Reaching Energy Efficiency Goals Through Affordable Housing Retrofits

by Dana Bartolomei and Michael Bodaken, National Housing Trust

Meeting our nation’s energy demand through efficiency improvements is more cost-effective than investing in new sources of energy generation.1 Not surprisingly then, states across the country have increased their commitment to energy efficiency programs in order to achieve the environmental and economic benefits that result from these investments.

Yet one sector of the market has largely been overlooked: affordable multifamily housing. Multifamily buildings represent roughly a quarter of residential homes in the United States, and comprise 20% of the energy consumed by all residential buildings. Despite its market share, multifamily rental housing is far less likely to have efficiency measures than any other type of housing.2

Currently, the share of utility funds spent on the multifamily housing sector falls well below the multifamily share of the housing market in metropolitan areas across the country (Figure 1).

The National Housing Trust (NHT) is working to change that. We believe that increasing the efficiency of affordable, multifamily housing is a cost-effective way for states meets their energy efficiency goals.

Why would NHT, a nonprofit organization devoted to protecting and improving existing affordable rental homes, care about energy efficiency? The answer is simple. The cost of energy is the largest operating expense in master-metered affordable multifamily rental buildings. Even in buildings in which tenants pay their own utilities, these costs are the second-largest variable expense.2 Reducing operating expenses allows owners to maintain affordable rents for low-income residents and frees up capital to invest in resident services and other necessary building improvements.

NHT is uniquely positioned to bridge the gap between increasing energy efficiency and maintaining affordable housing. NHT advances sustainable affordable housing through policy engagement, real estate development, and lending. We own and operate 3,000 apartments and have been involved in more than $1.5 billion in financing for existing affordable housing. This mix of hands-on experience with the ability to impact public policy led us to recognize the opportunities to reduce energy demand in multifamily housing.

To help multifamily owners take advantage of these opportunities, NHT has partnered with energy leaders to address the barriers to improving energy efficiency in multifamily housing. Together with the Natural Resources Defense Council, Energy Foundation, Elevate Energy, and New Ecology, we aim to ensure that utilities deliver programs designed to capture all cost-effective energy efficiency within the affordable multifamily housing sector and to demonstrate that older multifamily housing presents an excellent opportunity for retrofits that reliably deliver projected energy savings.

Over the next 18 months, NHT and our partners will collaborate with local energy and affordable housing partners across the country to build on current efforts to ensure that affordable housing receives a fair share of utility funding, that energy efficiency programs are tailored to the affordable multifamily sector, and that all cost-effective energy efficiency measures
are included.


Figure 1. Comparison of 2011 spending on targeted multifamily programs with the multifamily share of the housing market in selected U.S. cities. Source: Kate Johnson and Eric Mackres, American Council for an Energy-Efficient Economy, 2013.

Aligning Goals for a Common Good

Aligning energy efficiency and affordable housing policies is essential to achieve deep energy savings in affordable rental homes. State housing finance agencies allocate approximately $5 billion annually in housing tax credits to develop affordable housing. Every year, each state adopts an “allocation plan” to determine how to spend this competitive resource. States allow the public to comment on the allocation plans. Each year, NHT urges state housing finance agencies3 to prioritize energy efficiency and sustainable development in awarding housing tax credits to affordable housing developers. Indeed, an increasing number of states are prioritizing financing for existing developments proposing increased energy efficiency, and are requiring new and existing properties to meet or exceed green certification criteria. Forty-five states require or encourage developers to use specified energy-efficient products, efficient HVAC systems, and/or Energy Star products to secure an award of state funding for affordable housing.4

Despite this progress, deeper energy savings could be achieved in the multifamily housing stock if utility-provided energy efficiency resources were combined with housing resources. It’s rare, for example, for a state housing finance agency to require a developer applying for housing tax credits to approach the utility serving the site for funding for energy-efficient retrofits.

Consequently, NHT has been engaging utilities and energy efficiency and housing stakeholders in targeted states to advance utility-funded energy efficiency programs in the affordable multifamily sector since 2010. Our experience shows that obstacles preventing utility-sponsored investments in multifamily affordable housing can be overcome when housing and utility sectors collaborate. NHT works to advance effective multifamily energy efficiency programs by building relationships between affordable housing and energy stakeholders. In the states where we have focused our efforts, utilities have committed nearly $40 million in funding for energy efficiency improvements to multifamily affordable housing.

