Energy Initiative: Policy Summaries
HUD spends roughly $5 billion a year on direct and indirect subsidies to pay utility bills for multifamily housing. Payments by tenants and the utility bills for properties assisted under the LIHTC, but not assisted by HUD, add additional billions of dollars to that figure. Renovations to the existing housing stock could save millions of dollars, but little is currently being done. Moreover, reducing energy consumption in existing housing is a key to reducing carbon emissions, as existing multifamily housing will remain a substantial source of greenhouse gas emissions for decades to come. SAHF’s Energy Initiative proposes three federal policies and a set of state policies designed to bridge the financing gap, save billions in utility payments, and reduce our energy consumption dramatically.
SAHF Energy Pilots
In partnership with the Surdna Foundation, in order to develop an on-the-ground understanding of what would be required, SAHF undertook energy-efficiency pilots in seven states. These pilot programs test various aspects of energy efficiency investments, including wireless utility metering, energy efficiency audits, a wide range of energy efficiency retrofits, optimization technology, and renewable energy technology.
Due to the striking general lack of data on energy consumption and utility costs at the building or apartment level, SAHF, in partnership with the MacArthur Foundation, has worked painstaking with its Members in each of its pilots to gather baseline data from owners and utilities in order to determine whether these measures are cost justified. Moving forward, SAHF and its Members have contracted with a data collection company to collect historic and ongoing data throughout their apartment stock. This data is instrumental in evaluating the promise and impact of policy proposals like those outlined below.
Section 8 Energy Difference
Outside of HUD’s Energy Performance Contracts for energy efficiency in public housing and HUD’s energy initiative for a portion of its mark-to-market portfolio, no other energy conservation program currently exists for the rest of the privately-owned, but HUD-subsidized portfolio. This portfolio consists of c. 1.5 million apartments, most of which were constructed more than 20 years ago and are strikingly energy inefficient, resulting in high operating costs and high carbon impact.
Addressing the problem will require investment in the properties and a source of revenue for repayment. SAHF proposes creating a demonstration program to explore methods for energy conservation in project-based Section 8 housing. The demonstration would involve energy conservation measures in up to 20,000 apartments over the course of three years. A temporary increase in Section 8 assistance (the “energy difference”) would pay a portion of the cost associated with private loans made to finance the measures. The balance would be paid from the resulting utility savings. The proposal would also empower HUD to establish incentives for both owners and tenants to conserve energy.
Loan Guarantee Program
Mortgages that support energy-efficiency renovations in multifamily buildings could potentially yield millions for private investors. Yet, for two main reasons this market currently does not exist. First, legal issues like loan priority and security, and the associated transaction costs, make originating these relatively small mortgages on a project-by-project basis prohibitively expensive. Second, lenders are uncomfortable with the uncertainty involved in pioneering a new type of mortgage, putting money at risk on an unproven promise of energy- and cost savings.
SAHF has a solution: a federal program to guarantee a pool of energy efficiency loans. The federal guarantee reduces lender uncertainty while the loan pool reduces transactions costs, freeing investors to quickly capitalize on the renovation of thousands of multifamily residences and potentially saving billions in utility payments over the coming decades.
Energy Tax Credit
Significant energy and cost savings can be achieved in existing affordable rental housing, but lack of experience among lenders and owners, even with proven technology, have contributed to stifled action. Moreover, only rarely can HUD-assisted buildings qualify for rehabilitation funds – in some cases, once every 20 to 30 years – significantly delaying needed renovations.
To overcome this paralysis, SAHF advocates a new tax credit that encourages energy conservation investments in existing buildings--whether or not a property is undergoing substantial rehabilitation—that sets energy performance standards designed specifically for those existing buildings. The credit would be set at 30%, equal to the tax credit for alternative energy investment, leveling the playing field.
Public Benefit Funds
Thirty states and the District of Columbia have established public benefit funds, funded by utilities as a condition of energy deregulation, and used to support energy efficiency and renewable energy technology measures. Despite the widespread existence of these funds, and despite the fact that many states subsidize homeowners who make energy efficiency renovations, SAHF is aware of only one state – New York – with a program to assist energy efficiency renovations in multifamily buildings. SAHF advocates other states incorporate similar programs into the offerings of their public benefit funds.