Why availability is the new affordability when it comes to home buying

 Jon Gorey - Globe Correspondent, 

Realtors and housing experts are warning of a difficult spring for first-time home buyers. Prices had climbed for seven straight years before skyrocketing during the pandemic. With buyer demand far outpacing the number of homes for sale, median home prices were up 12.9 percent in December compared with the year before, marking the 106th consecutive month of year-over-year price gains, according to the National Association of Realtors.

And incomes haven’t kept pace with those fast-rising home prices. Even before the pandemic, “prices were about 4.3 times higher than the median household income,’’ said Alex Hermann, senior research analyst at Harvard’s Joint Center for Housing Studies. That basic measure of housing affordability, already at its worst level since 2006, almost certainly rose again in 2020. “Nationally, price-to-income ratios have risen for eight straight years,’’ he said.

Realtors are watching prices slip out of reach for their first-time buyers in real time. “I’ve seen properties that were listed just a few months ago at one price come back on the market in January or February at a higher price, so that tells you everything you need to know,’’ said Alexander Jean-Baptiste, in-house realtor with the Massachusetts Affordable Housing Alliance. “It can be a little disheartening to watch, right before our very eyes, people getting priced out not over the course of years, but over the course of months, or even a matter of weeks.’’

In the Boston area, even a household earning $100,000 could afford to buy only 23 percent of the homes listed for sale in December, according to NAR senior economist Nadia Evangelou. That calculation assumes a 20 percent down payment, and an affordable mortgage payment is defined as one that doesn’t exceed a quarter of a household’s income.

And yet, by some measures, homes have actually gotten more affordable since 2018. How can that be?

Interest rates.

“The cost of a $400,000 mortgage can drop $220 a month when the rate falls from 4 percent to 3 percent,’’ Evangelou said. And average rates on a 30-year mortgage hit record lows in 2020.

“We’ve seen a long-term decline in interest rates going back to the ’70s, especially in the last year,’’ Hermann said. In July, the average rate on a 30-year fixed-rate mortgage on Freddie Mac’s Primary Mortgage Market Survey dipped below 3 percent for the first time in its nearly 50-year history. Those record-low rates allow buyers to purchase a more expensive home without any change to their monthly mortgage payment.

In fact, when you look not just at home prices, but at the monthly cost of homeownership when adjusted for inflation, the mortgage payment on a median-priced American home is pretty much the same today as it was 20 years ago, if not lower. “According to our Housing Affordability Index, housing is more affordable now compared to 1980 and 2000,’’ Evangelou said.

For example, the median price of a Massachusetts single-family home was $460,000 in 2020. With a 10 percent down payment, a 30-year mortgage at 3.11 percent (the average rate over the course of 2020) would carry a monthly payment of $1,770, before taxes and insurance.

Back in 2000, the state’s median home price was $185,700, but the average rate on a 30-year mortgage was 8.05 percent, closer to the long-term average. That mortgage would have cost $1,232 a month — or $1,852 in today’s dollars, after adjusting for inflation. Even the bargain home prices of the early 1980s were offset somewhat by double-digit interest rates that seem more akin to credit card rates of today.

“The fact that the rates are low right now, that is basically the only good thing we have going for us as home buyers,’’ said Dana Bull, a realtor at Sagan Harborside Sotheby’s International Realty in Marblehead.

But that mortgage affordability, however welcome, comes with a caveat, Hermann said. “Higher home prices are often going to require a larger down payment, which is often the biggest barrier to accessing homeownership, especially for first-time buyers with low or moderate incomes,’’ he said. And most measurements of home affordability are missing that key data point: the ability to make a down payment. “That’s the biggest blind spot in these measures.’’

While low down-payment loans are available for first-time home buyers, a $50,000 price jump can quickly add thousands of dollars in upfront costs to a home purchase. And first-time buyers with scant down payments can have a harder time winning bidding wars against buyers with more cash on hand.

