EQuilibrium* HEALTHY HOUSING FOR A HEALTHY ENVIRONMENT

1. EQuilibrium*HEALTHY HOUSING FOR A HEALTHY ENVIRONMENT Qualitative Consumer & Industry Market Research October 2006 * EQuilibrium is an official mark of CMHC

2. Outline • Background and Objectives • Existing Programs and Previous Research • Approach • Results of Consumer Focus Groups • Results of Industry Interviews • Implications CANADA MORTGAGE AND HOUSING CORPORATION

3. Background and Objectives • Goals of the EQuilibrium Initiative are to: • Develop a clear vision and approach to achieve high quality, Healthy HousingTM and sustainable communities across Canada • Increase the national capacity of Canada's housing and renewable energy industry sectors for the long term delivery of zero impact sustainable housing in all regions of Canada • Foster market awareness, acceptance and delivery of Healthy HousingTM and sustainable communities • Enhance Canada's domestic and global leadership in sustainable residential community design and development, leading to Canadian business opportunities in international markets. • EQuilibrium concept is based on five key principles that guide the design and construction of sustainable housing and communities: Health, Energy, Resources, Environment, and Affordability. CANADA MORTGAGE AND HOUSING CORPORATION

4. Background and Objectives • Objective of the market research was to inform a marketing strategy by: • Assessing overall interest • Determining which benefits and features are most appealing • Identifying key factors impacting acceptance • Obtaining input into development of value proposition • Exploring perceptions regarding brand positioning • Targeted early adopters pre-disposed to invest in energy efficiency and environmental features • Focus on initial market introduction - after the first demonstrations CANADA MORTGAGE AND HOUSING CORPORATION

5. Approach • Background Paper • Lessons from existing programs and previous research • Consumer Focus Groups • 6 cities (Toronto, Calgary, Whitehorse, Vancouver, Montréal, Halifax) • 2 sessions in each city (5-9 participants per session) • Participants recruited to fit early adopter profile • 90 participants (47 Women, 43 Men) • Industry Interviews • 11 builders participated (3 AB, 2 BC, 2 ON, 3 QC, 1 MB) • Mix of custom and mass market builders CANADA MORTGAGE AND HOUSING CORPORATION

6. Existing Programs and Previous Research • Observations drawn from various sources • Characteristics of Early Adopters • Consumers are buying their second or third home; they are more educated than the average; they have higher incomes; and they report adopting other environmental habits (e.g. recycling, using transit, etc.) • Builders are often smaller custom builders; however mass market builders may also be interested under the right circumstances • Features and Benefits that Resonate with Consumers • Most important features are: overall construction quality; energy efficient or renewable energy features (windows, high-efficiency furnace, solar PV, etc.); indoor air quality (IAQ); and location. • Most important benefits are: saving energy costs; durability; less maintenance; good neighbourhood; reduced environmental impact. CANADA MORTGAGE AND HOUSING CORPORATION

7. Existing Programs and Previous Research • Features and Benefits that Resonate with Builders • Most important benefits are: keeping up with latest technology; brand differentiation; responding to consumer demand for better quality and lower operating costs. • Environmental and energy features must compete with luxury features but even so many builders intend to implement more of the former. • Most popular features are: windows; furnaces; water heaters; toilets; air tightness; insulation. • Less popular are advanced features such as solar PV. • Factors in Acceptance of Energy Efficient Housing • For home buyers, key incentives are: energy and cost savings; quality; uniqueness of design; indoor air quality; security of supply. • For home buyers, key barriers are: initial cost; maintenance issues and competition with other features. CANADA MORTGAGE AND HOUSING CORPORATION

8. Existing Programs and Previous Research • Factors in Acceptance of Energy Efficient Housing • For builders, key incentives are: product differentiation; keeping up with technology; message of quality; brand recognition and reputation. • For builders, key barriers are: lack of consumer demand; overhead costs of certification programs; technical and regulatory difficulties with grid connections; risks of non-performance. CANADA MORTGAGE AND HOUSING CORPORATION

9. Existing Programs and Previous Research • Canadian Programs • R2000 – Limited acceptance with mass builders – primarily because of risk associated with pass-fail nature of the program, cost and complexity. However the brand is well known by builders and continues in several provinces. • EnerGuide for Housing - Not a building program but a rating scheme. Level of interest has been good and is growing – perhaps seen as indicator of quality. • Energy Star (ON), Novo-Climat (QC), Built Green (AB, BC), Power Smart (MB) - These programs have replaced R2000 as the premium program in selected provinces (they are generally less demanding). They are achieving significant success, almost breaking into mass market. Overall trend towards standardization and quality control may be factors. • Healthy HousingTM – awareness of program is generally low. CANADA MORTGAGE AND HOUSING CORPORATION

