Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems Cape Coral, FL July 2012

Transcription

1 Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems Cape Coral, FL July 2012 Prepared by: Newport Partners, LLC Davidsonville, MD

2 Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems Cape Coral, FL July 2012 Prepared for: Fire Department of the City of Cape Coral Prepared by: Newport Partners, LLC Davidsonville, MD

3 Table of Contents Executive Summary... 2 Overview... 4 Methodology... 5 Costs... 5 Benefits... 7 Building Plans... 7 Estimated Costs... 9 Additional Costs...11 Estimated Benefits...11 Benefits from Waiver of Infrastructure Requirements...17 Summary of Findings...17 Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 1

4 Executive Summary The objective of this report was to conduct a study to analyze the economic costs and benefits that result from installing a residential fire sprinkler system in a newly built home in the City of Cape Coral. Based on an understanding of the types of costs usually associated with installing a residential fire sprinkler system, it appears that there are several categories of costs that would apply in Cape Coral. These categories include the cost for system design and installation, the sprinkler system permit fee, and the added hard cost associated with upsizing the water meter from 5/8 in. to 1 in. To determine an estimate for the system design and installation cost, five contractors from the Cape Coral area were asked to provide individual estimates to design and install an NFPA 13D compliant sprinkler system in three different homes that were believed to represent the characteristics of a newly built home in Cape Coral. The highest and lowest estimates for each home were excluded from consideration and the estimates for the remaining homes were averaged together to determine a final estimated design and installation cost of $3,390. The sprinkler system permit fee amount was obtained from the amount contractors included as part of their estimate. The amount has been backed out of the system design and installation cost and is included as a separate cost item. The average cost charged by sprinkler contractors to obtain a permit was found to be $153. The added hard cost associated with upsizing to a 1 in. water meter was noted to be $ In addition, the study also considers the potential for added costs that could be realized for homes connected to onsite wells. However, this cost is not included in the determination of the total estimated cost because none of the feedback obtained from contractors seemed to indicate there would be an added cost in this type of scenario. The total estimated cost associated with requiring that a home be equipped with a fire sprinkler system is $3,527, or $1.78 per SF of sprinkled space. The calculation of benefits involved determining the probability of a fire in a home, the expected rate of deaths and injuries that would result from a fire, and the average ratio of property loss to value for homes without sprinklers. These same measures were then obtained for homes with fire sprinklers. The resulting differences were recognized as the benefit of including fire Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 2

5 sprinklers in homes in terms of the economic benefit for lives saved, injuries averted, and uninsured direct and indirect costs from property loss not realized. In addition, the reduced cost for homeowners insurance and a reduction of the impact fee that is expected for homes that include fire sprinkler systems is also included in the final benefit amount. The reduced cost for homeowners insurance was found to be quite meaningful due to the high insurance costs associated with a home in Cape Coral. The total estimated benefit that would result from installing a fire sprinkler system in a home in Cape Coral is $6,237. It is also possible for cost savings to result from a reduction of infrastructure requirements in a community that has elected to require fire sprinkler systems in new homes. For instance, cost savings can result from reduced requirements for hydrant spacing, minimum road width, fire flows, cul-de-sac widths, and dead-end street width. However, there were no reductions in any infrastructure requirements in Cape Coral at the time of this report. Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 3

