Literature Review on Green Cost Premium Elements of Sustainable Building Construction

Despite evidence that sustainable construction practice has numerous environmental, economy and societal benefits, many construction practitioners have failed to support sustainable construction practice due to perceive higher initial cost known as “green cost premium” when compared to traditional construction practice. Hence, the factors of green cost premium that are commonly cited as a crucial barrier toward sustainable construction practice must be investigated. Based on the analysis of the existing literature (e.g.: conference paper, journal article), there are 27 factors, that classified into seven elements, that contribute to the cost differential. However, few studies have been conducted on green cost premium in developing countries. Therefore, this study attempts to fill this gap and is expected to contribute to the discussion on green cost premium to improve sustainable construction implementation.  

Building construction cost; Green cost premium; Sustainable building construction; Sustainable building construction cost

Today, people has become more aware of the negative impacts of unsustainable economic growth, rapid development, the industrial revolution, and increased natural resource consumption (Whang & Kim, 2015; UNDP, 2017). The importance of sustainable development to protect the environment and to ensure peace and prosperity has been gaining recognition around the world (UNDP, 2017). The construction industry is one of the biggest contributors to environmental problems due to improper construction activities (Afzan, 2016), which lead to increased carbon emissions, climate change, resource scarcity, and waste generation (Dadhich et al., 2015). Wu et al. (2014) found the building sector could help in minimizing the environmental impact if appropriate construction practice, sustainable materials, and sustainable technologies were used. Therefore, sustainable construction has been introduced to mitigate these issues (Afzan, 2016; CIDB, 2016), and it is considered one of the most important factors to attain sustainable development (Whang & Kim, 2015).

However, even though numerous researches have highlighted the benefits of sustainable construction practice (Abidin, 2010; Sundayi et al., 2015; Whang & Kim, 2015; Afzan, 2016; Meron & Meir, 2017), construction practitioners seem to have little interest in adopting sustainable construction practice (Yahya & Abidin, 2013; Brennan & Cotgrave, 2014; Rostami et al., 2015; Afzan, 2016; Darko et al., 2017). Surveys have indicated this lack of support is due to the higher initial cost of sustainable building construction, which is termed “green cost premium” (Ahn et al., 2013; Bahaudin et al., 2013; Hwang & Ng, 2013; Brennan & Cotgrave, 2014; Shang & Peng, 2014; Qian et al., 2015; Sundayi et al., 2015; Afzan, 2016; Dodge Data & Analytics, 2016; Dwaikat & Ali, 2016; Mao et al., 2016; Amiril et al., 2017; Hwang et al., 2017).  The following are several examples explaining the current problem regarding sustainable building construction and its higher initial cost:

·   A study conducted on various types of sustainable buildings, such as residential, educational, office, commercial, public buildings, and health facilities, showed that the additional cost to construct such buildings is up to 12.5% (WorldGBC, 2013) and 5% to 10% (Hwang et.al, 2017) of the total construction budget. 

·    To construct sustainable schools, there were additional construction costs of 2% (Kats, 2014), 2.5% to 2.7% (ILGBC, 2014), and an average of 14.5% (Meron & Meir, 2017), as compared to traditional school construction. 

·    Suruhanjaya Tenaga, with a platinum certificate, and the First Avenue office building, with a gold certificate, incurred green cost premiums of 6% and 9%, respectively (GBI, 2017).

·    Based on a case study analysis of 10 sustainable office buildings, additional construction cost is found to be 5% to 8% (Halim, 2012). 

·    To provide environmentally sustainable buildings and development, the cost was about 10% to 15% higher than traditional building construction (Shari & Soerbarto, 2012).

This paper found that green cost premium is being widely associated with sustainable construction and is a crucial barrier toward sustainable construction practice implementation. The objective of this study was achieved, as it identified 27 green cost premium factors classified them into seven elements. 

However, some limitations emerged that will be the basis for further study. First, most of the studies only identified the factors that contribute to green cost premium but did not address the interrelationship among the factors nor their significance levels. Second, the solutions to minimize the green cost premium were suggested without identifying the root causes. Therefore, future research must analyze the interaction between green cost premium factors and rank them according to their significance. Furthermore, future research must identify the root causes of green cost premium factors, as well as possible strategies to minimize the sustainable building construction project cost, with the expectation to improve sustainable construction implementation in Malaysia.

Abidin, N.Z., 2010. Investigating the Awareness and Application of Sustainable Construction Concept by Malaysian Developers. Habitat International, Volume 34(4), pp. 421–426

Afzan, A.Z., 2016. A Model for Implementation of Green Construction. PhD Dissertation, Universiti Teknologi Mara, Shah Alam, Malaysia

Ahn, Y.H., Pearce, A.R., Wang, Y., Wang, G., 2013.  Drivers and Barriers of Sustainable Design and Construction: The Perception of Green Building Experience. International Journal of Sustainable Building Technology and Urban Development, Volume 4(1), pp. 35–45

Ametepey, O., Aigbavboa, C., Ansah, K., 2015. Barriers to Successful Implementation of Sustainable Construction in the Ghanaian Construction Industry. Procedia Manufacturing, Volume 3, pp. 1682–1689

