor are particularly challenging, as they have to be constructed to carry much of the weight of the building. This often means using high-cost insulation that has a high compressive strength, such as Foamglas® or similar. In larger buildings such as apartment blocks, completely eliminating the floor–wall thermal bridge may not be as cost-effective as increasing insulation thicknesses – which will be thinner anyway because an apartment block has a very efficient form factor (see page 21).
In a new build, airtightness should add very little to the construction cost of a building, provided that sufficient thought has gone into its design, planning and execution. Again, if the architect or designer and builder are new to Passivhaus, they will need to spend more time to be sure of achieving below 0.6ach (air changes per hour). Costs will start to escalate if mistakes on-site require corrective work. In a well-conceived and well-executed design, the cost of airtightness tape, grommits and membrane will be very low – less than £1,000 in a typical domestic-scale build, unless used excessively (as in the photo below!).
In a retrofit, the challenge of reaching below 0.6ach is much greater, and there will be additional costs associated with it. In the Totnes Passivhaus, which achieved an airtightness of 0.2ach, significant additional work was needed to ensure that there was no gap in the airtightness layer around the existing joist ends (see also Chapter 9, page 139).
Making existing joist ends airtight: plastering and applying airtightness tape.
Passivhaus-suitable and Passivhaus-certified windows are more expensive than standard double-glazed windows, which just meet current (2010) Building Regulations. At present, a window suitable for a Passivhaus is around two or more times the cost of a standard window. At first glance, downgrading the windows may seem like an easy way to cut down the cost of the build: if the U-values of the other cheaper elements of the building are uprated, the windows can be downrated to standard double glazing and the building may still make the 15kWh/m².a space heating demand. However, as we will see in Chapters 7 and 11, in cool-temperate European climates there are good reasons for the use of triple-glazed windows with warm-edge spacers (the dividing strip along the edge of a double- or triple-glazed unit that separates each pane) and other specific characteristics. In cold weather, use of standard double-glazed windows would create an internal surface cold enough to reduce thermal comfort because of the cold radiant from the internal window surface. The cold surface would also create convection draughts. Both these phenomena would require a warmer ambient temperature to regain the same level of thermal comfort.
At this point in time, there is no way to avoid paying extra for Passivhaus windows, although the price difference between Passivhaus windows and standard windows will shrink as building energy performance standards are tightened and Passivhaus becomes more mainstream, thereby making windows with an energy performance suitable for Passivhaus much more common.
One way to reduce the cost of windows is to moderate the glazing area, using a mixture of fixed and opening windows (fixed windows are cheaper) and choosing fewer reasonably large (but not too large) windows, rather than more smaller ones. Windows that are part of a manufacturer’s standard range, made in standard colours and finishes, will also be cheaper. Although most of us tend to want the flexibility of being able to open any windows, and many may have concerns that with fewer windows there will be insufficient daylighting, costs can be managed by being pragmatic.
The other factor to consider is the windows’ longevity. In the UK, most window companies offer products that, while cheaper than Passivhaus-suitable products, are quite often not very durable. Passivhaus windows are generally designed for a much longer service life. When this is taken into account, the annual cost of use will be quite favourable; possibly lower than that of standard windows.
An architect who also has experience as a builder, or who works with or gets professional input from an experienced builder (particularly one with Passivhaus experience), should be able to devise solutions that are more cost-effective to execute. By optimising the build process it should be possible to claw back enough of the budget to fund most, if not all, of the additional cost of building a Passivhaus. We hope and expect to see examples of this emerging in the near future.
Methods of determining cost-effectiveness
Some assume that Passivhaus is only for the wealthy. In fact the Passivhaus standard was developed with modest housing application in mind, not just for bespoke ‘grand designs’. And the whole-lifetime cost of a Passivhaus is considerably lower than that of a standard build,6 which is why many who adopted the model early on were those with a long-term interest in their property – for example, registered social landlords (RSLs). When you start to plug in probable energy cost increases and energy scarcity factors, the cost benefits of Passivhaus are even greater. But, assuming for now that building a Passivhaus is a few per cent more expensive than a standard build, what is the best way of measuring the cost-effectiveness of the additional investment?