“A lot of times sellers want to go with a sure thing over the person who has to get more through lending,’’ said Daryl Fairweather, chief economist at Redfin. “And if the price escalates, and you have to come up with more of a down payment, but you’re already at your limit … you’ll get priced out faster than somebody who has more savings.’’

Buyers who are able to waive inspection or financing contingency clauses also have an advantage in multiple-offer situations, Fairweather said. And that further favors buyers with enough savings to absorb the “hidden risks’’ of a competitive housing market. “If something comes up during the home inspection that they have to pay for, or if their bank decides that the price is too high and it doesn’t get appraised at the price they paid for it, then they have to pay more out of pocket in cash,’’ she said.

‘A lot of times sellers want to go with a sure thing over the person who has to get more through lending.’ — Daryl Fairweather

Bull said availability has overtaken affordability as the big concern among her buyers. “The main talking point now is there’s nothing to buy,’’ she said. “People are willing, and able, in a lot of these situations, to spend $900,000 or a million dollars on a property that they deem worth it. But that’s the issue, finding a property that’s worth it when there’s nothing to choose from.’’

“It’s a hyper seller’s market right now,’’ said Steve Medeiros, president of the Massachusetts Association of Realtors. With less than a month’s supply of homes on the market in December, Medeiros said — down from two months in December 2019 and a 4½-month supply in 2015 — there are more buyers than inventory, and simply being able to afford a home doesn’t guarantee you’ll be successful in purchasing one. “I just had a listing, we had seven offers on the property,’’ he said. “But only one person can buy it.’’

“It’s tough out there,’’ said Adam Rosenbaum, realtor at Century 21 Adams KC in Arlington. “Yes, rates are low, which means greater purchasing power — but that’s true for everyone. Supply and demand still rule.’’ Rosenbaum has younger clients who have submitted three offers over the asking price but have yet to land a winning bid.

Medeiros said there’s hope on the horizon in the form of new construction, though it will take a while before enough new housing hits the market to relieve price pressure. New housing starts and construction permits have recovered from an early pandemic dip, and the long pushed-for “Housing Choice’’ measures in the state’s recently passed economic stimulus bill will eventually boost inventory by encouraging denser development near MBTA stations and allowing towns to approve new projects and accessory dwelling units by a simple majority vote.

One recent development is helping some home buyers right now, though. Those who expect to continue working remotely at least part of the time going forward are now able to consider more distant — and more affordable — areas. “I’m now regularly working in towns that I previously rarely visited,’’ Rosenbaum said.

The pandemic push toward open, suburban spaces has also improved affordability in downtown Boston. “The best spot to be in right now is buying in a complex in the city,’’ Bull said. “The worst spot is if you’re trying to buy a single-family in an entry-level to mid-level price bracket outside the city.’’

Whatever the larger trends are, however, affordability ultimately comes down to whether individual buyers can afford the home they want. And against a pandemic that has laid waste to entire industries while buoying others, that varies dramatically. While millions of Americans have lost work or income in the past year, others have kept drawing steady salaries. Even as many in the first group are struggling to make rent, much less to save for a down payment, some white-collar workers have managed to pad their savings in a year with minimal commuting or vacation expenses.

Jean-Baptiste said some of his clients have had to put their home searches on hiatus due to a job loss or other misfortune. Meanwhile, others have gone back to their lenders and discovered they now qualify for a larger loan due to lower interest rates. That’s a bright spot, Jean-Baptiste said. “Instead of being at the back end of a multiple-offer situation, now they’re toward the top — they’re actually getting the properties,’’ he said.

Bull is also surprised by how fluid people’s budgets have become and how what they consider “affordable’’ can completely change by the week. In the past, she said, buyers had a set amount they could afford to pay each month, and it took a lot to change that. But between the scrapped vacations, postponed weddings, and shifting child-care plans of the pandemic, people’s finances have been in greater flux, often resulting in extra savings.

And more often than not, “they’re willing to put that money towards a home,’’ Bull said. “Because that’s the most important thing in everybody’s lives right now — being at home.’’

