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A Climate Action Plan for Affordable Multifamily Housing

SOURCE: AP/Matt Rourke

A home in Philadelphia is constructed with the goal that it will create nearly as much energy as it consume.

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President Barack Obama’s Climate Action Plan, announced at Georgetown University in June, outlined an ambitious agenda to address the increasing dangers of climate change. Although the proposed regulatory standards on existing and new power plants have taken center stage in public discussion, the president’s agenda also included several noteworthy proposals to support the important aim of increasing access to energy efficiency and clean energy technologies in affordable multifamily housing.

To reduce the deadly threat of climate disruption, it is essential to rein in polluting energy use, especially the wasteful conventional consumption of electricity in buildings. Currently, large multifamily residential buildings represent a huge source of energy inefficiency, but they also hold the promise of being smart and cost-effective places to make deep savings. Low-income affordable housing in particular can help open this market, improving financial security for building owners, saving tenants needed dollars, and building the demand for clean energy, thereby driving down costs for the entire economy.

The president’s Climate Action Plan made useful steps in advancing this goal through three measures, including establishing a Multifamily Energy Innovation Fund through the Department of Housing and Urban Development, expanding the ability of the Rural Utilities Service at the Department of Agriculture to promote energy-efficiency lending, and broadening the successful Better Buildings Initiative into the domain of multifamily housing. Together these measures can expand access to credit and use public-private partnerships to more effectively support a new wave of green investments in affordable multifamily housing.

While the president’s plan is motivated by the threat of climate disruption, providing Americans with access to safe, affordable housing is also a key component of broadly shared economic prosperity. On-site clean and efficient energy technologies can advance both of these pressing public-policy goals by lowering electricity bills, ensuring that housing becomes more affordable by reducing costs for residents, and freeing up family budgets to spend their limited resources on goods and services within the local economy. Efficiency investments in particular have a highly localized impact on job creation and the building of economically and environmentally sustainable communities.

Why affordable multifamily housing?

Buildings account for 36 percent of the total energy use in the United States, including 65 percent of the nation’s electricity, and account for 30 percent of U.S. greenhouse gas emissions. Multifamily housing is a key segment of the built environment in the United States, accounting for 26.1 percent of all housing units. With the imperative to answer the growing threat of climate change, affordable multifamily housing offers a tremendous opportunity to increase capital investment, rapidly deploy clean technology, and touch the lives of Americans in powerful ways. Making affordable multifamily housing more environmentally sustainable should be a top priority of climate advocates and all those who wish to reduce greenhouse gas pollution.

The average energy bill in the United States—excluding transportation—was $1,945 per household in 2012. The cost of energy hits low-income families particularly hard, as they spend twice as much of their income on these bills when compared to higher-income families. Furthermore, residents of affordable multifamily properties who rent their homes are often unable to access the tools to lower their energy costs, both because of the high upfront cost of these capital improvements and the fact that landlords often lack the incentives or financial wherewithal to make these investments.

How clean energy and efficiency can make a difference

Greening affordable housing doesn’t just tackle climate change; it also makes sound economic sense and improves lives. Investments in clean energy and efficiency create good jobs, not just in the hard-hit sectors of the national economy such as construction and manufacturing, but they also make a difference at the community level by investing in the installation and maintenance of clean energy technologies. Lowering home energy bills for families frees up more money to be spent on items such as food and school supplies, which in turn raises the quality of life and strengthens neighborhoods. As the market for clean and efficient goods and services grows, the costs for the entire economy go down. The economic benefits of energy efficiency, especially in affordable multifamily housing are twofold:

  1. The jobs created through smart energy upgrades to large multifamily properties create exactly the sort of good jobs and career opportunities that America needs to rebuild the economic security of low-income and middle-class families. Most of the products used in energy-efficiency improvements have a domestic content of more than 90 percent, and investments in efficiency create three times as many jobs as comparable investments in fossil fuels. Most of these jobs—75.1 percent—are in manufacturing and construction. In addition, these jobs are focused in small businesses, the backbone of local economies, with 91 percent of these businesses employing less than 20 people. What’s more, solar panels, district energy systems that heat and cool large apartment complexes, and the mechanical and insulation upgrades that make up an energy retrofit are all, by their nature, locally installed and maintained.
  2. The influence that reducing energy bills can have on the budgets of working families cannot be overstated. Statistics show that moderate-income households spend almost 60 percent of their total family budget on housing and transportation—expenses driven significantly by the cost of energy. These costs have grown by 44 percent over the past decade while household incomes have risen only 25 percent, and for families below 50 percent of the median income these burdens are even greater. Cutting the amount of energy we waste directly lowers utility bills, offering one of the simplest and most effective ways to reverse this trend and improve housing affordability for hard-pressed Americans. Freeing up family income from expensive utility bills also translates directly into local spending and an improved quality of life for both families and communities.

