Energy Codes: A Balancing Act for Multifamily Development

The housing market, a cornerstone of economic stability, is facing a new set of challenges. Energy codes, designed to improve energy efficiency and reduce greenhouse gas emissions, are poised to have a significant impact on multifamily development and rental rates.

A recent directive from the Department of Housing and Urban Development (HUD) and the Department of Agriculture (USDA) requires all single-family construction financed by the agencies to be built to the 2021 International Energy Conservation Code (IECC). For HUD-financed multifamily housing, the requirement is either 2021 IECC or ASHRAE 90.1-2019.

While these stricter energy codes are intended to save homeowners and renters money on utility bills, they have raised concerns among multifamily housing developers. A survey conducted by the National Association of Home Builders (NAHB) found that over half of respondents believe the rules will dissuade them from pursuing some projects due to higher costs. Additionally, 44% of respondents indicated that they would need to charge higher rents to offset the increased costs associated with meeting the new energy codes.

The NAHB noted that energy codes, like other model building codes, are typically released every three years, and states and municipalities have the flexibility to adopt them on their own timelines. However, the new HUD/USDA directive effectively becomes a national mandate, requiring the majority of developers to build to the 2021 energy code.

The Federal Housing Finance Agency (FHFA) is also considering adopting the new energy code requirement for its single-family and multifamily mortgage programs. If Fannie Mae and Freddie Mac were to adopt the requirement, it could further discourage affordable housing projects and market-rate developments. Many developers indicated that they would seek alternative financing sources, reduce the size of apartments, or cut back on amenities to offset the increased costs.

The Impact on Affordability

The new energy codes raise concerns about the affordability of housing. While the long-term benefits of energy efficiency are undeniable, the upfront costs of implementing these codes can be significant. Developers may pass these costs on to renters in the form of higher rents, making it more difficult for low- and moderate-income households to afford housing.

Balancing Energy Efficiency with Affordability

Finding a balance between energy efficiency and affordability is crucial. While it is essential to address climate change and reduce our reliance on fossil fuels, it is equally important to ensure that housing remains affordable for all.

One potential solution is to provide incentives and subsidies to help offset the upfront costs of implementing energy codes. This could include tax credits, grants, or low-interest loans. Additionally, policymakers can explore innovative financing mechanisms that can make energy-efficient housing more accessible.

Another approach is to prioritize energy-efficient retrofits for existing buildings. By focusing on upgrading older buildings, we can improve their energy performance without adding to the cost of new construction.

Conclusion

The new energy code requirements present a significant challenge for multifamily housing development. While the long-term benefits of energy efficiency are undeniable, the upfront costs and potential impact on affordability raise concerns.

To address these challenges, policymakers and industry stakeholders must work together to find innovative solutions that balance energy efficiency with affordability. By providing incentives, exploring new financing mechanisms, and prioritizing energy-efficient retrofits, we can ensure that housing remains accessible to all while reducing our environmental impact.

Courtesy: ?Kristen Smithberg

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