10. Existing Programs and Previous Research • U.S. • Energy Star – Has been successful in becoming the national standard. Factors in success include: quality; strict standards; partnership with established organizations; incentives; marketing; technical assistance; and training. Note: standards are lower than in Canada. • Building America is responsible for the “Towards Zero Energy” program – Successes include involvement of industry members and recruitment of mass market builders to pilot the concept. • Japan • Market is more advanced due in part to broad acceptance of grid interconnection and time-of-day pricing. Other factors include marketing that focuses on cost-performance and quality; mass production with customization options; brand name associations with well-established companies. CANADA MORTGAGE AND HOUSING CORPORATION

11. Results of Consumer Focus Groups • Perspectives on Energy Efficiency and Healthy HousingTM • Consumers were aware of a myriad of technologies, appliances, materials, equipment and best practices to save energy, improve indoor air quality and reduce environmental impact. • Some of the most common mentions included energy efficient light bulbs, insulation and energy efficient appliances - Participants quickly focused on specific energy saving products that they owned or had heard of with a focus on saving money on utility bills. • They had some idea of renewable energy technologies but were vague on technology details and are confused by terms like passive, PV, etc. • They recognized there is a responsibility to future generations. • They expect government to lead but a few were sceptical or cynical about government intentions/capabilities. CANADA MORTGAGE AND HOUSING CORPORATION

12. Results of Consumer Focus Groups • Awareness of Other Programs • Widespread familiarity with Energy Star (but mainly appliances). • About half were familiar with EnerGuide (though more in relation to equipment). • Many (but less than half) knew of EnerGuide home inspections (few knew the name). • Many (but less than half) knew of One-Tonne Challenge. • A few knew of R2000 but vague on details. • Many knew of regional programs (B.C. Hydro, Hydro-Québec, Energy Solutions in YK, Novo-Climat in QC). • Few were familiar with Healthy HousingTM. • Overall low awareness of program names – but some awareness of specific products (e.g. B.C. Hydro giving away energy efficient light bulbs). • Most felt that motivation for these programs was combination of saving $ and protecting the environment. CANADA MORTGAGE AND HOUSING CORPORATION

13. Results of Consumer Focus Groups • Initial Reaction to EQuilibrium Concept • Strong interest and curiosity. • Sounds “too good to be true”. • Widespread view that this will be expensive (perceived high cost of renewable technologies, experience with the high cost of home renovations). • People want more information (e.g. will it really work; cost and savings; what would it look like?). • Widespread concern (especially in Toronto, Montreal, and Vancouver) that it would only be applicable to new, suburban developments. • Would this be applicable to retrofits of existing homes? • Renewable energy and grid connection sounds intriguing – how would it work? • Will it require the occupants to make significant changes in their lifestyles? CANADA MORTGAGE AND HOUSING CORPORATION

14. Results of Consumer Focus Groups • Key Benefits (Top Three by City) CANADA MORTGAGE AND HOUSING CORPORATION

15. Results of Consumer Focus Groups 250 200 150 Weighted Votes 100 50 0 Lower energy bills Healthier living Reduced pollution Reliable energy Greater comfort Affordable • Key Benefits (Overall) CANADA MORTGAGE AND HOUSING CORPORATION

16. Results of Consumer Focus Groups • Key Benefits • Though not on the list, quality of construction was of very great interest. • Men tended to focus on the cost savings. • Women tended to focus on health benefits (e.g. reduce allergies and asthma) first and then linked these to environment benefits. • Calgarians made the link not just to environment but to resource conservation (anticipating future scarcity). • Participants in Whitehorse and Halifax had more interest in security/reliability of energy supply given more frequent blackouts. • There was some confusion about liveable neighbourhoods with many wondering how this was related. CANADA MORTGAGE AND HOUSING CORPORATION

17. Results of Consumer Focus Groups • Key Features (Top Three by City) CANADA MORTGAGE AND HOUSING CORPORATION

18. Results of Consumer Focus Groups • Key Features (Overall) CANADA MORTGAGE AND HOUSING CORPORATION

19. Results of Consumer Focus Groups • Key Features • There was great interest in the possibility of residential renewable energy systems but a general lack of understanding of what the different systems were (e.g. PV, geothermal). • In Calgary and Whitehorse, climate-specific design resonated well. • In Vancouver, participants were more sceptical of solar energy (not enough sun). • None of the features were perceived as negative but there were questions about scope of water reuse. • People liked the idea of liveable neighbourhoods but either did not see how it applied to individual homes being “net zero” or they were sceptical that it might be too utopian. • Low interest in IAQ features seems to contradict high interest in benefits related to healthier living. CANADA MORTGAGE AND HOUSING CORPORATION

