As part of obtaining my degree in accounting, I had to do a major research paper. I chose to do it on the economics of sustainable building, in specific, the need for government support in Canada.
I think most people would be inclined to live in a home that was better for the environment and reduced their bills, aka a "sustainable home". Unfortunately, the economics of " green building" are forcing most people to stick with traditional homes.
Read my research paper and find out why the average Canadian will not be buying a sustainable home:
Research Paper
Showing posts with label negatives. Show all posts
Showing posts with label negatives. Show all posts
Tuesday, 5 November 2013
Sunday, 18 August 2013
More on the Construction Mortgage aka Draw Mortgage
Note: Before reading further, I want to stress that this is information is structured for an AVERAGE North American wanting to build an Earthship. While I agree that mortgages are one of the things wrong with this world, we are unlikely to have Earthships become mainstream if we insist that everyone quit their jobs and move out to the boondocks in order to build one. (Baby steps!) I admire those who can do this, but you are the proverbial 1%. Less than that actually. Even so, this style of mortgage is also going to discourage all but the most patient. So high fives to anyone actually pursuing the goal.
I apologize, this is quite long. So if you don't plan to mortgage your Earthship, save yourself the pain of reading it. If you do plan on getting a mortgage, this information is quite important. If anything it will set you on the path of how to plan to pay for your Earthship. I don't mean to discourage anyone, but if you truly want to live in a sustainable home, no one is going to roll out the red carpet for you. Plan your savings and start ASAP.
So I did some further research on the construction mortgage. This time I pulled actual loan information from the Royal Bank of Canada (RBC).
For those who don't know, a construction mortgage is something you will need if you are going to finance your Earthship construction through a bank. This style of mortgage unfortunately has some drawbacks, which are primarily a lot of up front costs.
Sadly this is going to reduce the amount of people willing to build an Earthship, but it's still a step ahead of the, "quit your job and go permaculture" scenario. I hope that pioneers like myself can find a way to make this easier.
First, the home owner is going to invest a lot more than the average 20% down. Think more like 30-40%. Especially if they want the bank to finance the land in addition to the build.
In a construction mortgage, most banks will only pay about 65% of the land cost. So if the property is worth $200,000, they will only give $130,000 to buy it. That leaves the borrower to pay $70,000 up front, before construction costs. But it doesn't stop there.
After the land is purchased, the bank will then give the borrower one year to complete construction. During this period, the bank will dole out certain amounts of money to pay for materials and labour. These are called "draws", and there are usually 4-6 of them. They will also require an inspection before each new draw, to verify that work was completed. This means the builder can't take years and years to complete the construction by themselves, which is what some Earthship folks would like to do. And if the weather in the area limits build time (e.g. in Canada we have from April to about October), the builder may only have 5-6 months to get the house from dirt to lockup. (Four walls, roof, windows and doors).
Knowing this, it is now necessary to figure out how much each stage will cost, because if a draw fails to fully cover the costs required to complete that stage, the builder must pay the uncovered costs out of pocket. The bank will not give another draw if the work isn't complete and they don't care if the draw was enough money to pay the bills. That's the borrower's problem!
Failure to be able to afford out of pocket costs could get ugly. If the borrower can't get the funds to finish the build in time and the bank refuses to give any additional money, the risk is that the bank will cancel the mortgage and reclaim the property. This is why it is important to know how much everything will cost. Knowing this will help you predict draw amounts and therefore, additional savings requirements on top of the downpayment.
On my personal build, while all 5 draws appear to fully cover construction estimates, the bank still requires a 10% minimum contingency amount. This means that the bank wants you to have approximately 10% of the value of the build in cash, in case something ends up costing more than anticipated. After all, they are only going to provide the draw amounts. If a contractor screws up or discovers something unanticipated, the bank is not on the hook for the extra costs. The builder is.