Amiril, A., Nawawi, A.H., Takim, R., Ab-Latif, S.N.F., 2017. The Barriers to Sustainable Railway Infrastructure Projects in Malaysia. The Social Sciences, Volume 12(5), pp. 769–775

Arumugam, S., Sumanarathna, N., Perera, K.K.S., 2015. Transaction Costs of Green Office Building Construction in Sri Lanka. In: 8^th FARU International Conference, Sri Lanka, pp. 78–91

Bahaudin, A.Y., Elias, E.M., Saifudin, A.M., 2013. A Comparison of Green Building Criteria. In: the 3^rd International Building Control Conference (IBCC) 2013, Kuala Lumpur, November 2013, pp. 1–10

Bandy, R., Danckaert, C., Fetscher, G., Holmes, B., Gale, M., Mirsky, M., Stewart, S., 2007. Leed in Upstate New York: An Exploration of Barriers, Resources and Strategies. US Green Building Council (USGBC), New York, USA

Brennan, M.C., Cotgrave, A.J., 2014. A Qualitative Inquiry into the Current State of the UK Construction Industry. Structural Survey, Volume 32(4), pp. 315–330

Construction Industry Development Board (CIDB), 2003. Industrialized Building System (IBS) Roadmap 2003-2010. Available Online at http://ibsportal.cidb.gov.my/publication, Accessed on December 15^th, 2017

Construction Industry Development Board (CIDB), 2016. Eleventh Malaysia Plan: Pursuing Green Growth for Sustainability and Resilience. Available Online at http://www.cidb.gov.my, Accessed on May 16^th, 2018

Construction Research Institute of Malaysia (CREAM), 2014. Issues and Challenges in Implementing BIM for SME’s in The Construction Industry. Available Online at https://www.cream.my/main/index.php/publication/seminar-workshop-materials, Accessed on October 31^st, 2017

Dadhich, P., Genovese, A., Kumar, N., Acquaye, A., 2015. Developing Sustainable Supply Chains in the UK Construction Industry: A Case Study. International Journal of Production Economics, Volume 164, pp. 271–284

Darko, A., Chenzhuo, Z., Chan, A. P. C., 2017. Drivers for Green Building: A Review of Empirical Studies. Habitat International, Volume 60, pp. 34–49

Dodge Data & Analytics., 2016. World Green Building Trends 2016. Available Online at http://www.construction.com, Accessed on October 17^th, 2017

Dwaikat, L.N., Ali, K.N., 2016. Green Buildings Cost Premium: A Review of Empirical Evidence. Energy and Buildings, Volume 110, pp. 396–403

El-Haram, M.A., Marenjak, S., Horner, M.W., 2002. Development of a Generic Framework for Collecting Whole Life Cost Data for the Building Industry. Journal of Quality in Maintenance Engineering, Volume 8(2), pp. 144–151

Fuller, S., 2016. Life Cycle Cost Analysis. Available Online at http://www.wbdg.org, Accessed on December 20, 2017

Green Building Index (GBI), 2017. Myth and Truth About GBI. Available online at http://new.greenbuildingindex.org/faq, Accessed on November 10^th, 2017

Halim, M., 2012. Economic Issues on Green Office Buildings in Malaysia. National Property Information Centre, Valuation and Property Service Department, Ministry of Finance, Malaysia

Hamid, Z.A., 2016. Mampan to Drive Sustainable Construction in Malaysia. Available Online at http://www.cream.my/mampan, Accessed on January 5^th, 2018

Houghton, A., Vittori, G., Guenther, R., 2009. Demystifying First-cost Green Building Premiums in Healthcare. Health Environments Research and Design Journal, Volume 2(4), pp. 10–45

Huovila, P., Koskela, L., 1998. Contribution of the Principles of Lean Construction to Meet the Challenges of Sustainable Development. In: 6^th Annual Conference of the International Group for Lean Construction, Guarujá, Brazil

Hussin, J.M., Rahman, I.A., Memon, A.H., 2013. The Way Forward in Sustainable Construction: Issues and Challenges. International Journal of Advances in Applied Sciences, Volume 2(1), pp. 15–24

Hwang, B.G., Tan, J.S., 2012. Sustainable Project Management for Green Construction: Challenges, Impacts and Solutions. Available Online at: https://www.researchgate.net/ publication/ 262804796, Accessed on November 7^th, 2017

Hwang, B.G., Ng, W.J., 2013. Project Management Knowledge and Skills for Green Construction: Overcoming Challenges. International Journal of Project Management, Volume 31(2), pp. 272–284

Hwang, B.G., Zhu, L., Wang, Y., Cheong, X., 2017. Green Building Construction Projects in Singapore: Cost Premiums and Cost Performance. Project Management Journal, Volume 48(4), pp. 67–79

Kamar, K.A.M., Hamid, Z.A., 2011. Sustainable Construction and Green Building: The Case of Malaysia. WIT Transactions on Ecology and the Environment, Volume 167, pp. 15–22