20. Results of Consumer Focus Groups • Financial Barriers & Solutions • Expectations are that houses will cost 25-100% more ($50-200K). • Most believe costs will come down over time but that it will take 20 years or more before it becomes available for the mass market. • People willing to pay more if savings justify it - general willingness to pay $15-20K more – some would go as high as $50K. • Some wondered if savings would depend on extensive lifestyle changes. • Some were concerned about finding the extra up-front capital even if it could be shown that the savings justified it. • When informed that cost might be $10-30K more, people were surprised – some accepted it, others remained sceptical and wanted to know how. Most felt that if the added cost of a EQuilibrium house was that low, they would consider buying one if they were in the market. CANADA MORTGAGE AND HOUSING CORPORATION

21. Results of Consumer Focus Groups • Financial Barriers & Solutions • Most want to see evidence of both costs and savings – need to publish detailed financial information. • Many suggested a need for government subsidies – at least in beginning (e.g. reduced CMHC mortgage insurance rates, property tax rebates, etc.). Also interest in cost savings guarantees. • People in Halifax and Whitehorse were less concerned about cost. • It was suggested that application of the concept to multi-unit residences would help spread the costs and lower the cost per unit. • Some suggested obligatory disclosure of energy costs for all house sales. CANADA MORTGAGE AND HOUSING CORPORATION

22. Results of Consumer Focus Groups • Other Barriers & Solutions • Reliability, durability and maintenance - Suggested building model homes - Get personal testimonials - Provide information, clarify benefits, costs and risks. • Willingness/ability of contractors to build quality - Change building codes to enforce higher standards - Provide guarantees on materials, systems, etc. • Location and availability of land - Provide different types of models (e.g. multi-unit models, in-fill models). • Aesthetics not a significant barrier. • Most (but not all) thought Government involvement would provide greater confidence. CMHC has a good reputation and the CMHC imprimatur gave added credibility to the concept. CANADA MORTGAGE AND HOUSING CORPORATION

23. Results of Consumer Focus Groups • Program Positioning • Most participants thought the energy component and the Healthy HousingTMcomponent should have equal weight. • There were mixed views on the “net zero energy” aspect – some thought it would sound too good to be true – some thought it sounded too much like accounting – some thought it might be useful if it could be achieved – many thought it sufficient to focus on very low energy use. • Most frequent suggestions for marketing were: home shows/exhibitions, articles in magazines, internet, brochures in banks and real estate agencies. Several participants suggested sponsoring a TV series or a documentary. • Some felt program needed to leverage existing programs and names (e.g. Energy Star, Novo-Climat). • Others thought it should be a new name: focus on health, on environment, on energy, on costs, on future generations. • Quick suggestions included: “smart”, “enviro”, “natural”, “R3000”, “total energy”. CANADA MORTGAGE AND HOUSING CORPORATION

24. Results of Industry Interviews • Profile of Participants • Build between 5-1200 homes/year. • ¾ are focused on single detached market. • 50% are custom builders; 30% are mass market; remainder are both. • 90% consider themselves “green builders”. CANADA MORTGAGE AND HOUSING CORPORATION

25. Results of Industry Interviews • Market Trends • Demand exceeds supply – consumers want larger, more luxurious homes on smaller lots – some energy efficiency is expected. • Main innovations are: more integrated designs, better materials and more efficient systems, beginning to see more ground-source heat pumps. • New building codes in some provinces, municipal interpretation varies. • Energy price increases not yet fully transmitted to consumers in many provinces. • Shortage of building lots is squeezing builders. • Interest in higher density urban construction is beginning to grow. • Premium energy efficient programs are catching on. CANADA MORTGAGE AND HOUSING CORPORATION

26. Results of Industry Interviews • Participation in Current Programs • Most common are R2000 and provincial equivalents. • Key reasons for participation: build reputation; lead the competition; improve brand recognition. • Not yet translating into market share or profit, consumers not yet demanding these programs in large numbers, but builders do expect to eventually measure success in terms of increased sales. • Many participate because it is the right thing to do and they get satisfaction from building a quality product. CANADA MORTGAGE AND HOUSING CORPORATION

27. Results of Industry Interviews • Current Product Positioning • Products feature both energy efficiency and Healthy HousingTMattributes as very important. • Key messages are: quality; cost performance; green product; benefits of third party certification (i.e. assurance of quality). • Key promotional channels are: verbal discussions with buyers (by far most important); features in promotional materials; websites. CANADA MORTGAGE AND HOUSING CORPORATION