6 Overview Considering the potential for injury, property loss, and death, home fires present a real risk to today s homeowners. According to the National Fire Protection Association (NFPA), there were almost 370,000 home fires in While their overall occurrence in one and two-family homes is relatively low as compared to other structure types, fires occurring in these structures accounted for a significant amount of all civilian deaths and injuries from fire incidents. For example, less than a quarter of all reported fires occurred in one or two-family homes in 2010, yet these fires were responsible for causing over 70 percent of all fire deaths and over half of all civilian fire injuries during the same year. 2 Installing fire sprinkler systems in homes can be an effective tool as part of the effort to reduce the rate at which fires result in the death or injury of the home s inhabitants. From , there were 83 percent fewer civilian deaths in homes with fire sprinklers than there were for homes without automatic extinguishing equipment. 3 Fire sprinklers can affect the safety of firefighters as well. In homes with fire sprinkler systems, the rate of injuries among fire fighters responding to home structure fires was reduced by 65 percent when compared to homes without a sprinkler system present. 4 Fire sprinkler systems were required for one and two-family dwellings for the first time by the International Code Council in the 2009 version of the International Residential Code (IRC). Thus, all states and localities adopting the 2009 IRC without amendments include the fire sprinkler provision. While Florida s residential building code is based substantially on the 2009 IRC, the state has amended it to exclude the provision for residential fire sprinkler systems. However, Florida state law allows local governments to adopt and implement fire sprinkler requirements for one and two-family dwellings and it also requires that the economic consequences of the requirement be analyzed to determine its impact on the home owner. In addition to considering the cost of the system, the analysis must account for any cost savings or other benefits that accrue to the owner or future owners of the property. Therefore, the purpose of this study is to provide an accounting of the expected costs and benefits of the City of Cape 1 Trends and Patterns of Fire Losses in 2010, National Fire Protection Association, September Trends and Patterns of Fire Losses in 2010, National Fire Protection Association, September U.S. Experience with Sprinklers, National Fire Protection Association, March Addendum to U.S. Experience with Sprinklers: Impact of Home Sprinklers on Firefighter Injuries, National Fire Protection Association, May Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 4

7 Coral s proposed adoption of a requirement to install an automatic fire sprinkler system in new one and two family dwellings. The findings of this report show the cost of a residential fire sprinkler system to be approximately $1.78 per square foot (SF) of sprinkled space. This is higher than the $1.61 per SF of sprinkled space noted in a national cost assessment of residential fire sprinkler systems published by The Fire Protection Research Foundation 5 in 2008, but within the range found in that study of $0.38 to $3.66 per SF of sprinklered space. However, the 2008 report surveyed costs in communities that had previously adopted a local fire sprinkler ordinance. This can serve to lower the cost of these systems over time as increased demand leads to more competition among a larger group of contractors, and experienced contractors realize labor efficiencies. In addition, local requirements impact system costs, as does the local water supply (well vs. municipal). This report also finds there to be a meaningful amount of benefits that can be realized from a residential fire sprinkler system. The largest among them is the present value of the expected insurance discount for a home with a fire sprinkler system and the economic benefit associated with the reduced risk of death from a fire in one s home. These and several other benefit items compose a total benefit amount of $6,237. Methodology Costs There are a number of items that comprise the total cost of a residential fire sprinkler system. While a substantial portion of a system s total cost is attributable to the design, installation, and material costs, there are other costs that still must be included. To arrive at an estimated cost for an installation of a fire sprinkler system in a typical new home in Cape Coral, it was necessary to gather cost information from a number of different sources. Table 1 details the different cost components that apply in Cape Coral and describes the source of information used to estimate a cost for that component. 5 Newport Partners, Home Fire Sprinkler Cost Assessment, Fire Protection Research Foundation, September Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 5

8 Table 1: Residential Sprinkler Systems Cost Categories Cost Category System design, installation, and materials Information Source Cost estimates for design, installation, and materials from local fire sprinkler contractors for typical new homes. Sprinkler system permit fees Discussions with local fire sprinkler contractors. Increased water meter size from 5/8 in. to 1 in. in diameter. Additional cost for homes connected to onsite well systems Discussions with City of Cape Coral officials. Cost estimates for potential up-size of a well pump and storage tank (if applicable) from local fire sprinkler contractors. There are several characteristics of homes that can affect the cost of sprinkler systems. These include total square footage, number of stories, and the foundation type. Therefore, in preparation for the estimates for the system costs, an effort was made to select a sample of homes that had characteristics similar to new homes that were recently built in the area. The most recent version of the American Housing Survey 6 for the Tampa - St. Petersburg metropolitan area served as a reliable source for this type of data. Based on an analysis of the data in this report and in coordination with the City of Cape Coral, it was decided that each of the three homes in the sample would include a concrete slab-on-grade foundation and range between 1,500 and 3,000 SF in size. The first two homes would be one-story dwellings while the third home, the largest in size, would be a two-story structure. Building plans were obtained by the City of Cape Coral, according to the characteristics established, for three homes. These plans were sent to fire sprinkler contractors in Cape Coral or the surrounding area to provide an estimate of the cost to design and install a fire sprinkler system in each home, according to the three individual sets of plans provided. The contractors were asked to provide the estimates according to a set of specifications, which were consistent with a NFPA 13D compliant system. In providing their estimates, the contractors were instructed to include all costs associated with the system specifications and to provide a breakout of any additional fees required. 6 American Housing Survey for the Tampa St. Petersburg Metropolitan Area: 2007, issued February Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 6