Wasted energy is not only an economic drag for the country, but it is also a moral crisis that hits those in greatest need the hardest. Investment in clean and efficient energy technologies represents much more than simply a solution to pollution and climate threats; it is also a powerful tool for building stronger, healthier, and more prosperous local communities.

New programs can overcome old challenges

Because clean and efficient energy technology investments offset energy bills creating economic savings, they can also pay for themselves over time. Yet even though these investments generate net-positive cash flows, their adoption is not nearly as widespread as it should be. Inadequate financing options to spread over time the upfront costs associated with the installation of energy-saving tools represent a primary barrier that slows the adoption of smart and efficient clean technology. These misaligned economic incentives leave our climate more polluted, while working people struggle to foot the bill for all that waste. The president’s Climate Action Plan addresses these financing challenges for energy efficiency head-on.

The economic challenge is simple. Although the paybacks for these technologies are compelling, with many of the benefits being realized within 5 to 10 years of implementation, the high upfront capital costs remain prohibitive to low-income families. These families simply don’t have the cash on hand to invest in energy-saving improvements, even though it makes great financial sense for them in the long run. Furthermore, low-income homeowners often lack access to credit, while renters lack the control or incentives to make the investments that would cut their bills over time.

The good news is that there are solutions to these problems. The president’s Climate Action Plan contained three noteworthy mechanisms for driving new capital into affordable housing. First, a $23 million program called the Multifamily Energy Innovation Fund. Run out of the Department of Housing and Urban Development, the program will “test new approaches to deliver cost-effective residential energy.” The fund provides grants for clean energy and efficiency upgrades in multifamily homes, leveraging new sources of private capital, and conducting applied research. Second, the president announced that the Rural Utilities Service would offer $250 million to homeowners and businesses to finance energy-efficiency improvements. Some of this money will also find its way into affordable multifamily housing in rural America. While the sums of money in each of these programs are very small relative to the overall investment need, these measures will be important for helping large, affordable multifamily properties to free up additional investment capital. Together with the many successful state and local financing tools that are emerging around the country—such as Property Assessed Clean Energy, or PACE, and On-Bill Financing—this new federal commitment of resources can be catalytic in leveraging far greater private-sector investments.

Finally, in his Climate Action Plan, President Obama also called for the expansion of the highly successful Better Buildings Challenge, a public-private partnership to improve the energy efficiency of commercial and government office buildings into the multifamily housing market. The Better Buildings Challenge is designed to make buildings 20 percent more efficient by 2020 by connecting building owners to new sources of financing capital through private partnerships and the better use of existing government-contracting mechanisms. The expansion of the Better Buildings Challenge to multifamily units will help elevate best practices and secure new resource commitments to this important sector of the built environment from a wide range of financial organizations and building owners. To date, this partnership has already engaged 120 organizations to make 2 billion square feet of renovations that have cut energy use by 2.5 percent annually and saved the equivalent of $58 million per year. Increasing demand for clean and efficient energy services within the multifamily sector can be the next big success story for the Better Buildings Challenge.

Conclusion

Building the market for clean and efficient energy technologies by reinvesting in affordable multifamily housing is good for both the economy and the climate. These investments will create family-supporting jobs with decent wages in some of the hardest-hit employment sectors, while at the same time putting money back into the pockets of working families and strengthening local communities. Finding new solutions to longstanding financing challenges and misaligned incentives will require sustained leadership from the president backed by follow-through from the entire federal government. President Obama’s Climate Action Plan and the administration’s leadership in energy efficiency through the Multifamily Energy Innovation Fund, the Rural Utilities Service, and expansion of the Better Buildings Challenge are all important steps in unlocking the ingenuity and competitiveness of American businesses and workers, to innovate new solutions for building energy efficiency that will go a long way in helping to reverse the looming threat of climate change.

Bracken Hendricks is a Senior Fellow at the Center for American Progress. Adam James was a Research Assistant for Energy Policy at the Center. Bryan Lewis is an intern with the Energy team at the Center.

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