28. Results of Industry Interviews • Promotion of EQuilibrium - Key messages should be: • quality • cost performance • third party certification • green product • specific features (e.g. renewable energy systems) • These are not substantially different from current messaging but may be different in degree – other factors such as off-grid reliability are not considered important • Features that Resonate - Most attractive are likely to be: • IAQ features • Renewable energy systems • Energy efficient appliances and lighting • Home as a complete integrated system CANADA MORTGAGE AND HOUSING CORPORATION

29. Results of Industry Interviews • Barriers • Biggest barrier remains the up-front cost • Perceived risk (complexity of systems, performance and durability) in particular as it relates to the renewable energy systems • Utility regulations re: grid connections • Municipal inspection practices and expectations (i.e. awareness and understanding of improved designs) • Solutions include • Improved financial incentive through appropriate pricing of energy • Need ongoing institutional/government support for innovation and market introduction • Build awareness and understanding of municipalities • Develop framework for third party verification • Need subsidy and marketing assistance for early stages CANADA MORTGAGE AND HOUSING CORPORATION

30. Results of Industry Interviews • Value Proposition – needs to be based on • Stay ahead of the technology curve • Improve product quality • Improve brand recognition • Establish market share in new niche area • Ultimately there will have to be an expectation of increased sales • Program Positioning • There were no dominant themes • Some suggested associating with brands for existing programs (e.g. Built Green, Novo Climat, etc.) • Others suggested associating with larger concepts such as “One Planet Living” CANADA MORTGAGE AND HOUSING CORPORATION

31. Comparison of Focus Groupsand Interviews • In most respects, builders have correctly assessed the perspectives of consumers and views are consistent • Key benefits (quality, cost performance, healthy living, green product) • Key features (renewable energy systems, energy efficient construction) • Key barriers (price, risks) • Some differences • Although consumers rated healthy living highly as a desirable benefit, IAQ features did not resonate with them – builders thought it would • Consumers doubt industry’s capacity to deliver these products • Many consumers believe that governments should regulate EQuilibrium-like standards for all housing CANADA MORTGAGE AND HOUSING CORPORATION

32. Implications • Interest is there among both consumers and builders • Target: • Mass market • Should give equal or more attention to high density development in the urban core as well as single detached homes in greenfield areas • Need to design product to provide seamless transition from traditional design in both form and function • Product Positioning: focus on… • Quality of construction (link to third-party certification) • Cost savings • Healthy living • Reducing pollution • “Not as expensive as you might think” • Features: highlight… • Renewable energy systems • Integrated “whole house” design CANADA MORTGAGE AND HOUSING CORPORATION

33. Implications • Overcoming Barriers: Scepticism regarding costs and savings • Provide demonstrations • Make detailed technical and financial results widely available • Arrange testimonials and third-party coverage (e.g. selected periodicals) • Overcoming Barriers: Concerns about reliability and durability, maintenance, etc. • Provide access to model homes • Arrange testimonials • Provide guarantees • Overcoming Barriers: Concerns about contractor capabilities and trustworthiness • Need government sponsorship and oversight in early market penetration period CANADA MORTGAGE AND HOUSING CORPORATION

34. Implications • Overcoming Barriers: HighInitial Costs • Encourage provinces/utilities to price energy appropriately • Encourage provinces to raise minimum performance standards for all housing • Consider financial incentives – if/when needed to facilitate early adoption • Overcoming Barriers: RegulatoryBarriers • Facilitate resolution of grid connection issues with provinces/utilities • Facilitate resolution of municipal inspection issues in cooperation with FCM CANADA MORTGAGE AND HOUSING CORPORATION

35. Implications • Value Proposition (Consumers) - For minimal extra cost up-front, EQuilibrium will deliver: • Significant cost savings • Improved construction quality • A healthier indoor environment • Equal or better convenience, comfort, aesthetics • Value Proposition (Builders) - For modest investment in improved design, materials, craftsmanship, and renewable energy systems, EQuilibrium will deliver: • Significant early share in a growing market • Head start on the competition • Enhanced reputation for quality and brand recognition • Understanding and experience with key emerging technologies • Increasing sales CANADA MORTGAGE AND HOUSING CORPORATION

36. Implications • Program Positioning • Give equal weight to energy and Healthy HousingTM • Focus on ultra-low energy use and on-site green energy production – as opposed to “net zero energy” • CMHC as facilitator • Sponsor demonstrations • Lead marketing (home shows, media, etc.) • Facilitate process of overcoming barriers • Information clearinghouse CANADA MORTGAGE AND HOUSING CORPORATION