On June 30th Ron Sims, Deputy Secretary of the U.S. Department of Housing and Urban Development (HUD), testified in support of S. 1379, the Energy Efficiency in Housing Act of 2009, which is now before the Senate Subcommittee on housing. (This committee is formally called the Housing, Transportation and Community Development Committee on Banking, Housing and Urban Affairs.) Sims directs and oversees the newly created Office of Sustainable Housing and Communities with the stated mission of synchronizing departments and agencies and nationally implementing HUD’s green building and energy efficiency initiatives in order to build strong, sustainable communities.
In his address he indicated he was in favor of S. 1379, but his support was contingent on amending certain provisions of the legislation.
HUD has committed to support energy efficiency within the 5 million affordable housing units it subsidizes, but Sims stated additional strategies underway are:
- Support energy efficiency in new construction projects
- Improve home energy labeling and high-performing upgrades in non-subsidized residential housing
- Reduce overall energy consumption
- Incorporate green building in the design and operation of HUD-supported affordable housing
HUD’s two-year goal is to retrofit and/or build 159,000 green housing units through the Recovery Act initiatives and other programs. Sims indicated that a modest 5% savings in energy efficiency in subsidized housing would be expected to save the agency $1 billion over five years. (The last figure available on HUD’s cost of utilities and tenant-subsidies in affordable housing showed a $5 billion annual cost on energy alone in 2006.)
Helping to banish the myth that green building is luxury building, Sims stated:
“Energy efficiency and green building play a crucial role in housing affordability. Some are concerned that green building adds to the cost of housing. I do not subscribe to that view. I believe that we can’t afford not to build green. Research increasingly shows that all types of affordable housing can be built or rehabilitated to rigorous green standards at a minor additional cost, and often without the need for capital investment. As we dispel the notion that green building will mean higher costs for low income families we must recognize while everyone is hurt by high energy costs, no one is more vulnerable to rising energy prices than low- and moderate-income families. Higher energy costs often result in cutting back on other critical needs, such as medicine and food.”
Deputy Secretary Sims also spoke at length about the health benefits of green building envelopes, stating that there was a clear connection to better health.
“Right now we can predict morbidity rates and life expectancy by zip code. In King County [Seattle, WA area] we did a study called HealthScape, which looked specifically at how the built environment and the trasnportation system impacts public health and climate change. What we found was that while people living in the most walkable areas of the county were less likely to be overweight and more likely to be physically active, in pockets of the county with lower-income and high concentrations of minority populations wide health disparities existed.”
The Energy Efficiency in Housing Act of 2009 did have some areas that were of concern to Sims. In its current format it would require HUD to play a financing role in residential renewable energy leasing. Sims hoped to work with the Senate subcommittee to clarify this issue based on the financial risk and his concern that it is outside HUD’s current expertise. If Sims succeeds in amending this part of the bill to eliminate any role for HUD in renewable energy systems leasing, that will have a negative affect on installations. Presently only a few companies - like SolarCity in a few states – lease or sell their clean energy production systems.
The current real estate lending arena - particularly for market rate multifamily properties without access to affordable housing incentives – has been grim. As the cost of retrofitting with renewable energy systems can be prohibitive as an upfront cash-outlay, the lack of financing has greatly stalled energy efficiency upgrades in our existing building stock. It would indeed be unfortunate if this HUD-financed leasing program is cut from the final bill.
Financing energy efficient systems in new green building is less of an issue. Any building design must have some sort of HVAC system and substituting a renewable energy system for all or a portion of a fossil-fuel system would simply be a trade-off. However, although the Feds have been active along with a few non-profits, there are only a handful of states offering renewable energy grants to aid in the retrofitting of existing buildings with energy efficient systems.
Sims had several concerns about provisions of the bill that would fall outside HUD’s jurisdiction, he suggested technical amendments for consistency with the Federal Credit Reform Act and offered to provide assistance to preserve on-going due diligence by FHA and HUD using the correct language.
In the multifamily arena, he was concerned about one portion of the bill. He elaborated by stating:
“Section 6 which requires HUD to develop incentives to increase the energy efficiency of FHA-insured multifamily housing – such as a discount on premiums, loan limit increases for energy efficiency improvements, or reductions in required owner contributions – but does not establish clear parameters for these incentives or require budget neutrality.”
Sims wanted the bill to ‘permit’ not require HUD to do anything, and he wanted to limit the scope of incentive authorities to “avoid creating blanket waivers of the core statutory loan limits and underwriting requirements that apply to all other multifamily loans.”
HUD’s Market to Market Green Initiative Program
HUD’s Market to market (M2M2007) Green Initiative provides enhanced incentives and credits to property owners for ‘going green’. Although only 27 properties (about 2700 units) have been rehabilitated as of June 30th, 2010, this voluntary program has become popular. HUD verifies energy and water savings, pest inspection management, audits energy in the buildings and tests indoor air quality as part of its due diligence.
The main incentive of the M2M program is that owners need contribute only 3% rather than 20% and HUD increases the incentive performance fee paid annually to these affordable housing providers if they continue to meet the required conditions. Owners must develop and maintain a green Operations and Maintenance Plan to remain eligible.
Approximately 20,000 multifamily units were retrofited to include energy efficiency with the use of $250 million awarded through the American Recovery and Revitalization Act of 2009. Through a combination of formula grants and competitive funds, an additional $4 billion has been granted to green our housing stock.
New Initiatives
Sims indicated HUD was in the process of implementing a new $50 million Energy Innovation Fund. To be administered by the FHA, the pilot will attempt to test various strategies for financing energy efficient systems in both single and multifamily housing. HUD is developing what it hopes will be innovative financing incentives for the program. The funds should be available later this year. If the distribution method used for the ARRA funds is repeated, interested owners would be wise to get shovel ready as once those announcements go out it will be ‘first come, first served’.
HUD recently published a Notice of Funds Availability (NOFA) announcing there is $140 million in regional planning monies from HUD, the EPA and the DOE’s Partnership for Sustainable Communities. These funds are targeted to assist local communities and metropolitan regions with the cost of developing and implementing sustainability planning. Sims stated feedback on this and other programs was positive:
“If there was one common theme we heard it was that while community after community is ready to embrance new kinds of sustainable practices – and that the federal role can’t be about dictating what they can or can’t do, but rather offering them the resources and tools to help them realize their own visions for achieveing the outcomes we all want and more and more are insisting on.”
You may read Deputy Secretary Sim’s complete written statement here.
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