Currents

An Energy Newsletter for Local Governments

Role of Local Government in Promoting Housing Affordability through Energy Efficiency (continued)

Case Study
The Housing Authority of the County of Riverside's Standard Utility Allowance versus their Energy Efficiency-Based Utility Allowance Schedule - and the Impact on Project Cash Flow

The following is a case study to illustrate the impact that an Energy Efficiency-Based Utility Allowance schedule would have on a hypothetical new construction project. This case study is based on a comparison of HACR's current Standard Utility Allowance schedule and their current Energy Efficiency-Based Utility Allowance schedule. The analysis compares rental income on a project with 40 two-bedroom units and 12 three-bedroom units (and one manager unit). Some of the assumptions (e.g, rents, allowable housing burdens for tenants, laundry income associated with the property, etc.) were drawn from a 53-unit apartment complex in Southern California called, "Vista Verde Apartments."  All but one of the units were designed to be affordable to low- and very low-income families (41%-47% of median area income). Figure 1 excerpts information from a table in the Development Form - Rental Income, in the application submitted to the local housing authority by the developer. Figure 1 shows what the rents and income figures would have been had a New Construction Energy Efficiency-Based Utility Allowance schedule been in place and utilized for this project. Figure 1 also shows the difference between the rental income using the two schedules. Notice that the developer receives an additional $11,035 per year in rents over the term of eligibility for the Energy Efficiency-Based Utility Allowance schedule without impacting the tenants' total housing burden.

Figure 1: Hypothetical Project Rental Income (Click Image for Larger View)

Table 1 below shows the fifteen-year annual net income for our hypothetical project, both with the Standard Utility Allowance schedule and with the Energy Efficiency-Based Utility Allowance schedule. The top half of the table shows the income and expense estimates from the actual application for the project. The bottom half shows what the income and expenses would have been in the estimate given the following assumptions:

• $5000 additional first costs (52 units X $96/unit)
• Rents from the table in Figure 1 above
• Repayment (to the lender) of the additional $5000 over the life of the 15-year mortgage
• No additional "Other" income or additional operating expenses (e.g., the laundry facilities are assumed to be unchanged)

Note that in both sections of the table, years 8-12 are present in the calculations but collapsed (not shown) in the presentation since they add little additional information. The most notable lesson of the table is that even with a larger debt service payment for the initial four years (more than enough to cover the additional cost of measures even WITHOUT a utility program incentive), the residual cash is significantly larger. The cumulative residual cash by the 7^th year is about $75,866 greater, and approximately $181,009 after 15 years. The developer is able to make more return on his/her investment while the tenants' total housing burden is not increased but rather slightly decreased. Further, the tenants also realize the value of increased comfort.

Table 1: Income and Expense Comparison (Click Image for Larger View)

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