Economics - Making Financial Sense.

Key to the PGH approach is balancing expenditures and gains. Where other programs use specific energy-use targets or other criteria, and the building code establishes a baseline (“the worst house you can legally build”), a PGH goes above code until it stops making financial sense. On some new homes, that may be not far above code, and on other projects performance may rival that of a Passive House, but in most cases it will be somewhere in between those two standards.

How do you decide what makes financial sense? One approach is to look at the payback--the time it would take for an upgrade to pay for itself. A better way[1]   to look at the return on investment, or ROI. Energy and maintenance costs are fairly steady and easy to predict, so you can choose what level of return you would like to see. Using a simple formula, ignoring the effects of compound interest and inflation, improvements with ROI of 5% or higher are generally a good investment. Even a 2% ROI may be competitive with secure investments such as CDs. Lower ROIs may not make financial sense but should be considered if there is an environmental benefit, such as lower embodied carbon emissions.

Another aspect of economics to consider is first costs vs. lifetime costs. Investing in higher quality materials that last longer than inexpensive materials is one way to achieve this.

Economics comes into play when discussion[2]  new homes vs. renovations. In many cases an existing home can be purchased for less than a comparable new home, and the carbon footprint of the existing home already exists. But if the existing home has older, under-performing windows, a lack of insulation, poor air sealing and inefficient equipment, it may not be cost-effective to improve it enough to reduce operating costs to the level of what you can do with a new home.