Jon Gorey blogs about homes at HouseandHammer.com. Send comments to jongorey@gmail.com. Follow him on Twitter at @jongorey. Subscribe to our free real estate newsletter at pages.email.bostonglobe.com/AddressSignUp.

Nekoliko činjenica o Jugoslaviji i njenim Makedoncima

Burlesknu izjavu makedonskog premijera Zorana Zaeva, o tome kako je Jugoslavija „razdvajala i držala daleko Bugare i Makedonce”, treba posmatrati u sklopu kolaža skarednih i isprepletenih trendova tipičnih za post-jugoslovenske političare, koje najčešće odlikuje gubitak državničkog i diplomatskog samopoštovanja, ali i neumjesno promovisanje istorijskog revizionizma.

„Jugoslavija je mrtva!”, povik je koji horski odzvanja iz usta svih naših etno-nacionalista i državotvoraca u posljednjih nekoliko decenija. Sa druge strane, slovenački etnolog Božidar Jezernik slikovito podsjeća na latinsku izreku: De mortuis nil nisi bonum (O mrtvima sve najbolje…) i postavlja pitanje: „Ako je Jugoslavija doista mrtva, zašto mnogima i danas toliko smeta?” Hm.

Makedonskom premijeru, međutim, nije sporna aneksija Vardarske Makedonije, izvedena od strane tadašnje Kraljevine Bugarske (a pod patronatom nacističke Njemačke), koja nije bila tek „neka administracija (…) na početku”, već klasična uzurpacija i okupacija teritorije susjedne zemlje, koja je trajala sve do septembra 1944. godine. Zaevu je, razumije se, sporna Jugoslavija (!) čije je Antifašističko vijeće narodnog oslobođenja u novembru 1943. godine donijelo zaključak da su Makedonci samosvojan i suveren narod, a Makedonija ravnopravna republika unutar nove Jugoslavije.

Ista ta Jugoslavija je, po završetku Drugog svjetskog rata, uslovila normalizaciju odnosa sa Bugarskom: 1) priznanjem makedonske nacionalne posebnosti od strane NR Bugarske; 2) prenošenjem zemnih ostataka Goce Delčeva iz Sofije u Skoplje, čiji je ceremonijalni prenos izveden u oktobru 1946. godine. (fun fact: Delčev je jedna od najvažnijih ličnosti u istoriji Sjeverne Makedonije, koja se spominje (čak) i u tekstu makedonske državne himne.) Bugarska je na koncu priznala postojanje makedonske narodnosti i omogućila učenje makedonskog jezika u Pirinskoj Makedoniji (jugozapadnoj Bugarskoj), pa su se iste godine, na tamošnjem popisu stanovništva, preko 150 hiljada ljudi izjasnili kao nacionalni Makedonci.

U ljeto 1947. na Bledu će doći do potpisivanja više bilateralnih sporazuma (u istoriografiji poznatih kao Bledski sporazumi), u okviru kojih je predviđeno formiranje carinske unije između Jugoslavije i Bugarske. Tim povodom, Jugoslavija je zvanično izjavila da se odriče 25 miliona dolara, koje je Bugarska bila dužna da joj isplati na račun ratne odštete. Jugoslavija je, međutim, zahtijevala da se Makedoncima u Bugarskoj obezbijedi pravo na nacionalnu, ekonomsku i kulturnu autonomiju, sa konačnim ciljem da se Pirinska Makedonija u budućnosti priključi novoj makedonskoj republici.

Ipak, po eskaliranju diplomatskog sukoba između Jugoslavije i SSSR-a i objavljivanja Rezolucije Informbiroa (1948), zvanična Bugarska je odbacila koncept makedonske kulturne autonomije i zabranila upotrebu makedonskog jezika u školama, u Pirinskoj Makedoniji. Od tog vremena započinje proces negiranja i nipodaštavanja makedonske nacionalne posebnosti, da bi već od 1958. Bugarska komunistička partija zauzela zvaničan stav da makedonski narod i makedonski jezik – ne postoje.