So on a $200,000 build, that's about $20,000 in excess cash. At this point, the amount to be saved is now $70,000 for the land plus + draw gap coverage + 20,000 in contingency funds.
Lastly, there is also another issue. It is called a lien amount. By law, the provinces in Canada require a certain percentage of the draw funds received to be put aside for legal reasons; basically in case a contractor puts a lien against the property. This can be anywhere from 5-20% of each draw amount. So everytime the bank gives a draw, a lawyer will deduct about 5-20% of it and probably put it into a trust or escrow account. While this amount will be refunded 30-60 days after the build is completed, it is still money that the borrower must pay from their own pocket. On my project, this amount comes to approximately $20,000.
At this point, the total amount to be saved is now $70,000 + draw gap coverage + 20,000 in contingency and $20,000 for lien hold back.
For my build, this is a $110,000 - or approximately 30% of the mortgage amount. It's going to take a few years to save that up!
One might argue that a borrower could just get a mortgage for the land only and then pay for the build out of pocket over 5-7 years. This is actually a decent idea, but it really depends on a number of factors, the main one being again, money and the rest patience.
I spoke to a mortgage specialist, and they pointed out that if you apply for a mortgage for a piece of empty land, the bank will require 50% down. If your land is only $20,000, that's great! Then all this stuff about draw mortgages is pointless.
But if your land is $200,000, you still need to save $100,000. At this point, saving the extra $10,000 could have you living in the house within 12 months instead of 5 years, not including the time it would take to save $100,000. Who knows, it might be 10 years of living in apartments and shanties until the actual move in. I'm personally not that patient.
The only way I could see circumventing this would be if there was a small house or trailer on the property, which changes the mortgage type. If the bank considers it as being a regular home purchase, the borrower could go back to traditional mortgage rules and down payments. It would still take 5-7 years to build the Earthship, but there would be less risk and less initial investment or savings time.
I'd say if you are patient and can get a regular mortgage, then go for it. Otherwise, the construction mortgage may be the only option. Start your research now and your savings now and this won't be impossible. Also make sure to put your savings into a high interest account so that you can earn some extra cash.
One a side note, this is situation is not great for the future of sustainable, green building on a larger scale. If they can't be made affordable and easy for the average person, then they can't be expected to become mainstream. It would be nice to see a builder take a risk and start producing these, but when it comes to money and cookie cutters, it's more profitable to just stick with tradition.
Planning to Build by RBC
I apologize, this is quite long. So if you don't plan to mortgage your Earthship, save yourself the pain of reading it. If you do plan on getting a mortgage, this information is quite important. If anything it will set you on the path of how to plan to pay for your Earthship. I don't mean to discourage anyone, but if you truly want to live in a sustainable home, no one is going to roll out the red carpet for you. Plan your savings and start ASAP.
So I did some further research on the construction mortgage. This time I pulled actual loan information from the Royal Bank of Canada (RBC).
For those who don't know, a construction mortgage is something you will need if you are going to finance your Earthship construction through a bank. This style of mortgage unfortunately has some drawbacks, which are primarily a lot of up front costs.
Sadly this is going to reduce the amount of people willing to build an Earthship, but it's still a step ahead of the, "quit your job and go permaculture" scenario. I hope that pioneers like myself can find a way to make this easier.
First, the home owner is going to invest a lot more than the average 20% down. Think more like 30-40%. Especially if they want the bank to finance the land in addition to the build.
In a construction mortgage, most banks will only pay about 65% of the land cost. So if the property is worth $200,000, they will only give $130,000 to buy it. That leaves the borrower to pay $70,000 up front, before construction costs. But it doesn't stop there.
After the land is purchased, the bank will then give the borrower one year to complete construction. During this period, the bank will dole out certain amounts of money to pay for materials and labour. These are called "draws", and there are usually 4-6 of them. They will also require an inspection before each new draw, to verify that work was completed. This means the builder can't take years and years to complete the construction by themselves, which is what some Earthship folks would like to do. And if the weather in the area limits build time (e.g. in Canada we have from April to about October), the builder may only have 5-6 months to get the house from dirt to lockup. (Four walls, roof, windows and doors).
