From the National Association of Home Builders The installation of residential fire sprinklers may bring down the cost of home owner insurance premiums,
From the National Association of Home Builders ÷ The installation of residential fire sprinklers may bring down the cost of home owner insurance premiums, but not enough to pay for the sprinklers themselves, according to a recent NAHB Housing Economics study. Home builders surveyed for the study report fire sprinkler installation figures are about twice as high as the costs touted by residential system manufacturers and installers, strengthening NAHB’s position that fire sprinkler mandates have a negative effect on housing affordability.
The study debunks attempts by residential fire sprinkler manufacturers and their advocates to downplay the added cost of installing the devices by pointing to the insurance savings realized. The issues would be somewhat simplified if we could show that monetary savings existed to offset, or almost offset the added upfront costs of installing fire sprinklers, says economist Lanlan Xu in Fire Sprinklers and Home Owner Insurance. Builders in that case would be able to install sprinkler systems in most new homes and market the sprinklers effectively to prospective buyers as an added safety feature that pays for itself.
From the insurer’s point of view, sprinklers may generate savings, but also additional costs÷.if sprinklers discharge accidentally and cause unnecessary water damage, the study adds. Most insurers do offer meaningful discounts for residential sprinkler systems, but not high enough in any state to offset the systems’ added upfront costs. In fact, the study contends, Using the average insurance payment as a crude proxy for the basic premium, the most an average new home buyer in a particular state can expect to save on home owner insurance appears to be about $95 a year.
Insurance companies usually cap at 20 percent the discounts for safety devices like deadbolt locks, burglar alarms and smoke detectors, in addition to fire sprinklers. This means that, given a large enough number of other safety features, the marginal impact of a sprinkler system on the insurance payment could be very small or zero, the study affirms.
The Home Fire Sprinkler Coalition claims residential fire sprinklers add about 1-1.5 percent to the cost of a home. For the $246,500 median price of a new home in 2006, such systems would result in a $2,465 to $3,698 price increase. However, a nationwide survey conducted by the NAHB Research Center and completed by 102 builders who built 5,527 fire sprinkler-equipped homes in 2006 showed that the median cost of installing fire sprinklers was about $5,573. The median size of the surveyed homes was 2,271 square feet.
The extra costs the NAHB Research Center survey was careful to include are the costs of increased permit, tap and inspection fees, as well as any costs of redesigning the home to accommodate the sprinklers. It’s important to include these items, as costs are not limited strictly to the material and labor used in installing the sprinkler system itself, the study notes. When fees from financing, broker commission and profit margins are added, average costs to the home owner are probably closer to $6,677, the study said. Using Freddie Mac’s 30-year fixed-rate mortgage rate of 6.70 percent in July 2007, that translates into a $522 increase in an annual mortgage payment, the study found. Even under the lowest of the above cost estimates ($2,465), the annual mortgage payment would increase by $193, roughly double the upper bound on the average insurance savings, the study concludes.
For sprinklers to not affect affordability, the cost of financing them over the life of the mortgage should at least be equal to the insurance savings achieved. In the example above, that would mean that the fire sprinklers could cost the home owner no more than $1,200, the study calculated. If achieved, it would allow the market to provide sprinkler systems in most new homes without adversely affecting affordability. Local governments could make a contribution toward achieving this by not increasing permit, tap or other fees on homes with sprinkler systems, the study said.