With spending on utility efficiency programs on the rise5 (Figure 2), we have a unique window of opportunity to reduce energy consumption, maintain housing affordability, and create a healthier living environment for low-income renters.

A partnership among the Maryland Energy Administration (MEA), the Maryland Department of Housing and Community Development (DHCD), and the state’s investor-owned utilities demonstrates the potential when housing and energy resources are aligned. In 2010, DHCD and MEA created the Multifamily Energy Efficiency and Housing Affordability (MEEHA) program. Initially capitalized by the State Energy Program, MEEHA is now funded by investor-owned utilities. In 2011 and 2012, the Maryland Public Service Commission directed utilities to provide $21 million in funding for energy efficiency improvements in multifamily affordable housing.

The MEEHA program is administered by DHCD and provides energy audits, energy efficiency retrofits, and renewable energy improvements. Affordable multifamily projects already being considered for housing resources from DHCD are targeted for MEEHA funding, allowing property owners to submit one application for all their financing requests from DHCD. As of June 2012, 49 projects totaling more than 5,000 apartment homes have received energy efficiency improvements, resulting in annual energy savings of nearly 10,000 megawatt-hours.

From Practical Experience to Policy Change

NHT has also looked for ways to pursue sustainability more aggressively and identify best practices through on-the-ground experience. The focus of the National Housing Trust/Enterprise Preservation Corporation (NHT/Enterprise) has become the retrofit of its existing portfolio, as well as improving the energy efficiency of properties entering the real estate development pipeline. After retrofitting, NHT/Enterprise properties consume approximately 23% less energy than pre-retrofit.

As one of the inaugural multifamily housing partners of the U.S. Department of Housing and Urban Development’s Better Building Challenge, NHT/Enterprise joined 50 housing operators, representing roughly 200,000 apartments and more than 190 million square feet of housing, committing to slash portfolio-wide energy use by 20% by 2020. HUD has made a number of policy incentives available to owners to eliminate the barriers that prevent them from greening their properties, including expedited approvals for certain green measures and technical assistance to developments seeking to use utility financing options, such as on-bill repayment, to finance energy and water retrofits.


Figure 2. Utility spending on energy efficiency programs is expected to reach more than $15 billion annually in less than 10 years. Utility investment can be leveraged with housing resources to achieve deeper energy savings in multifamily housing.

* From 1999 to 2007, values represent actual program spending (including customer-funded programs); from 2009 on, values represent program budgets. Natural gas spending is not available for the years 1999–2003. Source: Ben Foster et al., The 2012 State Energy Efficiency Scorecard (Washington, DC: American Council for an Energy-Efficient Economy, 2012).
** High case scenario. Source: G. L. Barbose et al., The Future of Utility Customer-Funded Energy Efficiency Programs in the USA: Projected Spending and Savings to 2025 (Berkeley, CA: Lawrence Berkeley National Laboratory, 2013).

NHT/Enterprise’s recent retrofit of Mountain View Apartments (Figure 3)is representative of our commitment to reducing the environmental impact of our housing developments, and of the importance of aligning housing and energy resources. In 2011, NHT/Enterprise, in partnership with Hampstead Development group, was able to integrate $260,000 in MEEHA funding into $5.3 million in construction financing to complete the rehabilitation of Mountain View Apartments, a 114-unit senior affordable housing property in Cumberland, Maryland. After the retrofit, the building envelope, interior lighting, and exterior lighting are 25%, 29%, and 48% more efficient, respectively. NHT/Enterprise’s energy efficiency improvements, such as those listed in the box below, will save approximately 154 metric tons of carbon emissions. In addition, Mountain View Apartments became one of eight NHT/Enterprise projects to receive Enterprise Green Communities Certification.