U međuvremenu, u okviru Jugoslavije, Socijalistička Republika Makedonija je po prvi put u istoriji uspostavila organe moderne državne vlasti. Osnovano je Makedonsko narodno pozorište (1945), zatim univerziteti u Skoplju (1949) i Bitolju (1979), formirana je Makedonska akademija nauka i umjetnosti (1967), a makedonski narod je Ustavom SFRJ iz 1974. godine dobio konstitucionalno pravo na samoopredjeljenje, koje će u konačnici iskoristiti u septembru 1991, nakon čega će (Sjeverna) Makedonija postati nezavisna država.

Ispostavlja se da su Makedonci jedino mogli biti Makedonci… i da je Makedonija (bez ikakvih pridjeva i prerogativa) mogla uistinu biti Makedonija… samo u krilu one mrtve (?) i sirote kraljice. Zato je nužno, na kraju, parafrazirati naslov ove kolumne: bilo je ovo zapravo svega nekoliko činjenica o Makedoncima i njihovoj Jugoslaviji.

Autor je asistent na katedri za političku istoriju, na Humanističkim studijama (UDG) u Podgorici.

Vijesti, 26.11.2020.

Peščanik.net, 27.11.2020.

JUGOSLAVIJA

Monash University’s latest Passive House showstopper throws out the rulebook

BY POPPY JOHNSTON / 19 NOVEMBER 2020

The approach at Monash University’s latest Passive House building is about “embracing rather defending” the sun, allowing for a more circadian experience. “Passive House is typically about keeping the sun out. We were doing the opposite”, the architects say.

The five-storey 23,000sqm Woodside Building for Technology and Design really puts the tired Passive House stereotype of a windowless box to rest.

The building bears the Woodside name because the energy company plans to “support research opportunities within the building”, Monash Pro-Vice Chancellor (Academic) Kris Ryan told the Architectural Record. [We look forward to holding Australia’s largest oil and gas company to that.]

The building’s lofty steel frame in a rusty, Ironbark-inspired red, most notably has the long façade facing east to west – a departure from the usual north–south orientation used to control solar gain in many energy efficient buildings.

This orientation allows the sun to illuminate the public realm at all times, says Andrew Cortese, managing partner in Grimshaw’s Sydney studio, allowing “permeability through the east and west”.

“We wanted to embrace the sun for its amenity,” he told The Fifth Estate.

“If it’s facing north you have one side with great aspect and amenity, but the south is overshadowed.”

The east-west orientation captures the best of both the morning or afternoon sun, and also makes the most of the views to the east and west. Deep shaded high-performance facades help reflect glaring bright daylight deep into the interior.

The location of different spaces internally also helps manage the load, with the larger spaces with the biggest operational loads in the middle of the building (naturally lit with skylights).

Smaller breakout spaces and collaborative spaces are located on the perimeter of the building, where external loads are higher. Heavy load rooms on the eastern side are design studios that open to a terrace for outdoor experiments.

Cortese describes the approach as “embracing rather defending” the sun, allowing for a “more circadian experience”.

“Passive House is typically about keeping the sun out. We were doing the opposite.”

Despite its permeability, the building is 50 per cent solid.

Throwing out the rulebook

Cortese admits it wasn’t easy to go against the grain on established passive design principles but says it was equally important to provide a premium learning environment. And this meant getting plenty of natural light in and around the building to really anchor it into campus life.

“This was the architectural and engineering challenge.”

It was a tough job for both the architects and the engineers, Aurecon, that was made possible with sophisticated modelling to understand the interaction of the building with its climate very early in the design process.

“There’s a lot innovation in the design.”

One benefit of taking a holistic approach to solar load management is no sophisticated additions to defend and control the load.

“You don’t want to design a great facade then all this expensive engineering to make it work.”

As such, the builders on the project, Lendlease, only projected modest increases in project costs compared to one built to standard building code energy efficiency standards.

“The challenge for architects is proving that this level of performance doesn’t need to be a significant cost.”

And with the building running off about 35 per cent of the energy used to keep a building code compliant building comfortable, there’s generous savings on operational energy.