Kats, G., 2014. Israeli Green Buildings: Cost and Financial Benefits. Available Online at http://www.cap-e.com, Accessed on November 15^th, 2017

Latief, Y., Berawi, M.A., Basten, V., Budiman, R., Riswanto, 2017. Premium Cost Optimization of Operational and Maintenance of Green Building in Indonesia using Life Cycle Assessment Method. AIP Conference Proceedings, Volume 1855(1), pp. 020007-1-020007-9 

Malin, N., 2002. Life-Cycle Assessment for Buildings: Seeking the Holy Grail. Environmental Building News, Building Green Inc., Volume 11(3)

Mao, C., Xie, F., Hou, L., Wu, P., Wang, J., Wang, X., 2016. Cost Analysis for Sustainable Off-site Construction based on a Multiple-case Study in China. Habitat International, Volume 57, pp. 215–222

Meron, N., Meir, I.A., 2017. Building Green Schools in Israel. Cost, Economic Benefits and Teacher Satisfaction. Energy and Buildings, Volume 154, pp. 12–18

Nurul Zahirah, M.A., Abidin, N.Z., 2012. Main Elements of Soft Cost in Green Buildings. International Journal of Economics and Management Engineering, Volume 6(12), pp. 3601–3606

Qi, G.Y., Shen, L.Y., Zeng, S.X., Jorge, O.J., 2010. The Drivers for Contractors ‘Green Innovation: An Industry Perspective. Journal of Cleaner Production, Volume 18(14), pp. 1358–1365

Qian, A.Y., Foong, W.K., 2013. A Cost Management Approach to Sustainable Construction: Maximizing Value via Cost Engineering Techniques. In: Proceedings of the SB 13–Realizing Sustainability in the Tropics, Singapore, pp. 235–242

Qian, Q.K., Chan, E.H.W., Khalid, A.G., 2015. Challenges in Delivering Green Building Projects: Unearthing the Transaction Costs (TCs). Sustainability, Volume 7(4), pp. 3615–3636

Rostami, R., Khoshnava, S.M., Rostami, R., Lamit, H., 2015. Green and Sustainable Policy, Practice and Management in Construction Sector, A Case Study of Malaysia. Research Journal of Applied Sciences, Engineering and Technology, Volume 9(3), pp. 176–188

Royal Institute of British Architects (RIBA), 2013. RIBA Plan of Work. Available Online at http://www.architecture.com, Accessed on August 23, 2018

Saleh, M.S., Alalouch, C., 2015. Towards Sustainable Construction in Oman: Challenges & Opportunities. Procedia Engineering, Volume 118, pp. 177–184

Shang, G., Pheng, L.S., 2014. The Last Planner System in China’s Construction Industry — A SWOT Analysis on Implementation. International Journal of Project Management, Volume 32, pp. 1260–1272

Shari, Z., Soebarto, V.I., 2012. Delivering Sustainable Building Strategies in Malaysia: Stakeholders’ Barriers and Aspirations. Alam Cipta, Volume 5(2), pp. 3–11

Shi, Q., Zuo, J., Huang, R., Huang, J., Pullen, S., 2013. Identifying the Critical Factors for Green Construction – An Empirical Study in China. Habitat International, Volume 40, pp. 1–8

Sundayi, S., Tramontin, V., Loggia, C., 2015. An Investigation into the Cost and Benefits of Green Building in South Africa. In: World Congress on Sustainable Technologies (WCST), 14-16 December 2015, London

Tam, C.M., Tam, V.W.Y., Tsui, W.S., 2004. Green Construction Assessment for Environmental Management in the Construction Industry of Hong Kong. International Journal of Project Management, Volume 22(7), pp. 563–571

The Israeli Green Building Council (ILGBC), 2014. The Cost of Green Sustainable Construction of School in Israel. The Israel Ministry for Environmental Protection and the Israel Green Building Council (ILGBC), Tel Aviv

United Nation Development Programme (UNDP), 2017. What Are the Sustainable Development Goals? Available Online at http://www.undp.org/content/undp/en/home/sustainable-development-goals.html, Accessed on August 2^5th, 2018

Whang, S.W., Kim, S., 2015. Balanced Sustainable Implementation in the Construction Industry: The Perspective of Korean Contractors. Energy and Buildings, Volume 96, pp. 76–85

World Green Building Council (WorldGBC), 2013. The Business Case for Green Building—A Review of the Costs and Benefits for Developers, Investors and Occupants. Available Online at: http://www.worldgbc.org, Accessed on November 15, 2017

Wu, P., Low, S.P., Xia, B., Zuo, J., 2014. Achieving Transparency in Carbon Labelling for Construction Materials – Lessons from Current Assessment Standards and Carbon Labels. Environmental Science & Policy, Volume 44, pp. 11–25

Yahya, I., Abidin, N.Z., 2013. Commitment of Malaysian Contractors for Environmental Management Practices at Construction Site. International Journal of Sustainable Human Development, Volume 1(3), pp. 119–127

Zhang, X., Platten, A., Shen, L., 2011. Green Property Development Practice in China: Costs and Barriers. Building and Environment, Volume 46(11), pp. 2153–2160