9 Five different residential fire sprinkler contractors located in Cape Coral or the surrounding areas were contacted. During the initial phone call, the purpose of the project was explained to each contractor along with a brief explanation of the system specifications and the type of information and cost breakouts that would be required as part of their estimate for each home. Written instructions, building plans, and specifications were then provided to each contractor. Each of the contractors responded with cost estimates for the three sets of plans provided to them. Benefits The benefits of residential fire sprinkler systems were calculated based on the framework of existing literature on this topic. In general, the calculation of benefits involves a determination of the probability of a fire in a home, the expected rate of deaths and injuries resulting from a fire, and the average ratio of property loss to value for homes without sprinklers as compared to the reduction in fatalities, injuries, and damage that can be realized as a result of residential sprinkler systems. In addition, the reduced cost for homeowner insurance that is expected with the presence of sprinklers is considered in the estimate of benefits, and represents a key component of the estimated sprinkler benefits for Cape Coral, with its relatively high insurance costs. A review of the cost savings that could result from a reduction of infrastructure requirements was included in this section of the report. Opportunities for cost savings could result from reduced infrastructure requirements includes reduced requirements for fire hydrant spacing, minimum road width, fire flows, cul-de-sac widths, and dead-end street widths. Building Plans Building plans were obtained from the City of Cape Coral s Building Department for three recently built homes. The characteristics of these homes were understood to provide an accurate representation of a newly built home within the city. The relevant characteristics for these homes, as well as the sprinkler system specifications, are summarized in Table 2 below. Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 7

10 Table 2: Characteristics of Sample Homes Home #1 Home #2 Home #3 Square Feet 1,814 SF 2,598 SF 1,541 SF Number of Stories One Two One Sprinkler Design Standard NFPA 13D NFPA 13D NFPA 13D Sprinkler System Type Standalone Standalone Standalone Sprinkler Piping Material CPVC CPVC CPVC Foundation Type Concrete slab Concrete slab Concrete slab Upon receiving the buildings plans, contractors were also provided with information detailing the specifications on which estimates should be based. The specifications are described below. Sprinkler Design Standard: Each contractor was told to base their estimate on a system designed and installed according to the National Fire Protection Association Standard 13D. This is a sprinkler system design standard focused on one and two-family dwellings and manufactured homes. NFPA 13D requires sprinkler systems to be in all areas unless otherwise noted in the standard. Locations specifically excluded by the standard include the garage and open attached porches. In addition, the standard does not require sprinklers to be included in the attic of the home. Sprinkler System Type: Residential fire sprinkler systems can be designed as a multipurpose system where the plumbing and the sprinkler system are combined as one, essentially sharing water distribution piping. Alternatively, systems can be designed a standalone, where the sprinkler system uses a dedicated piping separate from the home s plumbing system. The contractors that provided estimates were directed to have their estimates reflect the cost of a standalone sprinkler system. Sprinkler Piping Material: The type of piping material can impact the cost of the sprinkler system as well. Residential sprinkler systems use either a metallic or nonmetallic piping. Copper is an example of a metallic piping material while CPVC or PEX are examples of nonmetallic piping materials. Contractors were directed to base their estimates on the use of CPVC piping material for each of the three homes. Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 8

11 Foundation Type: Homes are known to have different foundation types and this tends to vary based on their geographic location. The cost of a sprinkler system can vary depending on foundation type (largely because NFPA 13D requires sprinklers in basements). Most new homes in Cape Coral are known to be built on slab foundations. In turn, each of the three sets of plans in the sample was for a slab home, and the estimates from contractors are reflective of this fact. Estimated Costs The estimates received from the contractors were reviewed to ensure they were based on correct system specifications. In general, the estimates provided enough detail to allow for this. Where sufficient detail was lacking, contractors were contacted to confirm that the estimated cost was based on the correct assumptions. In some cases, minor adjustments were made to the original estimates. Each of the contractors included the permit fee as part of their estimate. Follow-up calls were made to the contractors to confirm this and to ask them to estimate the permit fee amount separately so that it could be backed out of the estimates. To arrive at the average cost to design and install a residential fire sprinkler system, the highest and lowest estimates for each of the three homes were excluded from consideration and the three estimates for each of the remaining homes were averaged together. Based on this, the average system design and installation cost was calculated to be $3,390. The individual estimates received from the contractors and used to derive this amount are shown in Table 3 below. Table 3: Individual Sprinkler Contractor Estimates by Home Home #1 Home #2 Home #3 Highest Estimate $4,650 $6,025 $4,114 Lowest Estimate $2,370 $3,640 $2,245 Sprinkler Contractor A $2,523 $3,640 $2,523 Sprinkler Contractor B $3,150 $4,825 $2,685 Sprinkler Contractor C $3,420 $4,870 $2,870 Average of Contractors A, B, and C $3,031 $4,445 $2,693 Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 9