“It’s intelligent design… you get this great simplicity in the building.”

The size of the building also helped it hit its performance goals because a large volume and relatively small surface area helps minimise heat escape.

Why steel?

When questioned about the use of steel, Cortese says he recognises that operational energy is only one part of the equation in the pursuit of low carbon buildings

“We’re doing a lot of work on decarbonisation pathways.”

While timber was investigated as a low carbon alternative, he says that because timber is usually imported from Europe, the actual embodied energy is not much different to concrete or steel.

“We hit that with a high degree of realism.”

Cortese also says that Grimshaw has a legacy of modular design, which helps reduce waste, redundancy and labour-intense bespoke work. A building built this way fits into a tight system of geometrical modulisation made up of standardised panel sizes and materials.

“You use that repetitive system with variation to get different outcomes.”

The other way to reduce embodied carbon, he says, is for “the building to be made of the materials it is made of”.

“The structure becomes the architecture – we’re not using materials to get the effect of surface variation, it expresses what it’s made of.”

Other sustainability features include rooftop PV panels connected to the Monash microgrid (which helps with the building’s energy budget), distributed services and vertical circulation and a rooftop water catchment.

Passive House central to Monash University’s net zero ambitions

While Cortese says Passive House may not be suitable for every project, it’s part of the story on the path to net zero. And a project like this is proof that environmental performance does not need to come at the expense of desirable architectural outcomes.

“It’s basically upped the ante.”

The university is no stranger to this level of risk. It’s set itself the challenging target of getting its campuses to net zero by 2030 and energy efficient buildings is central to its plan to get there. Timber student accommodation building Gillies Hall also has a Passive House certification and several other projects are going for the standard.

Čime nas je Trump zadužio

Dok se Trump sprema da se povuče u istoriju, novinari se utrkuju u pisanju rekapitulacija njegovog predsedničkog mandata, kao što su činili i poslednje četiri godine. Mnogi od tih prikaza su trivijalni, bombastični ili nezanimljivi. Ponavljaju se optužbe za bezobzirnost, rasizam, ksenofobiju, aroganciju, neefikasnost, nesposobnost i neznanje. Neki autori ga iz istih razloga brane, jer su sa njihovog stanovišta ksenofobija, rasizam i arogancija vrline, a ne duboki moralni nedostaci.

Pokušaću ovde da ponudim jednu drugačiju ocenu i pokažem u čemu je Trump bio u pravu, a zatim i čemu nas je naučio.

Prvo, Trump je ispravno odabrao temeljna načela svoje spoljne politike – to su: „Amerika na prvom mestu“ i umereni izolacionizam. Da bismo to razumeli, moramo imati u vidu da američka spoljna politika ima na raspolaganju samo dva modusa funkcionisanja, koji se mogu sažeti sloganima o „izuzetnoj Americi“ i „Americi na prvom mestu“. Američka izuzetnost, kao što samo ime kaže, zasniva se na ideologiji američke superiornosti za koju se veruje da je stečena i zaslužena jedinstvenim vrlinama nove republike. Američka superiornost implicira hijerarhijski organizovan globalni poredak u kom su Sjedinjene Države uvek na vrhu, dok ostale zemlje imaju sporedne uloge. Neizrečeni krajnji cilj takve politike je upravljanje svetom. Sjedinjene Države svakako nisu prva zemlja sa takvim ambicijama: Egipat, Rim, Vizantija, islamska imperija, Karlo Veliki, Huni, Tamerlan, Napoleon, Hitler, komunističko carstvo Sovjetskog Saveza, spisak je dugačak. Ostvarenje takvih ambicija malo je verovatno, a put je uvek popločan ratovima. Zato prihvatanje ideologije „superiorne nacije“ gotovo po definiciji podrazumeva „vođenje večnih ratova u ime večnog mira“, kao što je jednom rekao Gore Vidal. Nije slučajnost to što je Amerika praktično neprestano u ratu već 80 godina.

