Value Per Square Foot: A New Housing Metric

Value Per Square Foot: A New Housing Metric
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Price per square foot built the last century of housing. Value per square foot should build the next.

For most of the 20th century, the American housing market was fundamentally local. Small and mid-sized builders worked hand-in-hand with local banks and savings-and-loans (S&Ls) to finance homes for families in their communities.

This system created a virtuous cycle: homes created wealth for local families, which in turn strengthened local banks, which then reinvested into the same communities. Homebuilding was not only an engine of economic growth but also a foundation for community stability and generational wealth creation.

That system began to unravel with the Savings & Loan crisis of the 1980s, which dismantled localized lending and ushered in a new era of housing financialization. Wall Street entered the sector at scale, commoditizing homes into investment vehicles. Capital markets became the dominant funding source for large builders, and institutional investors quickly learned how to extract value from housing in the form of quarterly profits and shareholder returns.

This shift transformed the industry’s valuation model. Where homes were once evaluated based on their capacity to provide long-term value—stability, affordability, and resilience for families and communities, valuations shifted to price per square foot, a crude metric that strips housing of its deeper social, environmental, and economic benefits.

The results have been stark. Housing supply has not kept pace with demand, not solely because of overburdensome zoning requirements or regulations, as some people point out, but because consolidation, speculative investment, and financial engineering have also made it more profitable to constrain supply than to expand it.

As a result, home values and rents have risen faster than wages, while ownership rates have declined. Communities once anchored by locally owned housing now find themselves increasingly controlled by distant capital.

The Twin Failures of Financialization

This financialized model suffers from two systemic failures that continue to constrain the sector today:

  1. Sustainability is excluded from valuation. By ignoring performance, resilience, intelligence, and health, the current model incentivizes homes built to the bare minimum code—essentially the lowest-performing homes legally allowed. This omission burdens homeowners with higher operating costs for utilities, insurance, and maintenance, while limiting the ability for homes to withstand intensifying climate events.
  2. Consumer demand has evolved, but home valuation has not. According to COGNITION Smart Data, over 70% of consumers now factor sustainability into purchasing decisions, and over 60% of Millennials and Gen Z are willing to pay more upfront for energy efficiency, electrification, healthy home, resiliency, and other sustainability upgrades if those upgrades lower long-term operating costs. Additionally, for the first time in 20 years, data shows that all four generations influencing the housing market (Boomers, Xers, Millennials, and Zs) report that they consider long-term value and operating costs more than price per square foot when making homebuying decisions. Yet appraisals, mortgage underwriting, and valuation models have not kept pace—they continue to undervalue the very features that consumers are demanding.

This misalignment means the housing market is consistently underdelivering, leaving both buyers and builders shortchanged.

Making Sustainability Transactional

To correct this imbalance, sustainability must shift from a “nice-to-have” feature that can be extracted in down markets to a transactional, non-negotiable component that elevates home valuation. This transformation requires that sustainability is embedded into every stage of the housing lifecycle:

  • Design: Right-sized, efficient layouts that minimize waste and maximize livability.
  • Product Specification: Prioritizing high-performance, resilient, healthy materials such as heat pump technologies, smart panels, renewable energy systems, whole-home air filtration systems, resilient exterior products, and water-conserving technologies.
  • Construction: Expanding offsite, prefab, and modular approaches that cut waste by up to 90% while ensuring precision and quality control.
  • Operations: Leveraging solar + storage, demand-side energy management, and connected technologies to lower energy costs, improve comfort, and enhance resilience.
  • End of Life: Designing for disassembly, recyclability, and carbon sequestration.

When sustainability is embedded in these processes, homes shift from being short-term assets to long-term value creators.

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The Economics of Value Creation

Basic economics teaches us that value creation translates into profitability.

A high-performance home that reduces utility and insurance costs by $400 per month saves over $140,000 over the life of a typical mortgage. Homeowners increasingly recognize this tradeoff and are willing to invest more upfront in exchange for long-term savings and peace of mind.

For builders, sustainability shouldn’t be viewed as a drag on margins, but rather as a profit driver. Given the right market conditions, homes with performance features sell faster, command higher premiums, and generate stronger brand equity.

Warranty claims decline when homes are constructed with precision and better materials. Investors and lenders increasingly reward companies that demonstrate resilience and reduced risk exposure. And many municipalities are expediting permits and offering better land deals to builders and developers that have strong sustainability and decarbonization plans.

Builders like Beazer, KB, Lennar, and Mattamy who have embraced sustainability—and are holding firm to their commitments even in a down market—are proving that they can unlock new profit pathways.

Put simply, by shifting from “cost per square foot” to “value per square foot”, builders can differentiate themselves and avoid the destructive race to the bottom that characterizes commoditized markets and purely price-driven competition.

Broadening the Stakeholder Circle

Builders cannot achieve this transformation alone. Other housing stakeholders must step in to redefine the valuation equation. The shift will take appraisers accounting for energy efficiency, health outcomes, and resiliency when valuing homes, and realtors highlighting sustainability benefits in their marketing to help buyers understand long-term value.

Lenders will play a pivotal role by incorporating energy efficiency, electrification, resiliency, and renewable energy upgrades into mortgages in such a way that a homeowner’s monthly payment doesn’t increase because cost savings from lower utility bills are considered.

Insurers are essential to incentivize resilient construction with lower premiums, directly rewarding high-performance homes. And states and utilities will need to ramp up reliable, long-term incentives and rebates for sustainability features that don’t fluctuate or sunset in the face of political headwinds.

This kind of collective action would create a housing ecosystem with sustainability embedded into its DNA. In doing so, the burden would no longer fall solely on builders to solve affordability challenges—a dynamic that has too often sacrificed performance, health, and resiliency features in the name of cost-cutting.

The Cost of Clinging to an Outdated Model

The housing sector’s fixation on price per square foot is more than a bad habit — it is a structural liability. By ignoring sustainability, the industry is undervaluing homes, overburdening buyers, and leaving billions in untapped profit on the table.

Until sustainability is fully integrated into how homes are designed, financed, built, and valued, we will continue to deliver housing stock that underperforms, costs too much to operate, and exposes both families and builders to unnecessary risk.

In economics, ignoring value creation is the fastest way to erode profit. In housing, it’s the surest way to deepen the affordability crisis, lock buyers into costly underperforming homes, trap builders in an antiquated profit model, and expose the industry to policy and climate risks.

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