12 The permit fee for the sprinkler system was estimated to be $153. This is based on an average cost to obtain a sprinkler permit as part of each contractor s estimate. Each of the five contractors included a cost to obtain a permit as part of their estimates and this amount was backed out from each of the estimates to be accounted for separately from the system design and installation cost. To accommodate a fire sprinkler system in the home, the line connecting the water main to the home will typically be increased from 5/8 in. to 1 in. in diameter. 7 In turn, the water meter will have to be upsized to 1 in. as well. According to the current cost structure in place to install a 1 in. water line to the home as opposed to a 5/8 in. line, there is a significant increase in a number of costs. The impact fee associated with the 5/8 in. water meter for a single family detached home in Cape Coral is $2,274 while the impact fee associated with a 1 in. meter is $5,685, for an increase of $3, The impact fee associated with a sewer connection on a 5/8 in. meter is $4,476 and $11,190 under a 1 in. meter. 9 This is a cost increase of $6,714. With an increase to a 1 in. water meter, the base monthly rates for water and sewer service increase as well. Base rates are non-variable fees charged by the utility each month that remain the same, regardless of the customer s usage. The base rate for water increases $25.40, to $42.33 per month and the base rate for sewer increases $30.88, to $51.47 per month. 10 This equates to an added cost of $ per year as a result of the increased base rate for water and $ per year due to the increased base rate for sewer. In addition, city officials noted that the hard cost of a 1 in. water meter is $227 while the hard cost of a 5/8 in. meter is $ Therefore, the added hard cost for upsizing to a 1 in. water meter is $ These added costs with the exception of the increased hard cost of $42.25 have not been included as part of the cost estimate for this report. An engineer makes the determination of the 7 Phone discussion between Alan Carter, City of Cape Coral Fire Marshal, and Newport on June 7, from Jeff Pearson, City of Cape Coral Utilities Director, to Newport on July 12, from Jeff Pearson to Newport on July 12, Phone discussion between Jeff Pearson and Newport on July 13, from Alan Carter to Newport on July 9, 2012 Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 10

13 appropriate water line and meter size based on the size and design of the home. Thus a home designed for a 1 in. water line and meter presumably uses significantly more water and sewer than one designed for 5/8 in. The fee structure did not anticipate that a 1 in. line/meter would be necessary for a residential sprinkler system which should not add to the average consumption of water and sewer. Cape Coral will need to address this issue. Additional Costs None of the estimates received from the contractors that were used to determine an overall system cost accounted for the fact that a home might be connected to an onsite well water system. Therefore, to obtain an estimated added cost for a home connected to an onsite well, several sprinkler contractors identified as having experience installing fire sprinkler systems in homes connected to well water systems were surveyed to determine if such installations required a high capacity well pump or some type of additional storage capacity. If yes, the contractors were asked to estimate the added cost. In addition, the contractors were asked to note any other costs associated with installing a sprinkler system in a home connected to a well. From the four contractors that were surveyed, only one stated that he has needed to upgrade the well pump. He noted that the cost associated with this is approximately $300-$400. Meanwhile, none of the contractors noted that a storage tank was needed for sprinkler systems under this scenario. Furthermore, none of the contractors noted any other added costs associated with a sprinkler system installed in a home connected to a well. Based on the feedback from the sprinkler contractors it is unlikely that there would be any added cost for a sprinkler system in a home connected to an onsite well. However, it is possible that the well pump may need to be upgraded at a cost of approximately $300-$400. Estimated Benefits The calculation of the benefits of fire sprinklers for home owners, follows the general framework and criteria used in the 2007 report Benefit-Cost Analysis of Residential Fire Sprinkler Systems Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 11