S druge strane, „Amerika na prvom mestu“ bar formalno sve zemlje postavlja u istu ravan. To je ideologija koja Americi daje puno pravo da štiti svoje interese, ali to pravo ne uskraćuje ni drugima. Trump, koji svakako nije ekspert za međunarodne odnose, rekao je u govoru pred Ujedinjenim nacijama da slično postupanje očekuje od svih zemalja, od Alžira do Zimbabvea. Naravno, zahvaljujući svojoj veličini i značaju Amerika uvek ima najviše uspeha u vođenju takve politike, ali ovako bar ne oseća obavezu da upravlja drugim zemljama i govori im kako da uređuju svoje unutrašnje stvari. Njeno ponašanje je transakciono, što smanjuje mogućnost izbijanja ratova. O sukobima interesa možemo pregovarati i doći do nagodbe, dok sa ideološkim sukobima to nije slučaj.

Trump se u osnovi držao takve politike sve dok njegova opsesija Kinom nije izbila na površinu u prvim mesecima pandemije. Pandemiju je protumačio kao kinesku zaveru za njegovo rušenje sa vlasti. Ipak, činjenica je da nije započinjao nove ratove i da je povremeno ulagao čak i značajne napore da okonča ratove započete pre 20 godina, koje u Vašingtonu niko više i ne pokušava da opravda. U pitanju su klasični imperijalistički ratovi, kao u Buzzatijevom romanu Tatarska pustinja, gde u središtu imperije niko ni ne zna gde sve njihovi vojnici ratuju, a još manje zašto.

Trump je zaslužan i za dva važna doprinosa našim znanjima o neksusu politike i biznisa. U politiku je uneo veštine koje je sticao tokom gotovo pola veka preduzetničke karijere i tako, kao što sam već pisao na drugom mestu, osigurao konačni trijumf neoliberalizma. Sunarodnike je tretirao kao zaposlene u kompaniji koje po volji može kažnjavati i otpuštati. Predsednički mandat je video onako kako Bezos vidi svoju poziciju u Amazonu: dozvoljeno mu je da radi sve što poželi, bez ikakvih zakonskih i regulatornih ograničenja.

Trump je podigao zavesu koja je građane, kao posmatrače političke igre, delila od nosilaca vlasti, i na najdirektniji mogući način pokazao sve zakulisne poslove, trgovinu uslugama i korišćenje javnih funkcija za sticanje lične dobiti. Dok su nezakonite ili poluzakonite radnje kao što su primanje novca od stranih vladara, gomilanje unosnih funkcija ili izbegavanje plaćanja poreza u prethodnim administracijama obavljane iza spuštenih šalona, diskretno i sa izvesnim dekorumom, tako da ih autsajderi nisu mogli primetiti, ovog puta sve se odvijalo pred očima javnosti. Zahvaljujući Trumpu stekli smo uvid u duboku korumpiranost u samoj srži političkog procesa.

I to nije sve. Iskvarene manire koje je doneo u Belu kuću Trump je usavršavao za 50 godina poslovne karijere u kojoj je takođe bilo mnogo nezakonitih i poluzakonitih poslova. Ali takvi maniri mu nisu bili smetnja u preduzetničkoj karijeri. Štaviše, oni su mu pomogli da uspe u poslovnom svetu Njujorka, doneli mu bogatstvo i status važnog gosta na mnogim skupovima. Između ostalog, bio je uvaženi donator političkih kampanja kao što je bila kampanja Hillary Clinton za ulazak u Senat. Činjenica da se način na koji je uspeo u poslovnom svetu ne doživljava kao odstupanje ili kao nešto neprihvatljivo potvrđuje da su i ljudi oko njega koristili slična sredstva da bi stigli na vrh.

Što više saznajemo o Trumpu to više otkrivamo i o metodama koje donose uspeh u bogatom poslovnom miljeu Njujorka, pa i sveta, jer su Trump i njegovi saradnici sklapali poslove u Škotskoj, Rusiji, na Bliskom istoku i u Kini. Najbliži saradnici i članovi porodice koji su ga izdali i preoteli mu milionske ugovore demonstrirali su upravo onu vrstu ponašanja koja je tipična za Trumpa (on bi i sam isto učinio) i jasno pokazali kakvi etički standardi vladaju u ovom okruženju. Trump nam je tako dao još jednu važnu lekciju: pokazao nam je trulež, korumpiranost i neodgovornost moćnih poslovnih imperija.

