Some Thoughts about Durability and Financing

Jorge Dominguez has been building earthbag  houses in Hawaii for  some time, and he recently emailed me some of his thoughts about this way of building as it relates to durability, financing, and insurance. I think that he has touched on some very important issues that I would like to share with you.

“I was originally against asking banks for financing for earthbag structures. I don’t think I am going to do it for my experimental home on the Big Island, but I think that for bigger projects there is no way to do them without some kind of loan from a bank. My guess is that if I ask for a loan for an earthbag building, it is going to get rejected in 5 minutes.  They don’t care much about the process of building and the environmental benefits of earthbags. All they care about is the bottom line, whether they can make a profit or not.”

“The current real estate meltdown is proof that something is inherently wrong with the way homeowners get financing from banks. It seemed like almost everyone was playing a speculators game with homes that were not meant to last long. It appears that banks favor building with economies of scale using prefabricated materials. Sure, this way of building can guarantee low costs in the short run, provided that transportation costs do not rise that fast. Crossing fingers that oil prices will not go over the roof can make this model look good. But what nobody seems to be questioning is how long do these homes built with prefabricated materials last.”

“The typical definition of homeowner is somebody who gets financing from a bank, and moves in with his family to the new home after having been approved for a loan and giving a small deposit. But let’s be realistic: this is not owning a home, more accurately you are a home debtor.”

“Banks should give priority to homes that have a long life. If your home begins to deteriorate in 20 years, we cannot call that a fixed asset. A big incentive for owning a home is  creating value for your descendants. What is the point in signing up for a 30 year loan, if the home is going to last only 20 years? Sure, someone can tell us that you can extend the lifetime of a home with the proper maintenance, but is it common to see a home that lasts 100 years? What about ancient culture’s way of building? With very little technology, there is living proof of still standing structures built by the Aztecs, Greeks, Romans, Mayans.”

“We would like banks to start financing earthbag building, because not only it is environmentally correct, but it is a super durable material. Banks should not focused entirely on the big guys with their economies of scale. They should think outside the box, and provide funding for do-it-yourself builders. Earthbag or super adobe building is extremely economical on materials. The only real costs are the hauling of earth, sand and gravel short distances. These materials are so abundant in nature that there is no risk of depleting natural resources like is the case with wood.”

My sister who also lives in Hawaii and is a professional real estate appraiser had this to say on these issues:

“I agree with you whole-heartedly about the sustainability issues around earthbag and other alternative building practices.  It does seem crazy to build with wood where the moisture levels are so extreme, and termites are prevalent.  All the lava is used for rock walls, and I haven’t seen one home made out it. I have seen first hand what a short time of negligence can do in this climate to traditional homes.”

“Unfortunantely, what the banks are looking for is conformity and security, especially now with the mortgage crisis that is still spiralling down here, with tons of short sales and foreclosures and more yet to come.  Of the properties for sale in my subdivision 40-45% are distressed properties.”

” Conformity is good for banks and appraisers because it makes comparison simple and is a good way to conclude value.  Examples of homes that are considered to be less market approved of are A-frame homes, domes, and those built with alternative building materials.”

“County codes and regulations are a kind of Bible for banks and if the local planning department accepts a building it is considered to be okay.  In approaching a bank for a loan on an earthbag home your best bet is to have as much blessing and documentation from the planning and building departments as you can get.  You will be more likely to secure a loan if you have more than 20% down payment.  No doubt the loan will be at a higher interest rate due to “risk” factors of market acceptance, and you will not get the loan amount that a conventional home would.  Domes, for instance, require a discount in the appraisal for what is called “functional obsolescence” which means most buyers would reject it.  It therefor is not as functional in the arena of buyers and sellers.  This discount can be 10% of the value or more, so you would have to anticipate this.”

“There are more signs that the green movement is becoming more mainstream.  There are now classes for appraisers about green homes and commercial buildings and it is gaining momentum.  Accepting alternative materials is a next step.”