14 prepared by the National Institute of Standards and Technology. 12 Values and assumptions were updated to reflect more recent data from a variety of sources, as described below. The estimates assume that the value of the structure and contents of a new home will be $300,000. That assumption influences the calculations for property damage and insurance, but not the values for lives saved and injuries averted. All monetary values in the calculations are in terms of 2012 prices. A real interest rate of 4.8 percent is used to discount future benefits (and costs) over 30 years to present values. Table 4 shows the key assumptions and estimated future benefits of sprinklers in new homes in Cape Coral. The total present value (PV) of benefits comes to $6,237, with most of the benefits attributable to savings on insurance and the value of fewer fatalities. The values from the 2007 NIST report are also shown, for comparison. 12 David T. Butry, M. Hayden Brown, and Sieglinde K. Fuller, Benefit-Cost Analysis of Residential Fire Sprinkler Systems (U.S. Department of Commerce, National Institute of Standards and Technology, NISTIR 7451, September 2007) Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 12

15 Table 4: Estimated Present Value of Benefits Cape Coral Estimate NIST 2007 Inputs: Annual Fire Probability Pr: Death/Fire (No Sprinklers) Pr: Injury/Fire (No Sprinklers) Property Value (Structure+Contents) $300,000 Fire Loss-to value (No Sprinklers) Uninsured Share of Direct Loss Indirect/Direct Loss Uninsured Share of Indirect Loss Reduction in Death (Sprinklers) Reduction in Injury (Sprinklers) Reduction in Fire Loss-to-value Value of life (2012) $6,398,225 $7,940,000 Rate in real increase in life, injury value 0.88% 0.00% Value of Injury (2012) $202,220 $171,620 Annual Insurance Premium (No Sprinklers) $2, $ Insurance Discount for Sprinklers 8.00% 8.00% Time horizon (years) Real Discount Rate 4.80% 4.80% SF Fire Impact Fee (No Sprinklers) $ SF Fire Impact Fee (Sprinklers) $ Intermediate Calculations: Uniform PV of Constant T year benefit Uniform PV with real growth g Direct Prop Damage per Fire (No Sprinklers) $36, $21, Uninsured direct loss/fire (No Sprinklers) $7, $4, Uninsured Indirect Costs/Fire (No Sprinklers) $1, $ Death/fire (Sprinklers) Injury/Fire (Sprinklers) Uninsured direct loss/fire (Sprinklers) $2, $3, Uninsured Indirect Costs/Fire (Sprinklers) $ $ Value from Lower Deaths in 2012 $ $ Value from Lower Injury in 2012 $12.53 $14.14 Annual Value Lower Uninsured Direct $14.90 $5.01 Annual Value Lower Uninsured Indirect $2.98 $1.00 Annual Savings on Insurance $ $60.30 Present Value of Benefits: Reduction in Impact Fee $57.50 PV from lower deaths $2, $3, PV from lower Injury $ $ PV from lower Uninsured Direct Prop Loss $ $78.84 PV from lower Uninsured Indirect $46.89 $15.77 PV from Insurance Discount $3, $ $6, $4, Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 13

