Making Homes Energy Efficient Is Expensive. Stimulus Could Help.

(Bloomberg) -- The buildings that comprise Castle Square, an affordable housing complex on Boston’s Southside, were put up quickly and cheaply in the 1960s. For the next 50 years, residents complained constantly about the uninsulated apartments, which were always either too hot or too cold. But there was so much else to be fixed, from leaky faucets to crumbling sidewalks, that when it finally came time to renovate in the late 2000s, efficient heating and cooling fell way down on the list.

“Mostly people wanted new kitchens,” says Deborah Backus, a founding member and current executive director of the tenants’ organization.

What changed their minds was the American Recovery and Reinvestment Act (ARRA) of 2009, which included $600 million specifically for improving energy efficiency in public housing. With the help of a $6.7 million grant from the federal government, the whole complex underwent a “deep energy retrofit,” which included not just wrapping all the buildings in insulated shells, but also swapping out incandescent light fixtures for LEDs, installing triple-paned windows, and bringing in solar panels to power new efficient hot water heaters. Residents got gleaming Energy Star-rated appliances and digital thermostats for their own apartments. As a result, their energy bills dropped by almost 50%.

“I was really sad when the stimulus money dried up,” Backus says, “because there are a lot of housing complexes who could benefit from a renovation like this.”

With governments around the world pledging trillions of dollars to shore up economies wrecked by the novel coronavirus, the time may again be ripe for more high-dollar, high-impact projects like the one at Castle Square. Buildings account for roughly 12.6% of U.S. greenhouse gas emissions, making housing a particularly promising for stimulus funding among climate advocates. Home retrofitting for energy efficiency is also politically popular: Nearly one in three Americans say they struggle to pay their utility bills, and more efficient insulation and appliances means both carbon emissions and energy costs go down.

Public housing is overseen directly by the federal Department of Housing and Urban Development, which makes it a logical place to start. But it doesn’t need to end there. Most states already had a significant shortage of affordable housing before the pandemic, and widespread unemployment caused by Covid-19 will likely exacerbate the need. Bryan Howard, the legislative director for the United States Green Building Council, argues that now is the time to expand the Low Income Housing Tax Credit—which, while not explicitly environmentally friendly, is often used to encourage green development.

The tax credit, enacted in 1986, gives private developers a break in exchange for making certain units available at below-market rates. Crucially, the credit is administered by states, which can set their eligibility requirements, and many of them have used it to encourage sustainable development. Since 2019, for instance, Georgia has required that all projects receiving the tax credit meet a green building standard such as LEED, while Texas and Ohio give preference to green projects. All three states have Republican governors, which indicates that support for energy efficient housing can cross party lines.

Tax subsidies could also be extended to private homeowners via the Rehabilitation Tax Credit, which currently incentivizes modernization of only certain historic structures. Christopher Coes, vice president of land use and development at Smart Growth America, argues that the tax credit should cover all landlords and homeowners to updating properties that are at least 50 years old—as long as they’re near mass transit. The theory goes that buildings near public transportation inherently use less carbon, and also support more resilient communities. “We find mixed use, mixed income areas recover more quickly after a downturn which means better stabilization of property taxes,” Coes says.

Under such a program, a homeowner could be rewarded for building an addition that could house an another family, or a landlord could get credit for community improvements such as sidewalks, parks, and storm water management. Investing in underserved areas also attracts private dollars. “For every dollar spent,” Coes says, “it draws $5 to $10 in private investments in things like retail shops, restaurants, and grocery stores.”

While all these programs have potential, none is without challenges. Retrofits are still quite expensive. One of the ways to make them cheaper, however, is to standardize processes so that the necessary materials can be mass manufactured. Europe has made real progress in this area since 2008: the Dutch nonprofit EnergieSprong, which mass produces retrofits for net-zero energy consumption now, has contracts across Europe and is being vetted by the Department of Energy Building Energy Office in the U.S.

In theory, says Daniel Aldana Cohen, who directs the Socio-Spatial Climate Collaborative at the University of Pennsylvania and is part of a group of academics and advocating for a green focus to the stimulus, projects funded by stimulus will improve standardization. That means retrofitting may eventually become appealing even to those not receiving subsidies.

In the meantime, he says, it makes sense to get started with the 1.2 million units of public housing and use it as a kind of innovation laboratory. “As the techniques improve, you can then go to more market rate housing,” he says. Eventually, he predicts, the upfront costs and the future energy savings will even out, making the whole task both cost- and carbon-neutral.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.