The new red house on 31st Avenue N. is designed to use only as much energy as it produces, a first of its kind in the Twin Cities.

More commonly seen in Europe, the so-called net zero house in north Minneapolis will save new owners Sarah Olson and Abdi Mohamed a lot of money on utility bills.

But it has also cost the city $25,000 because it sold for less than it cost to build.

Two years after Minneapolis announced plans to build 100 green homes to revive empty lots in foreclosure-battered neighborhoods, the city is confronting the reality of the market. The project, aimed at low- and middle-income earners, is as dependent as ever on government subsidies to continue. The city has approved about $2.9 million for it so far.

The City Council approved a third round of green homes this month, though many of the first- and second-round homes are not yet finished as planned for the end of 2013.

"It's very difficult to replicate because of the cost of building green," said Cherie Shoquist, who coordinates the project for the city. "Not just building green but building green homes of these value in distressed markets is just not cost-effective."

She added that the city is hoping to get more private developers involved and reduce the government subsidies needed to keep the project moving ahead.

Green affordable housing is gaining interest nationally, but those efforts often focus on multifamily housing because it is more economical.

Minneapolis pursued a different strategy, guided in part by celebrity Brad Pitt's work in New Orleans, where a nonprofit he cofounded has been building 150 energy-efficient homes in a neighborhood devastated by Hurricane Katrina.

In the wake of the North Side's foreclosure crisis and May 2011 tornado, then-Mayor R.T. Rybak announced Green Homes North at his state of the city speech in 2012 as a project that would revitalize vacant lots where houses in disrepair had been demolished.

Since then, Minneapolis has approved 47 homes in all by nine developers, seven of which are nonprofit.

The city said the first two rounds — encompassing 27 houses — would be done by the end of last year, but weather and other factors delayed their completion. The project is also taking longer than expected as the city tries to meet its goals to hire women and minorities for the construction.

The development gap

Home buyers have moved into at least four houses during recent months, and developers are closing sales on others. The rest of the 27 homes are expected to be occupied by summer, with everyone from working artists to large families. Sales prices will range from $150,000 to $250,000.

Only about half of the costs approved by the City Council come from the city's own coffers; the rest is contributed from the Minnesota Housing Finance Agency and the nonprofit Family Housing Fund. The homes are to be sold to people earning up to 15 percent above the region's median income, with a limit of $96,500 for a family of four.

The city requires developers to make the homes "solar ready" so that homeowners can later choose to install such technology on their own. They are also supposed to build in more insulation than what is usually used and monitor energy performance after owners move in.

Though the program was also part of a broader vision to rebuild north Minneapolis' dropping population, one of the new homeowners moved in from another house he owned down the block. Robert Smith, a single professor at St. Olaf College, was drawn to the environmentally friendly features and bought a three-bedroom green home developed by Peyser LLC, one of the few private developers involved in the city program, for just more than $200,000 on the 3800 block of Sheridan Avenue N.

"This house in south Minneapolis would be 40 percent higher [in price]," Smith said.

The city kicked in nearly $100,000 for each of the homes by Peyser, which was the first to finish what it was contracted to build.

Without those funds, "the economics just don't work. … I saw it as an opportunity to design and provide a new house on a vacant property in north Minneapolis that otherwise couldn't be done," said Jay Isenberg of Peyser.

A green home would cost the same to build anywhere, but it could sell in Eagan for $300,000 while it would go for only $160,000 in north Minneapolis, requiring government involvement, said Chris Wilson, real estate director of Project for Pride in Living.

The nonprofit has six green homes under construction after being delayed by a contractor last year.

He said some banks are appraising homes in the area for less than buyers will pay for them, causing Project for Pride in Living to lower prices further in some cases.

Wilson called the city "forward thinking" for its approach to building green homes in low-income neighborhoods. "It is probably a little more expensive, but I think if you want to really start thinking about our long-term future … it is a good approach," he said.

Still, Shoquist said the city must lower the "development gap" — what the city subsidizes builders to offset a sales price lower than the construction cost — to sustain the program.

Net zero home

The home that has attracted the most attention is on the 400 block of 31st Avenue N., where University of Minnesota professors collaborated with their students and Habitat for Humanity to design the net zero house.

The house has more than twice the insulation required by standard codes, with 8 inches of extruded polystyrene foam on the exterior frame. The windows were built with triple pane glass, so that someone can sit right next to them in the winter and not feel cold air whistling through. Heating and cooling can be adjusted on thermostats on separate floors to save energy.

And though solar panels gleam on the garage roof, "that's actually the more bling piece of it," said Lucas Alm, an adjunct assistant professor of architecture at the U. "The real innovations are under the skin."

Olson, Mohamed and their 6-year-old twins moved from Lauderdale into the house this year without a down payment, instead volunteering with Habitat and helping build the house. Olson is a stay-at-home mother studying to be a dental assistant, while her husband, Mohamed, works in the mortgage division of Wells Fargo.

The other homes that Habitat for Humanity is building for Green Homes North are not expected to be net zero, and Alm said the verdict is still out on whether they can make such work affordable.

He acknowledged that building green is a trade-off.

"In terms of affordability, there's this idea that you need to make construction costs initially very cheap and inexpensive," Alm said. "But in the long term, if you build a green home, your utility costs and overall upkeep and durability are much more affordable."