16 A large part of the estimated benefits of sprinklers consists of the value of lives saved. Although it is difficult to place a monetary value on a human life, people in fact implicitly do so regularly as they make choices about risks they face in choosing where to work or live, what products to buy, etc. Based on "revealed preferences" derived from those choices, particularly the wage premia demanded for riskier jobs, various studies have calculated the "value of a statistical life" (VSL), and such values have been widely employed in the evaluation of the costs and benefits of regulations and investments. VSL assumptions specified by the U.S. Department of Transportation in 2011 and used by a variety of government agencies are used as part of this analysis. Those VSL amounts were set at $6.2 million for 2011, with annual real increases of percent for succeeding years. 13 In 2012 dollars, that translates into a VSL value of $6,398,225 (based on the DOT real growth rate and 2.3% inflation from 2011 to 2012), rising to $8,241,990 in Over the 30 year calculation horizon with a real discount rate of 4.8 percent, the present discounted value using the upward trend over time in the VSL assumed by DOT is comparable to a constant value of $7,100,166 for This value is somewhat lower than the $7.94 million (in $2005) used in the 2007 NIST analysis, which was based on earlier VSL research. The DOT annual adjustment factor applied to VSL is, from another perspective, equivalent to a VSL that is constant at the current value but with the real discount rate reduced from 4.8 percent to 3.92 percent. The 2007 NIST report assumed a 100 percent reduction in fatalities, since none of the fires for one- and two-family dwellings with sprinklers in the U.S. Fire Administration's National Fire Incident Reporting System (NFIRS) data for 2002 to 2005 involved fatalities. Data from the National Fire Protection Association (NFPA) for indicate that deaths were 83 percent lower for all home fires (including apartments) where wet pipe sprinklers were present 14, and it would seem to be more prudent to use that figure as the estimate of the reduction in fatalities. 13 Polly Trottenberg and Robert Rivkin, "Treatment of the Economic Value of a Statistical Life in Departmental Analyses 2011 Interim Adjustment" Memorandum to Secretarial Officers and Model Administrators, July 29, 2011 ( For reviews of the use of VSL in federal government policy analyses, see also Curtis W. Copeland, How Agencies Monetize "Statistical Lives" Expected to Be Saved By Regulations, Congressional Research Service R41140 March 24, 2010, and Christopher Stromberg, Policy Priorities and the Value of Life, Bates White, LLC, October 2011 ( 14 John R. Hall, Jr., U.S. Experience with Sprinklers, National Fire Protection Association, March 2012 ( The number of civilian deaths per thousand fires is shown (Table 4-1) as 7.3 without automatic extinguishing equipment and 1.3 with wet pipe sprinklers. Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 14

17 When considering only the lower expected number of fatalities in homes with sprinklers, the PV associated with each sprinkled home comes to $2,141. This reflects the probability of a fire over the next 30 years, the expected number of deaths in the event of a fire, the value (VSL) assumed for each fatality, the reduction in fatalities expected with sprinklers, and the real discount rate. The estimate is somewhat lower than the one in the 2007 NIST report (shown as $3,726 in that report, but calculated as $3,687 here using the rounded data given in the published report). The chance of a fire in each year is only 0.3 percent, and the expectation of a fire resulting in a death is only 0.77 percent, so the chance of a death occurring in a home without sprinklers is only percent or one in 43,000. The chance of a death in a sprinklered home, given the assumptions used here, is about one in 254,000. That lower chance, over 30 years, is the benefit for each home. The lower present value for Cape Coral as compared to the NIST model reflects slightly lower values for the probability of fire and expected deaths for fires without sprinklers (based on NFPA data for 2006 to 2010), assumed reduction in expected deaths of 83 percent rather than 100 percent with sprinklers, and the lower VSL value. The value of injuries from fires is based on the estimates used in the 2007 NIST report, adjusted for changes in prices (using the CPI) between 2005 and The NIST value for injuries was based on studies by the Consumer Products Safety Commission. As with lives, the real values for injuries in future years are assumed to increase at a 0.877% annual rate. Data from NFPA showing fires in one and two-family homes indicate that the average value of property damage during 2006 to 2010 was $22,390, measured in 2010 prices. 15 There is no clear way to measure that as a percentage of the value of the structure and contents, but the 2009 American Housing Survey showed a median value of all owner-occupied homes of $170,000, with a median of $220,000 for those built in the preceding 4 years. The American Community Survey showed a median value nationwide of $188,400 during 2006 to 2010, with the median for Cape Coral reported as $222,700. Those values include land and exclude contents, but a rough estimate of nationwide fire loss relative to value may be about 12%. The default value given for the NIST Sprinkler Use Decisioning (SPUD) tool 16 is 21%, but that doesn't seem to be consistent with the loss estimates used in their 2007 report (which did not 15 Michael J. Karter, Jr., Fire Loss in the United States During 2010, National Fire Protection Association, September 2011 ( ) 16 The "tool" is accessible at with an explanation provided at ws680.nist.gov/firesprinkler/help/overview.pdf Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 15