Knowing this, it is now necessary to figure out how much each stage will cost, because if a draw fails to fully cover the costs required to complete that stage, the builder must pay the uncovered costs out of pocket. The bank will not give another draw if the work isn't complete and they don't care if the draw was enough money to pay the bills. That's the borrower's problem!
Failure to be able to afford out of pocket costs could get ugly. If the borrower can't get the funds to finish the build in time and the bank refuses to give any additional money, the risk is that the bank will cancel the mortgage and reclaim the property. This is why it is important to know how much everything will cost. Knowing this will help you predict draw amounts and therefore, additional savings requirements on top of the downpayment.
On my personal build, while all 5 draws appear to fully cover construction estimates, the bank still requires a 10% minimum contingency amount. This means that the bank wants you to have approximately 10% of the value of the build in cash, in case something ends up costing more than anticipated. After all, they are only going to provide the draw amounts. If a contractor screws up or discovers something unanticipated, the bank is not on the hook for the extra costs. The builder is.
So on a $200,000 build, that's about $20,000 in excess cash. At this point, the amount to be saved is now $70,000 for the land plus + draw gap coverage + 20,000 in contingency funds.
Lastly, there is also another issue. It is called a lien amount. By law, the provinces in Canada require a certain percentage of the draw funds received to be put aside for legal reasons; basically in case a contractor puts a lien against the property. This can be anywhere from 5-20% of each draw amount. So everytime the bank gives a draw, a lawyer will deduct about 5-20% of it and probably put it into a trust or escrow account. While this amount will be refunded 30-60 days after the build is completed, it is still money that the borrower must pay from their own pocket. On my project, this amount comes to approximately $20,000.
At this point, the total amount to be saved is now $70,000 + draw gap coverage + 20,000 in contingency and $20,000 for lien hold back.
For my build, this is a $110,000 - or approximately 30% of the mortgage amount. It's going to take a few years to save that up!
One might argue that a borrower could just get a mortgage for the land only and then pay for the build out of pocket over 5-7 years. This is actually a decent idea, but it really depends on a number of factors, the main one being again, money and the rest patience.
I spoke to a mortgage specialist, and they pointed out that if you apply for a mortgage for a piece of empty land, the bank will require 50% down. If your land is only $20,000, that's great! Then all this stuff about draw mortgages is pointless.
But if your land is $200,000, you still need to save $100,000. At this point, saving the extra $10,000 could have you living in the house within 12 months instead of 5 years, not including the time it would take to save $100,000. Who knows, it might be 10 years of living in apartments and shanties until the actual move in. I'm personally not that patient.
The only way I could see circumventing this would be if there was a small house or trailer on the property, which changes the mortgage type. If the bank considers it as being a regular home purchase, the borrower could go back to traditional mortgage rules and down payments. It would still take 5-7 years to build the Earthship, but there would be less risk and less initial investment or savings time.
I'd say if you are patient and can get a regular mortgage, then go for it. Otherwise, the construction mortgage may be the only option. Start your research now and your savings now and this won't be impossible. Also make sure to put your savings into a high interest account so that you can earn some extra cash.
One a side note, this is situation is not great for the future of sustainable, green building on a larger scale. If they can't be made affordable and easy for the average person, then they can't be expected to become mainstream. It would be nice to see a builder take a risk and start producing these, but when it comes to money and cookie cutters, it's more profitable to just stick with tradition.
Planning to Build by RBC
Sunday, 4 August 2013
Quote of the day
"For those who are bothered that Earthships look "weird": If you are on the sinking Titanic, are you going to complain about what color your lifeboat is?" -- Earthship Biotecture.