‘Yes, but what is the payback period?’ is the oft-heard refrain of the sceptic. ‘Payback period’ is regularly referred to in the media, probably because using it confers economic credibility on the speaker (to the lay ear at least) and because ‘payback period’ is easy to understand: if a build costs £x more and saves £y more per year, simple arithmetic will tell you how long it will take to break even. However, this is not a very useful measure of cost-effectiveness, because the length of a payback period (which is, of course, an estimate) is quite sensitive to small changes to the assumed rate of increase in energy prices and associated costs (such as maintaining the larger-scale heating infrastructure in a standard house compared with its leaner, simpler counterpart in a Passivhaus). Depending on the energy price assumptions used in the calculation, payback period can be used to put a case for or against any given investment.
The fairly conservative example in Table 2.1 overleaf compares a 100m² Passivhaus with a reasonably energy-efficient new 100m² home built by mass-market housing developers. Even with a relatively modest 7 per cent annual real-terms increase in energy prices, the cumulative savings over 25 years – the length of a typical mortgage – on energy costs alone grow dramatically. These figures exclude the costs of maintenance and replacement of heating infrastructure (costs of which are lower in a Passivhaus, simply because less heating infrastructure is needed).
A 100m² home might have a gross area (the area used for costing purposes) of 125m². At £1,200/m², the construction cost would be £150,000. A similar structure built as a Passivhaus, with a 5-per-cent cost uplift, will add £7,500 to the price. Factor in the reduced costs of heating system maintenance and the likely resale advantage, and, clearly, all but a client with the most short-term interest would save money. And, of course, a Passivhaus is built with a much longer design life than 25 years. The savings start to ramp up rapidly in the following decades, even if very conservative assumptions are made about future energy price increases. While we cannot predict future energy prices with absolute certainty, the weight of evidence and an examination of the current trends clearly indicate that we are highly unlikely to return to a world of cheap and easy energy.
Capital costs versus energy costs
Another way to look at the cost-effectiveness of investments is to compare two costs: 1) the extra annual repayment costs on a mortgage that result from an extra capital spend (Figure 2.2 opposite shows how to calculate this); 2) the savings in energy costs and in associated heating system maintenance and replacement costs arising from that extra capital spend. The advantage of this method is that it can be used to inform individuals’ decisions about how far and where to direct marginal capital investment to best effect. Once the building design has been modelled in the Passivhaus Planning Package (PHPP), elements can be varied according to how the additional capital investment is spent. This translates into a figure for the number of kWh per year saved for a given option, which can then be converted to a financial value. Maintenance and replacement costs would have to be calculated separately.
While ‘payback period’ can support a more polemic argument on costs, ‘capital costs versus energy costs’ is a more useful tool for assessing the cost-effectiveness of a capital investment. This method is used by the Passivhaus Institut to demonstrate the economic argument for Passivhaus: its main benefit being that it is much less sensitive than payback period to assumptions made about energy price inflation. Given that such assumptions are never precise, this sensitivity problem makes ‘payback period’ a less useful analytical tool. As noted, it is more useful as a tool to support a political view.
Figure 2.2 Calculating the ongoing annual cost of a capital outlay.
While the up-front costs of building a Passivhaus are currently around 3 to 10 per cent more than for an equivalent standard building, the trend is towards cost parity, as Passivhaus knowledge and skills become more mainstream and experience is gained by architects and builders. And when the whole-life running costs of the building are included in the costing, a Passivhaus is cheaper than a standard build. Buyers are becoming more aware of energy running costs when choosing a home, so a Passivhaus, with its bullet-proof protection from fuel poverty and its high levels of interior comfort, should represent an opportunity for innovative developers.
In the UK, other factors have a bigger impact on house prices than the extra build costs associated with a Passivhaus. In particular, the concentration of land ownership, ‘land banking’ and planning constraints have resulted in scarcity of, and very high prices for, building plots, particularly for self-builders and small-scale developers.
Rising energy prices and a growing risk of interruptions in the energy supply will put upward pressure on all building costs (whether Passivhaus or not). The costeffectiveness of a Passivhaus build can be assessed in different ways, but a method that is less sensitive to assumptions about future energy prices is the most meaningful.