Role of Local Government
in Promoting Housing Affordability through Energy Efficiency
The Connection Between Energy Efficiency and Affordable Housing
A home must not impose undue burdens upon its occupants or it's
not affordable. By far, the two largest components of the typical
housing burden are rent and utility bills. Therefore, the role
of utility bills in determining whether or not housing is actually
affordable cannot be underestimated. Inability to pay utility bills
has been noted as the second leading economic cause of homelessness.[1] The recent increase in energy rates in California and the potential
for volatile fluctuations in future energy rates only makes this
a more important issue in California.
Investments in the energy efficiency of housing can help to reduce
the costs associated with utility bills but often result in a higher
construction cost to the developer. Generally, the developer has
few options for recouping his/her investment in energy efficiency.
This is especially true for affordable housing developers where
rents are constrained. Residential property for rent, when the
rent is constrained by public purpose regulations, is the
classic example of what is known as "split incentives." The
owner is the party required to pay any costs of making the building
more energy efficient, and yet none of the direct benefits of those
investments flow to the owner. The tenant is the one who will reap
most of the benefits of the upgrades, and yet the tenant has no
say in the level of investment in energy efficiency.
Local Governments' Role in Promoting Energy Efficiency In Affordable
Housing
Local governments can play a role in promoting energy efficiency
in affordable housing by adopting policy that would encourage owner-developers
to invest in energy efficiency, increase their cash flow, lower
tenant utility costs. After all, lower utility bills help to make
homes more affordable. The average California household spends
about 5% of its monthly income on utilities and the average affordable
housing tenant in California spends about 20%.
By adopting an Energy Efficiency-Based Utility Allowance schedule,
housing authorities send a strong message that they support and
reward investments in energy efficiency and that it does play a
role making homes more affordable. The publicly-funded Designed
for Comfort: Efficient Affordable Housing program
aims to assist housing authorities in developing, adopting, marketing,
and implementing such a policy. It also sets aside a small amount
of funding for the rehab of existing affordable projects as case
studies to demonstrate the value of the policy. Below is a summary
of an Energy Efficiency-Based Utility Allowance schedule and an
example of its impact, as well as a description of the benefits
provided by the Designed for Comfort: Efficient
Affordable Housing program. Finally, a case study of the impacts
of an Energy Efficiency-Based Utility Allowance compared to that
of The Housing Authority of the County of Riverside's (HACR) Standard
Utility Allowance schedule. The case study is based on a typical
53-unit project resulting in a 15-year increase in cash flow of
about $181,000.
An Energy Efficiency-Based Utility Allowance Schedule
The
rationale for this schedule is that if an owner-developer builds
new, or rehabs existing, affordable housing so that it is
energy efficient (as defined by the policy), the utility costs
to the tenants would be lower, so the project would then qualify
for a lower utility allowance. This would in turn allow the owner
to collect increased rents without increasing the total housing
burden to the tenant. Further, the model that is used to calculate
the lowered (energy efficiency-based) utility allowance is conservative
and ensures that the tenant saves as well. Below is an example
of a Standard Utility Allowance versus an Energy
Efficiency-Based Utility Allowance and the differing
impact on rent, owner's net income, tenant utility costs, and total
housing burden.
THE IMPACT OF AN ENERGY EFFICIENCY-BASED UTIILITY ALLOWANCE
|
Click for Larger View
Owner's rent increases $10/mo and tenant's net utility
costs decrease $2/mo without changing total calculated
housing burden.
|
|
Standard
UA |
| Total Housing Burden |
$500/mo |
| Utility Allowance |
$100/mo |
| Developer Rent |
$400/mo |
| Tenant Utility Costs |
$100/mo |
| Versus: |
|
| Energy Efficiency-Based UA |
| Total Housing Burden |
$500/mo |
| Utility Allowance |
$ 90/mo |
| Developer Rent |
$410/mo |
| Tenant Utility Costs |
$ 88/mo |
As a public service, the Designed for Comfort:
Efficient Affordable Housing program provides full-service
assistance to housing authorities statewide to:
- Develop
and adopt an Energy Efficiency-Based Utility Allowance schedule
- Help
with implementation for housing authorities that adopt this
policy
- Designate
incentives for owners of existing affordable housing projects
(located within the housing authority jurisdiction that adopts
policy) who
rehab their projects to improve energy efficiency by 20%. Incentives
range from $700 to $1,500 per unit.
HUD Highlights the Energy Efficiency-Based Utility Allowance
as a "Best Practice"
HUD deems adopting the Energy Efficiency-Based
Utility Allowance schedule to be a "best practice" as indicated
in their March-April edition of the online newsletter "Public
Housing Energy Conservation Clearinghouse News." (PDF)
In it, HUD highlights the efforts of Riverside County to
adopt and implement an Energy Efficiency-Based Utility Allowance
schedule. To download the report "Establishing and Implementing
the Energy Efficient Utility Allowance Schedule: Housing Authority
of the County of Riverside," register at http://www.designedforcomfort.com/reports.htm.
Why Wouldn't We Adopt an Energy Efficiency-Based Utility Allowance
Schedule?
Although there is no one "silver bullet" incentive offered to
owner-developers of affordable housing to offset the cost of investing
in energy efficiency, however, collectively, increased Tax Credit
funding and utility energy efficiency incentives help to offset
these first costs. The benefit of a housing authority adopting
an Energy Efficiency-Based Utility Allowance schedule has the longest-term
impact of increasing cash flow for the owner-developer. The policy
is straightforward, simple to implement, and benefits both the
owner-developer and the tenant, sends a strong message from the
housing authority that they support energy efficiency as a means
of reducing housing costs and providing a more comfortable home
for tenants. As one housing authority director put it, Why wouldn't
we adopt an Energy Efficiency-Based Utility Allowance schedule?
Ask HMG staff how you can help encourage your local housing authority
to adopt this beneficial policy. To take advantage of this service,
contact Julieann Summerford at summerford@h-m-g.com, 619-917-5690,
or visit www.DesignedforComfort.com.
Continued 
[1] Karen Brown, Ex Dir, Colorado Energy Assistance
Foundation. James Benfield, Ex Dir, Campaign for Home Energy
Assistance.
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