18 use a loss-to-value ratio) or with the NFPA estimates of losses, unless the structure and contents average value is only about $100,000. The 2007 NIST report indicated a reduction of only 32 percent in property damage associated with sprinklers. The NFPA data including apartments indicate that average damages were 69 percent lower in sprinkled homes. Because those NFPA data include apartments, the differences in the averages may overstate the reduction in damage that can be expected with sprinklers, since sprinklers are disproportionately found in apartments, and apartments generally have lower values per unit. On the other hand, there could be a bias in the other direction because sprinkled homes are generally newer and possibly higher-valued than those without sprinklers. The default national values given for the NIST SPUD tool indicate a reduction of 78 percent in the fire loss to value ratio with sprinklers. That reflects the use of statistical adjustments to account for differences in values and other characteristics between homes with and without sprinklers. 17 For our calculations we assumed a reduction of 69 percent in uninsured damage. Importantly, the overall benefit estimate would be only moderately different if the higher figure of 78 percent (or the lower estimate of 32 percent) were used. As an estimate of the insurance discount for homes with sprinklers, we have used 8 percent, following the assumption used in the 2007 NIST report. There were 26 companies authorized by the Florida Office of Insurance Regulation to write policies in Lee County, where Cape Corral is located, with an average premium of $2,812 for a "new" home worth $300,000. Since fire is a smaller share of claims in Florida than elsewhere, the sprinkler discount from those high premiums may be less than elsewhere, but a 2007 study by the National Association of Home Builders 18 showed that the largest insurance providers in Florida offered discounts of up to 16 percent for homes with full sprinkler coverage and up to 9 percent for those with sprinklers partially covering the structure (i.e., totally or partially omitted in bathrooms, attics, closets, and attached structures). Not all insurers were reported to offer such large discounts, but owners of sprinkled homes would presumably gravitate to insurers offering the largest discounts, so an assumed discount of 8 percent may be appropriate, in the absence of other data. The PV of the benefits associated with the insurance discount was $3, David T. Butry, "Comparing the performance of residential fire sprinklers with other life-safety technologies" Accident Analysis and Prevention (Forthcoming 2012), doi: /j.aap Lanlan Xu, " Fire Sprinklers and Homeowner Insurance" September 14, Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 16

19 Based on the analysis prepared for Cape Coral by James Nicholas 19, the presence of sprinklers should lead to a reduction of $57.50 per home in the fire impact fee. Benefits from Waiver of Infrastructure Requirements With a requirement for fire sprinkler systems in new one and two-family homes, there are opportunities for cost savings from the waiver of certain infrastructure requirements including fire hydrant spacing, road widths, water line sizes, cul-de-sac sizes, and allowable dead-end street length. There was no evidence that any infrastructure requirements had been waived in Cape Coral at the time of this report. For informational purposes, the estimated values for each of these types of incentives are shown in Table 5 below. The values have been referenced from a national study on residential fire sprinkler incentives published by the Fire Protection Research Foundation. 20 Table 5: Estimated Cost Savings from Reduced Infrastructure Requirements Infrastructure Requirement Reduced requirements for hydrant spacing Reduced requirements for minimum road width Reduced requirements for fire flows Reduced cul-de-sac width Increased allowable dead-end street length Estimate Value $49 per building lot $1,172 per building lot $50 per building lot $10,752 per cul-de-sac 5 additional building lots Source: Incentives for the Use of Residential Fire Sprinkler Systems in U.S. Communities, The Fire Protection Research Foundation Summary of Findings The average cost of installing residential fire sprinklers in Cape Coral is calculated at $3,390 or $1.78 per square foot of sprinkled space. This is approximately 10% higher than the $ Memorandum from James C. Nicholas to Alan Carter, "Credit Against Fire Impact Fees for Home Sprinkler Systems" February 13, Incentives for the Use of Residential Fire Sprinkler Systems in U.S. Communities, Fire Protection Research Foundation, October Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 17

20 estimate from an earlier study (Newport Partners, 2008) but within the range of costs found in that study. The cost of the increasing the water line and water meter from 5/8 to 1 to accommodate a residential fire sprinkler system was calculated at $42.25 to reflect only the hard cost of the increased meter size. The city and water purveyor need to be aware that a change in this cost component due to a sprinkler ordinance was not anticipated in this study. The benefit calculation follows the framework and criteria of the report prepared by the National Institute of Standards and Technology (Butry et al 2007) and uses an 8% reduction in insurance rates. Values were updated with more recent and local data where available and applicable. The total present value of benefits comes to $6, 180 with most of the benefits attributable to savings on insurance and the value of fewer fatalities. Economic Cost Benefit Analysis of Residential Fire Sprinkler Systems in Cape Coral 18