Otkrio nam je razmere korupcije u središtu politike i u središtu velikog biznisa. To su neoprostivi gresi. Gresi koji se uživaju u tajnosti mogu biti prihvatljivi ili ostati neprimećeni; ali to ne važi za grehe kojima se razmećemo pred javnošću. Oni koji će ga zameniti na vlasti preduzeće sve što je potrebno, ne da promene takvo stanje, jer to je važan element samog sistema, već da ga što bolje prikriju. Ali kada jednom vidite istinu, ne možete se više pretvarati da se ništa nije dogodilo.

Global inequality, 07.11.2020.

Preveo Đorđe Tomić

Peščanik.net, 11.11.2020.

TRAMPOZOIK

20 years European House Skopje

This year the European House Skopje (EHS) celebrates 20 years of the foundation.  Throughout the years EHS established credibility for its target groups, partners, donors, institutions and the public in general.

How to Measure a Company’s Real Impact

by 

Ronald Cohen

 and 

George Serafeim

September 03, 2020

Martin Barraud/Getty Images

In recent years, most major international airlines have reported healthy profitability. But our calculations show this to be a mirage. In the case of Lufthansa and American Airlines, for example, accounting for their environmental costs of $2.3 and $4.8 billion respectively would make both companies unprofitable.

What explains this discrepancy? To date, there has been no way for companies to account for their benefits and costs to society and the environment. We have been working to change that.

Accounting for impact took a major step forward in July with our publication of the cost of the environmental impact of 1,800 companies by the Impact-Weighted Accounts Initiative (IWAI) at Harvard Business School. Next year, the IWAI will publish the cost of product and employment impacts too, providing a complete picture of the impact companies create.

The era of impact transparency has begun, and it is moving the goal posts for businesses and investors. Technology and Big Data have combined with longstanding efforts by many individuals and organizations to make the measurement and valuation of corporate impact a reality. With the arrival of impact transparency, impact and profit set the new rules of the game.

Analyzing the IWAI’s extensive dataset for 2018 through an impact lens brings a new perspective on the true profitability of companies. It becomes apparent that many companies are creating environmental costs that exceed their total profit (EBITDA). Of the 1,694 companies which had positive EBITDA in 2018, 252 firms (15%) would see their profit more than wiped out by the environmental damage they caused, while 543 firms (32%) would see their EBITDA reduced by 25% or more.

For certain industries, including airlines, paper and forest products, electric utilities, construction materials, containers and packaging, almost all firms would see more than a quarter of their EBITDA eliminated, according to our group’s calculations.

Within other industries, huge variation is revealed in the environmental damage companies create. In food products, for example, environmental costs range from 5% of EBITDA (Nestle, $1.6 billion) to 62% (Associated British Foods, $1.8 billion). In the challenged oil and gas industry, where 75% of companies would see more than a 25% reduction in EBITDA, a few best performers have overtaken their competitors. And in semi-conductors, industrial conglomerates, food and staples retailing, and beverages, significant variation is similarly found between leaders and laggards.

It is not all negative though. Companies also create positive impacts through their products and employment, which do not show up in their bottom line. Take Intel’s employment impact as an example. In 2018, it created approximately $3.6 billion of positive impact in the U.S.  through the wages it paid and the jobs it provided in areas of high unemployment. Intel can increase this impact by improving its level of diversity and offering more equal opportunity for racial minorities and women to advance within the company.

Impact transparency will have far-reaching consequences. First, instead of taxing all of us to remedy negative impacts such as pollution, pay below the minimum wage, and products that cause obesity and ill health, governments will be able to tax companies directly for the harm they create. They will also be able to provide direct incentives — in the form of reduced taxes, subsidies or preferential procurement — for companies to deliver positive impact through their products, operations and employment practices.

