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Financing Green Building in Residential Development

Buildings are responsible for nearly 60 percent of Israel’s electricity consumption and contribute 28 percent of the country’s total greenhouse gas emissions. These statistics, from the Ministry of Environmental Protection, highlight our relative shortcomings: worldwide, on average, buildings account for just 32 percent of electricity consumption and contribute to 19 percent of greenhouse gas emissions.

We know now from studies that energy-efficient construction lowers mortgage risk default in both residential and commercial real estate; new technologies are bringing down capital costs; and paybacks are improving for private investments in energy efficiency for both owners and tenants.

With recent initiatives to invigorate the residential construction market, the government is particularly well positioned to help make “green building”—the use of environmentally friendly systems and technologies—financially attractive for developers, home buyers, and investors. The slow adoption to date of green construction illuminates an undeniable market failure that an active policy role can remedy.

This report looks at the existing market barriers in Israel, as well as the country’s greatest assets, which include the advantage of a sunny climate and our reputation as a world leader in cleantech. Our young companies have developed astounding products in the areas of solar power, smart metering, grid management, insulation, building materials, remote sensing, big data collection, and water-savings technologies. Yet many of these companies can’t find traction where we need them most: at home, in our local market. The Financial Innovations Lab looked at financing obstacles and opportunities, and came away with detailed recommendations for tax benefits, loan subsidies, rebates and discounts, performance-based financing, and regulatory relief. These factor into the proposed creation of a NIS 3 billion Green Fund to leverage over NIS 11 billion in financing for more than 85,000 green apartments, and lead directly to an estimated 1.5 percent annual reduction in Israel’s greenhouse gas emissions.

The result will be a stronger business sector offering sustainable green building solutions, financially feasible green building systems, and lowered operating costs for consumers, all of which will bring us much closer to reducing our carbon footprint and address climate change.