How Smart is the Market?

I’ve been reading some of the testimony for and against LD 1191, which is one in a series of bills before the State legislature proposing to weaken the adoption of the Maine Uniform Building and Energy Code, MUBEC.

One of the letters in favor of weakening MUBEC’s adoption argues that the market should determine where MUBEC is adopted and where it is not. Examples of how this could be done include requiring real estate transactions to identify if a building was built to MUBEC, or allowing insurance companies to offer discounts to buildings built to MUBEC. In pursuing a higher market value for a building, an owner might choose to build to MUBEC, hoping potential buyers will see the increased value of a code-compliant building. In pursuing lower insurance costs, an owner might do the same. This is an attractive idea.

Letting the market decide MUBEC’s penetration has three flaws. The first is that the market signal needs to be clear in order for the signal to have an effect, and this will not always be the case. A building built to MUBEC will indeed be higher quality than a building that fails MUBEC compliance. But there may very well be buildings that are not certified to MUBEC standards that meet these standards nevertheless. Failure to certify dilutes the strength of the MUBEC signal by bringing doubt in people’s minds. It would be correct to think that just because a building is not certified does not mean it is substandard. MUBEC does not work as a voluntary certification program, like LEED.

Second, adoption of a code like MUBEC is an admission that there is a minimum level of construction quality necessary to preserve the health, safety and welfare of the public. Allowing MUBEC to be voluntary is tantamount to saying there is no minimum level of construction quality necessary to preserve the health, safety and welfare of the public. This is one of my complaints about Maine’s current MUBEC adoption. By obligating only large towns to enforce MUBEC, the state is saying only inhabitants of large towns require a minimum level of construction quality.

Third, letting the market decide on MUBEC adoption is to argue that the market looks at future value, not just sale price. Do people really look at life cycle costs when they make purchasing decisions? Some do, and these are people who have purchased inferior products, only to be disappointed. A large portion of the market does not bake life cycle costs into their purchase decisions. If people were like that, nobody would eat junk food or smoke cigarettes. We would all wear our seat belts and sit up straight in our chairs. Market signals only work when they are heard. The market is a very noisy place. The signals that tell us to do what is right is not always the loudest, clearest signal. This is why we have government mandates.

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Principal at Sealander Architects, Ellsworth Maine. Revit guru. Married with 3 children. Avid gardener. Lived in San Francisco for nine years. Master in Architecture from Columbia University Bachelor of arts in religious studies, Wesleyan University. Graduated Staples High School, Westport CT. Hope to spend some time in Hokkaido before all is said and done.