Second, investors will price the environmental and social impacts of companies into their investment analysis. More than $30 trillion flowing today in ESG and impact investments, equivalent to more than a third of the world’s professionally-managed assets, are already doing their best — despite the absence of all the relevant data — to integrate climate change, employee diversity and customer health into their investment decisions.

Firms with greater negative impact generate less investor interest, which reduces their stock market valuation and raises their cost of capital. Impact transparency will, therefore, motivate management to improve corporate impact, in order to increase stock market value and, sometimes, their own compensation too.

The IWAI’s 13,000 observations of environmental impact reveal a significant correlation between negative environmental impacts and lower stock market valuations in many industries, including chemicals, apparel and construction materials. Such a correlation does not yet appear in other industries such as utilities, hospitality, or industrial conglomerates. But it can be expected to appear once impact transparency enables investors to reliably account for impacts in their valuation analysis.

Third, transparency will allow customers — be they individuals or companies — and employees to align their purchasing and career choices with their values. “Impact-washing” is currently widespread because relevant impact data is sparse. For instance, all automobile manufacturers claim that their products benefit society more than the products of their competitors. But when we measure all manufacturers’ product impact, according to safety, affordability, customer satisfaction, fuel efficiency, and emissions, we find that only a few companies, such as Tesla, Renault, Hyundai and Nissan, can justifiably make these claims.

Transparency and accountability go hand in hand. To date, the absence of effective impact measurement has obscured the accountability of companies for the harm they cause. Rewriting accounting rules to include impact will alter investors’ assessment of corporate performance, leading them away from negative-impact companies to positive-impact ones, and catalyzing a change in corporate behavior.

How far are we from adding impact to the profit paradigm that has driven capitalism since its origin? Last year we identified 56 leading organizations around the world that practice some impact-weighted accounting. This list is growing every week. Danone, the French food leader, has just published earnings per share that are weighted for its environmental impact. Detailed methodologies, data sets, and guides now exist for the preparation of impact-weighted accounts that reflect the operational, employment and product impact a company has on people and the environment. The Covid-19 crisis will exacerbate already flagrant inequality, intensify the need for a fair and sustainable recovery, and accelerate the shift to impact-driven economies.

The introduction of impact-weighted accounts is sped by a global network of innovators, companies, investors, NGOs and other stakeholders. These actors have come together through the GSG (Global Steering Group for Impact Investment) and the IMP (Impact Management Project) which have initiated the IWAI with Harvard Business School. Numerous other organizations in the field are contributing directly and indirectly to hasten the shift to the new paradigm.

The sooner governments mandate the publication of IWAs — and align companies and investors with the great effort needed to tackle climate change, inequality, and Covid-19 — the better off our society will be.

In the meantime, we each have a valuable role to play. If you lead a company, then measure and communicate your impact-weighted performance. If you are an investor, demand impact transparency from the companies in which you invest and use impact-weighted numbers to assess opportunities and risk. If you are a regulator or government official, mandate the publication of impact-weighted accounts, and use taxes and other incentives to motivate companies and investors to create positive impact. And since we are all consumers, let’s buy the products and services of companies that deliver positive impact to improve our planet and society.

Impact transparency will reshape capitalism. By shifting the pursuit of profit away from negligently creating problems to purposefully creating valuable solutions for the world, it will redefine success, so that its measure is not just money, but the positive impact we make during our lives.

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Sir Ronald Cohen is chair of the Impact-Weighted Accounts Initiative (IWAI) ,and the Global Steering Group for Impact Investment GSG, co-founder of Apax Partners, and the author of “IMPACT: Reshaping capitalism to drive real change.” Follow him on Twitter @SirRonnieCohen

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George Serafeim is the Charles M. Williams Professor of Business Administration at Harvard Business School, a cofounder of KKS Advisors, and the chairman of Greece’s National Corporate Governance Council. He is an internationally recognized authority on ESG investing. Follow him on Twitter @georgeserafeim.