Besides that, you don't necessarily have to make it look weird. An Earthship is always going to have a certain look, but no one said you have to be weird. If anything, I'm kind of getting tired of "cookie cutter" houses. But there is no harm in it, if that's what you prefer.
Some would call this weird, it's definitely unique:
Brighton has a more modern look:
Vertical windows can normalize it even more so. However,colder climates may not support their use.
Friday, 4 January 2013
The negatives of Earthships
I was recently diverted to a blog post regarding the "negatives" about Earthships.
http://www.archinia.com/about-us/publications/215-solving-the-earthship-enigma.html
It was bit unnerving to read, but something I really wanted to know. It seems like people build them and then live silently ever after. Any post interviews are usually done with extreme eco lovers who have lower standards than most folks.
Rather than me guessing, I now have a list of possible pros and cons, problems and solutions.
Ultimately, Earthships aren't perfect and the default may not even be possible in certain climates. They tend to do well in "ideal" climates where the temperature doesn't vary a lot, the humidity isn't extreme and it rains regularly. Sounds like a normal house lol So how does one make an Earthship work in an extreme climate?
Here were some of my thoughts on modifications for my own climate:
Location:
They suggested to not build one in a cool climate at all. And to especially not build in high humidity or low rain.
Well I live in Canada. The temperature can go as low as -40C in the winter (usually -20C) and up to +30C in summer (usually low 20's). Rain and humidity aren't really a problem for most of Canada. But ice, snow and wind are a problem.
I'm assuming that they are meaning this statement for the basic/standard Earthship. That makes sense. All I need to do is plan some modifications. I already assumed that it might be wise to have backup systems, such as underfloor heating or fireplace/stove.
Orientation toward the south will be a given since I want passive thermal heating to be the main source when possible.
Siting:
My design already incorporated south entrances for a snowy climate, which fits their suggestions. I also like evergreens and trees, which make good wind breaks like they say. That's common knowledge up here. I have no problem putting in trees!
For overheating, we only have maybe one or two weeks a year where it gets uncomfortably hot. They suggest overhangs or leafy trees. The problem is the possibility of interfering with the heating, which is a bigger problem overall. I think I may consider retractable awnings if heat is truly an issue.
Structure:
They suggest to skip the tires. I checked into tireless rammed earth walls and either you do it yourself (I'm not incredibly skilled) or you hire someone. Up here, contracting for rammed earth walls costs 20-30% more than a conventional house. No thanks, this is expensive enough. I know I can do tires though. So tires it will be. The concern mainly seems to be off gassing, for which there is no clear answer. I will have to consult others.
Note: I've researched more on off gassing. It still doesn't seem to be a problem, due to the fact that used tires had plenty of time to "off gas" while they were being used, and they are being packed in several inches of covering material. In terms of skipping the tires, the alternatives such as cement bricks or rammed walls are incredibly expensive, as you will see in the later blog entries. There are ways to make the tire pounding easier, as well.
Design:
Points noted. I plan on modifying my drawings and posting them later. I will keep these things in mind, but I'm skipping the part on sleeping pods.
Windows and Doors:
The "no sloping window walls" is confusing. I'm not sure what they are referring to. The only sloping window wall I can think of is the one on the outside. It helps with the passive heating design, so eliminating it could be detrimental to this far north. Vertical is certainly nicer looking, but it doesn't allow in as much sun and is better for hot climates.
However, if they are referring to the problems with humidity and leakage on the slanting windows, the architect I'm hiring has already fixed those issues so.....no big deal. He has also fixed issues with the roof "kick up" in a standard Earthship; by eliminating it.
I didn't realize the part about the closing off the greenhouse though. I made my plans fairly open concept. Therefore I guess I will have to ditch that and close the space off a bit. Not a problem. Note: I contacted the architect and he said that closing off the green house can pose problems with "egress" in the building code (google it). He says they can get away with it in New Mexico, but it's a lot harder to do such a thing elsewhere, including Canada. Therefore, I had to go back to the open concept again.
