Estimating the Value of a FirstEnergy Investment: Habitat for Humanity

Team NEO and the Center for Public Management, Cleveland State University

Issue Studied and Relevance to Habitat for Humanity

The public utility company, FirstEnergy, invested more than $9 million from 2002–2004 in the construction of energy efficient homes with 150 Habitat for Humanity families in Ohio. This study assesses the impact of FirstEnergy’s corporate investment in Habitat for Humanity’s home construction program on the communities, businesses and partner families. Economic impacts of FirstEnergy’s investment included the creation of jobs, increases in state and local revenues, and increases in disposable income for partner families. Non-economic impacts included life changes for the individual, their families and their neighborhoods. Studies such as this one can help in developing a business case for dialogues with other corporations contemplating investment in Habitat for Humanity’s ministry.

Methods

The impact of the investment in Habitat homes on the Ohio economy was estimated using impact modeling. Information on 129 of the 150 homes funded by FirstEnergy was collected from the affiliates. The report outlines the assumptions and steps taken to create a database of means for appraised values, land costs, material costs and labor costs. These means were then used as inputs in the economic impact model “REMI Policy Insight” from Regional Economic Models, Inc. to estimate the spending impact and labor impact on the economy of the state of Ohio.

The impact of FirstEnergy’s investment on the individual families assessed three areas: savings on utilities, subsidy provided by Habitat mortgage and impact of homeownership. The impact of moving into an energy efficient home on the families was determined by using a number of existing low-income weatherization studies to estimate the annual savings in utility costs.

Using information provided by the affiliates on mortgages and house costs, the average annual interest rates for traditional mortgages from the Federal Home Mortgage Corporation, and a 20-year amortization schedule, the annual and total interest subsidy for homeowners was determined. The affects of homeownership on families and neighborhoods was determined by a review of the literature and dialogues with a total of 16 families from two communities.

Key Findings

FirstEnergy’s $9.3 million investment yielded a $14.6 million increase in the Ohio economy over the three-year period. This investment also created an estimated $14.4 million in energy and interest savings, and increased home value for the 150 families over the 20-year life of the mortgages. The investment had a far reaching impact on the families and communities beyond the economic impacts.

The purchase of goods and services for the construction of the 150 homes sponsored by FirstEnergy generated jobs and increased the gross state product of Ohio, leading to increased disposable income and increased revenues for state and local governments. The REMI model estimated that FirstEnergy’s $9.3 million investment resulted in an increase of $11,474,000 in disposable income for Ohio residents, $2,234,500 in state revenues and $860,300 in local revenues over the three years. If the investment and construction had been equally divided over a three-year cycle, the model indicated an investment of $3.1 million by FirstEnergy to build 50 Habitat homes would create 119 jobs (assuming paid labor). These jobs would create $3.9 million in disposable income and just over $1 million in state and local revenues each year.

All of the Habitat homes built through the FirstEnergy program were ENERGY STAR compliant. These energy efficient homes saved the average family moving from a low-income home $460 per year. Over the 20-year mortgage, the 150 families would save close to $1.4 million. In addition to having lower utility bills, the level of comfort improved in the new homes along with a general increase in the quality of life for the family.

Habitat for Humanity’s no-interest 20-year mortgage helps families move into their new home with positive equity and lower monthly payments, resulting in fewer defaults on the loan. The interest-free financing provides the Habitat families with an estimated average annual subsidy of $2,326 per family through FirstEnergy’s investment. The subsidy is valued at close to $7 million for the 150 families assuming a 20-year mortgage.

The report also estimated the future value for the 150 homes using a conservative growth rate of 2 percent. The current assessed value of the homes was $14.5 million. At the end of 20 years at a 2 percent growth rate, the appraised value would be approximately $21.5 million, an increase in total value of $7 million for the families.

Both a literature review and community dialogues with Habitat homeowners were conducted to identify positive impacts of homeownership. Both sources indicate that families perceive homeownership as providing greater stability, a sense of independence and control, an improved financial situation for the family, improved education and skills, and an increased sense of civic responsibility and neighborhood “ownership”.

Implications for HFH

• Philanthropic investment by corporations or foundations in the work of Habitat for Humanity has an immediate and measurable impact on the homeowner families.
• Investment in HFH has considerable economic impact for the community at large. The study reported an increase in gross state product by a factor of 1.5–2.5 over the initial investment, along with increased disposable income and increased state and local revenues.
• Building ENERGY STAR compliant homes saves recipient families money and improves the comfort of their homes.
• By documenting the broad impacts of HFH on families and communities, the study can be helpful in developing business cases for soliciting investment from corporations or foundations.

Questions for Reflection

• How do we utilize this study or similar studies to develop a business case for partnering with other entities? What is unique about our program that will encourage others to invest in HFH? What are the tangibles/intangibles that bolster our business case?
• Do we maintain sufficient records to document how the investment is utilized? Can we provide updates on progress in a timely manner? If not, what systems do we need in place to improve our response? Are we demonstrating that we are good stewards of the investment? Are we developing the relationship so that they might want to continue the partnership?
• What are all the ways in which a Habitat for Humanity affiliate impacts its community beyond the houses built or renovated? What challenges are faced when attempting to document the impact of Habitat on a community? What affiliate and community resources can be leveraged to assist in the reliable and valid documentation of Habitat’s impact?
• Have we effectively determined and documented the economic and social benefits of the Habitat for Humanity program on our homeowners? Who could benefit from knowing this information? How can we share this information?

Sources Used in Study

Information from affiliates on designs, costs, mortgages, outside subsidies, etc.
Weatherization Assistance Program evaluations from public utilities
Impact model — REMI Policy Insight

Contacts on project:

Douglas Harper – Habitat for Humanity: dharper@habitat.org

Delores Jones – FirstEnergy; jonesd@firstenergycorp.com

Jim Robey –TeamNEO: jrobey@TeamNEO.org

Full Paper

The entire paper is available at the following address: http://elearning.hfhu.org/hfhu/documents/research/firstEnergy.pdf
A presentation of this material is available here: http://elearning.hfhu.org/hfhu/documents/research/firstEnergy.ppt