California Green Building Blog

Everyone seems to have a “solution” to the economic problem these days.  One attorney, perhaps a little self-servingly (and rightfully so), implores the government to forgive student loan debt to stimulate the economy. (Click here)   A group of Ohio University students continue with the decades-old mantra that America must protect its economic interest through restrictions on free trade.  (Click here)  While I am able to easily dismiss these solutions as fanciful ideas–more idealistic than pragmatic–there is one recent solution that has caught my attention.

A recent Forbes article written by an ex-Lehman Brothers VP raises an interesting solution to solving the ever-increasing foreclosure problem: subsidizing solar panels for distressed homeowners.  In his article, Robert Luty states that the government has already launched over a trillion dollars in spending programs designed to help distressed homeowners and banks.  His solution would, in his words, “help possibly a million homeowners, unleash strengthened bank capital for new lending and increase gross domestic product with the same solution and at the same time.”  In addition, it “could also make a significant advance in the country’s renewable energy goals in the process.”  Now imagine all of this, with the same trillion dollars the government is already spending.  Talk about teaching a person to fish!

At first glance, I was ready to throw this solution into the “it’s a great idea, but . . .” pile.  However, I decided to read on.  After all, here was a Wharton-educated Wall Street capitalist writing in favor of tree-hugging green technology.

Luty throws some fancy numbers and finance terms around, but the gist of his proposed solution is this:

Imagine an average homeowner who purchases a house in 2006 that loses 25% of its value.  Add to that lost household income of about 20%.  This puts the household’s debt-to-income (DTI) ratio at about 47% (ah, the good old days when your mortgage comprised only 20% of your income).  

Now, he roughly calculates a solar photovoltaic (PV) system would cost about 10% of the home value and generate 100% of the household energy needs.  The total cost of the solar PV system would be subsidized by the government of course.  In return, the homeowner would no longer be subject to increasing energy costs and the value of the solar PV system (both in terms of current energy savings and future potential) would bring the value of the house almost back to its pre-crisis value.  As a result, the homeowner would be able to refinance the home with current low interest rates and lower his or her DTI to the desired 31%.  

Yes, I had some trouble following the logic of a finance guru, but to put it in laymen terms:  (1) create value and equity by adding government-subsidized solar power to the home, (2) refinance the now “detoxified” asset, (3) save money, (4) produce clean energy, and (5) help the environment.  It seems like a win-win situation.

And yet, being the proverbial Chicken Little, I can’t help but be a bit skeptical and pessimistic at this overly-simplistic solution.  As a colleague of mine stated, “People won’t buy into this.  It’s like rewarding irresponsible individuals for overextending themselves.”  Maybe so, but isn’t the government already doing that for the same homeowners and banks?

(Click here for the full article)

* The author of this post is in no way advocating Luty’s proposal.  Rather this post is meant to be a simple observation on how green technology can possibly be an economically viable solution.