I also don't plan on using exterior bottle walls, which can pose an insulation/cold problem. I will just use them on the inside. But I love the idea of solatubes for the back rooms.
http://www.archinia.com/about-us/publications/215-solving-the-earthship-enigma.html
It was bit unnerving to read, but something I really wanted to know. It seems like people build them and then live silently ever after. Any post interviews are usually done with extreme eco lovers who have lower standards than most folks.
Rather than me guessing, I now have a list of possible pros and cons, problems and solutions.
Ultimately, Earthships aren't perfect and the default may not even be possible in certain climates. They tend to do well in "ideal" climates where the temperature doesn't vary a lot, the humidity isn't extreme and it rains regularly. Sounds like a normal house lol So how does one make an Earthship work in an extreme climate?
Here were some of my thoughts on modifications for my own climate:
Location:
They suggested to not build one in a cool climate at all. And to especially not build in high humidity or low rain.
Well I live in Canada. The temperature can go as low as -40C in the winter (usually -20C) and up to +30C in summer (usually low 20's). Rain and humidity aren't really a problem for most of Canada. But ice, snow and wind are a problem.
I'm assuming that they are meaning this statement for the basic/standard Earthship. That makes sense. All I need to do is plan some modifications. I already assumed that it might be wise to have backup systems, such as underfloor heating or fireplace/stove.
Orientation toward the south will be a given since I want passive thermal heating to be the main source when possible.
Siting:
My design already incorporated south entrances for a snowy climate, which fits their suggestions. I also like evergreens and trees, which make good wind breaks like they say. That's common knowledge up here. I have no problem putting in trees!
For overheating, we only have maybe one or two weeks a year where it gets uncomfortably hot. They suggest overhangs or leafy trees. The problem is the possibility of interfering with the heating, which is a bigger problem overall. I think I may consider retractable awnings if heat is truly an issue.
Structure:
They suggest to skip the tires. I checked into tireless rammed earth walls and either you do it yourself (I'm not incredibly skilled) or you hire someone. Up here, contracting for rammed earth walls costs 20-30% more than a conventional house. No thanks, this is expensive enough. I know I can do tires though. So tires it will be. The concern mainly seems to be off gassing, for which there is no clear answer. I will have to consult others.
Note: I've researched more on off gassing. It still doesn't seem to be a problem, due to the fact that used tires had plenty of time to "off gas" while they were being used, and they are being packed in several inches of covering material. In terms of skipping the tires, the alternatives such as cement bricks or rammed walls are incredibly expensive, as you will see in the later blog entries. There are ways to make the tire pounding easier, as well.
Design:
Points noted. I plan on modifying my drawings and posting them later. I will keep these things in mind, but I'm skipping the part on sleeping pods.
Windows and Doors:
The "no sloping window walls" is confusing. I'm not sure what they are referring to. The only sloping window wall I can think of is the one on the outside. It helps with the passive heating design, so eliminating it could be detrimental to this far north. Vertical is certainly nicer looking, but it doesn't allow in as much sun and is better for hot climates.
However, if they are referring to the problems with humidity and leakage on the slanting windows, the architect I'm hiring has already fixed those issues so.....no big deal. He has also fixed issues with the roof "kick up" in a standard Earthship; by eliminating it.
I didn't realize the part about the closing off the greenhouse though. I made my plans fairly open concept. Therefore I guess I will have to ditch that and close the space off a bit. Not a problem. Note: I contacted the architect and he said that closing off the green house can pose problems with "egress" in the building code (google it). He says they can get away with it in New Mexico, but it's a lot harder to do such a thing elsewhere, including Canada. Therefore, I had to go back to the open concept again.
I also don't plan on using exterior bottle walls, which can pose an insulation/cold problem. I will just use them on the inside. But I love the idea of solatubes for the back rooms.
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