Oct 282011

September 2011
BuilderNews Magazine
Feature: Project Profile


The Net Zero Tract Home

A Final Frontier in Sustainable Housing


In 2005, Meritage Homes, a large-scale, production homebuilder headquartered in Scottsdale, Arizona, saw one of its most productive years to date. That year, Meritage Homes built close to 15,000 single-family houses, making it one of the top ten production homebuilders in the county. “We just put our heads down and built homes,” says C.R. Herro, Meritage’s VP President of Environmental Affairs. “The emphasis was on doing what we did well,” and that is what Meritage did. The company was founded in 1985, and in just 20 years it became a master at building a broad range of production homes with as most speed and efficiency as possible. Even today, Meritage offers some of its clients a “99 Days. Your Home. Your Way.” guarantee, with prices that can dip below $80 a square foot.

Meritage’s success, like the success of its competitors, had reached a zenith in 2005. The company operates in seven states: Arizona, California, Colorado, Florida, Nevada, North Carolina and Texas. Those same states saw a surge in population over the preceding decade, spurring the largest housing boom in US history. Housing starts in the US, that year, topped a record-breaking 2 million homes, with the vast majority of that development taking place in these classically warm-weather states. By the close of 2006, however, most of that had begun to change. Meritage was still on top, still ranked among the industry giants, only the competition had begun to diminish. 2006 was the beginning of the end for the housing boom. Housing starts slumped, and by 2009, they had hit their lowest level in more than 70 years, with just 580,000 new homes built across the whole of the country. The housing boom was over, and Meritage Homes, like nearly every builder in the nation, was about to face its leanest years in decades. The question Meritage had to ask, as did all others, was simply: How would the company survive?

When faced with a market like this, says Herro, a production builder has one of two choices to make. “The market gives you a square-foot price that the market will bear,” he explains, “and you can either strip down and cheapen up to compete with bank re-sales, or you can come to the market with something that has a different value and creates its own opportunity, and the latter is what we consciously choose to do.”

It was Herro’s job, hired by Meritage in August 2009, to create that opportunity. “I was hired specifically to do innovation for the company,” he says, “so they created a role I don’t think exists anywhere else in the homebuilding industry. They hired a wacky environmental engineer and let me loose.” Herro actually holds two master’s degrees, one in environmental engineering and the other in environmental biology, and he is, in his own words, “the in-house nerd,” at Meritage. “To his credit,” Herro says of company founder and CEO, Steve Hilton, “he said, ‘Hey, we are going to hire someone whose job is to just focus on where the winds are blowing us and what is the best thing that we can do — the highest value for the least dollar — that lets us build something special.’”

That something special, to Herro, was evident from the start. Herro is “a nerd.” He is an engineer. And he knew where the winds were blowing. Herro has worked in the construction industry for more than 20 years, and during all that time he has kept a keen eye on the advancing green-built market. “The building industry,” he observes, “has had very little innovation for the last 40 years, while a tremendous amount of innovation was going on around it.” To Herro, the industry was stilted, caught in the single-minded pursuit of efficiency at the expense of other advancements. Green building in the US, he notes, had remained mostly on the periphery of the overall housing market. A few, generalized innovations had filtered through. Appliances became more efficient. Insulation was beefed-up and then altogether changed. Windows were upgraded. But when it came to a wholesale re-imagining of the single-family home, that was left primarily to high-cost, custom homes and show homes never intended for resale. “All the pieces of the puzzle have existed for 20 years,” Herro says. “We just went through the trouble of putting it all together. All I did was stand on some really broad shoulders, take the best of the best from around the world, and that is our program.”

Meritage’s new program, under the direction of Herro and officially launched in September 2010, was to design, build and sell the US’s first net-zero energy tract home, at a price competitive with the production home market. The company now builds its net-zero homes in two communities and offers a similar option on all other homes it builds. “The first thing we did,” says Herro, “was to look at the building shell: the windows, the insulation, the framing, the conditioned attic, the lighting system and the appliances, all of which works to cut the energy demand for the footprint of that house in half.” From there, Meritage moved on to energy production, part two of the net-zero equation. The company joined forces with EchoFirst, Inc, manufacturers of the EchoFirst Solar System, an innovative dual solar PV and thermal array, with an integrated air management system. Standard on nearly every Meritage Home is now a 2.15 kWh EchoFirst Solar system, and for roughly $10,000 more, clients can upgrade to a 5.64 kWh system that would make the house a net-zero energy home.

The EchoFirst system, itself, represents an impressive advancement in efficiency, increasing the energy output over a similarly sized PV system by upwards of 100 percent. Meritage’s partnership with EchoFirst, Inc. shows why the production homebuilder belongs in the sustainable market. As Herro notes, though many builders offer similar amenities, most are offered as add-ons and built on a house by house basis. Meritage made these amenities standard, and by doing so, it was able to leverage its economy of scale, both in terms of material costs and installation. “A big piece of this is our trade partners,” Herro says, “because all the things we do on these homes, we’ll do 3,500 times. We spent a year designing, and we spent six months with our trade partners (framers, plumbers, etc.) getting their heads around it.”

Oriana Schooley is a sales associate for Meritage in the master-planned community of Verrado, just outside Phoenix, Arizona. Arizona, Phoenix and the surrounding Maricopa County was, and still is, one the hardest hit regions for foreclosures in the US. Roughly 15 percent of Arizona households received a foreclosure notice in 2009. The market is tougher than it has ever been, says Schooley, and yet she remains decidedly optimistic. “This has been great for us,” she says of Meritage’s new net-zero program. DMB Associates, Inc, out of Scottsdale, AZ, is the developer at Verrado, and five builders, including Meritage, are vying for the buyer’s attention.

Meritage, to help both educate and attract those buyers, has built a partially deconstructed model home, which the company’s uses to emphasize its new “extreme energy efficiency” approaches. Some clients are sold on the spot, Schooley says, while others need as much educating as they do selling. The sales pitch takes longer and it is far more complex, but the results are impressive. The Meritage sales team, in the Verrado community, has managed to outsell its leading competitor by more than three to one, and this, Schooley notes, with homes that can carry a premium of $20,000 or more.

“I think it is the cake and the icing, too,” she says. “Here, there is no compromise. I am the largest lots, the most square-footage, the most efficient, the most technologically advanced, and I am the most expensive. So, when it comes down to it, there is no real explanation for why it is going as well as it is, but my understanding is that we’ve taken a two-year project and we are down to the end of it (after) only ten months.” And this, she adds, in the worst housing market in US history.

“Is there a lot of potential coming?” says Herro, “Yes. Have we extracted all that value? No. But, we are extracting some, and in this market, that’s just fine with us. These homes, with this kind of incorporated extreme energy efficiency, have demonstrated to be more profitable for us than conventional construction.”