Despite the progress that has been made through the MEEHA initiative, NHT/Enterprise’s experience with Mountain View Apartments helped identify limitations on the amount of energy savings that could be realized under the program. These included a high savings-to-investment ratio that required a level of energy savings well above what’s typically considered cost effective. Another problem has been a limit on the amount of spending permitted for common-area efficiency improvements. NHT is currently working with DHCD, the Maryland Public Service Commission, and the Maryland Office of People’s Counsel to reduce these and other barriers to scaling up efficiency investments in Maryland’s multifamily affordable
housing stock.

Innovation to Deepen Housing Retrofits

Even if policy and practical barriers are reduced, multifamily affordable housing faces a critical barrier to increasing energy efficiency: workable financing options. The National Housing Trust Community Development Fund (NHTCDF) is demonstrating that financing barriers can be overcome through innovative products and approaches.

NHTCDF recently signed a memorandum of understanding with PPESCO, an L3C subsidiary of Vermont Energy Investment Corporation. PPESCO is a public purpose energy services company that creates deep energy savings in buildings that exist for public purposes but do not have access to the technical and/or financial resources necessary for energy improvements. PPESCO delivers an integrated bundle of technical services, including installation oversight, financing, and energy performance guarantees. NHTCDF expects to participate as a debt investor and lead underwriter in the retrofitting of multifamily affordable housing portfolios in the Washington, D.C., metropolitan region (Washington, D.C., Maryland, and Virginia) and Vermont in 2014, and expand to other locations in 2015 and beyond.

ENERGY EFFICIENCY STRATEGIES

Electrical:

  • High SEER-rated mechanical system
  • Energy Star appliances and fluorescent lighting

Building Envelope:

  • New roofing installed with high insulation value
  • New unit and common area windows and sliding glass doors with high insulation value
  • White solar-reflective roof
  • ENERGY Star windows
  • Semipermeable paving surfaces for walkways

GREEN STRATEGIES

The following green measures were incorporated to further provide
a healthy living environment at Mountain View:

  • WaterSense (water-reducing, low-flow) showerheads, lavatory faucets, and kitchen sinks
  • Green roof with vegetation and usable terrace space for residents to gather outdoors
  • Energy-efficient boiler for central heating system
  • Increased daylighting in laundry and storage areas
  • Low-VOC paints, adhesives, sealers, floor coverings and wall coverings
  • Programmable thermostats
  • Optimal use of other alternative and sustainable building products, including recycled-content products

Figure 3. In 2011, NHT/Enterprise incorporated several energy efficiency and health measures into its retrofit of Mountain View Apartments, a senior affordable housing complex in Cumberland, Maryland.

NHTCDF has also been working with Elevate Energy to explore ways of providing financing for retrofits in various states, as Elevate seeks to replicate the success of its Energy Savers program in Chicago. The Energy Savers program is a one-stop energy efficiency shop for building owners, which includes a whole-building energy assessment, financial guidance, oversight through the retrofit process, and annual savings reports, to make sure each building is meeting its projected energy savings.

Energy efficiency is a win-win-win solution. Increasing the energy efficiency of affordable multifamily rental housing reduces energy consumption, maintains housing affordability, and creates a healthier living environment. The multifamily housing sector provides an important opportunity to achieve the goals of both energy and housing stakeholders. By effectively targeting housing and energy resources and increasing the coordination between housing and energy stakeholders, we can overcome the obstacles preventing energy efficiency investments in multifamily affordable housing.

1 Maggie Molina, American Council for an Energy-Efficient Economy, The Best Value for America’s Energy Dollar: A National Review of the Cost of Utility Energy Efficiency Programs, 2014.
2 National Housing Trust, Partnering for Success: An Action Guide for Advancing Utility Energy Efficiency Funding for Multifamily Rental Housing, 2013.
3 State housing finance agencies (HFAs) are state-chartered authorities established to meet the affordable housing needs in each state. HFAs administer the Low-Income Housing Tax Credit program, an indirect federal subsidy used to finance the development and preservation of affordable housing.
4 L. Fuhry, J. DeCoursey, T. Bardacke, W. Wells. Progress and Possibility: Green Building Criteria in Low-Income Housing Tax Credit Programs: 2012 QAP Analysis, 2012.
5 National Housing Trust, Partnering for Success: An Action Guide for Advancing Utility Energy Efficiency Funding for Multifamily Rental Housing, 2013.