Achieving higher efficiency standards for multifamily (MF) housing in the US could be a game changer that not only provides billions of dollars in economic benefit but also significantly improves the standard of living for millions of people. In a 2014 study, the McKinsey Global Institute argues that the housing industry would need to cut costs by about 30% to deliver a standard unit in a multifamily building that would meet affordability requirements. This degree of cost cutting is achievable through energy and water conservation measures, but is often left unrealized due to several factors.
In Part 1 of this post, we cover the barriers to enhancing the sustainability and affordability of existing MF housing through green upgrades. Below we provide some solutions and best practices for overcoming those barriers.
By providing information on utility rebates, low-cost financing options, savings projections from reduced utilities and O&M expenses, increases in property value, and revenue gains due to potential green upgrades, property owners can be given the information they need to make smart decisions based on cost-benefit analysis.
Lack of Knowledge & Resources at Ownership Level
A comprehensive energy audit that includes an itemized assessment of all energy efficiency, water conservation, and renewable energy options can be an effective way to help MF owners overcome their lack of knowledge, and help them select the optimal solution(s) from the wide variety and fast changing green options they are confronted with. The audit report can provide for each suggested green upgrade the costs, savings, rebates, incentives, and payback, so that the owner can select solutions that best meet their needs.
Issues regarding a lack of resources can be overcome by working with one of the many ‘one-stop-shop’ service providers who can manage the entire green rehabilitation process for the owner, including providing access to financing and the technical assistance to make the smart decisions at the lowest possible cost.
Small Project Size: High Transaction Costs and Lack of Volume Efficiency
For owners of small MF properties, high transaction costs and inefficiencies can be overcome by bundling multiple services from a single service provider. Instead of hiring separate energy auditing, engineering, construction management, financing and other service providers, owners might consider hiring one turn-key provider. Owners might also consider offering additional work such as non-green rehab, PCNA report, and apartment turnover services to the ‘one-stop-shop’ service provider to help increase the project size and eliminate the disadvantage of high transaction costs.
Gaining access to available incentives and rebates can be instrumental in financing green upgrades. Incentives include: local, state and federal grants, tax credits and deductions, accelerated depreciation, weatherization assistance program (WAP) funds and utility rebates. In many cases a MF property will qualify for one or several of these incentives, which can be used as owner contributions to leverage other financing.
In addition, off-balance sheet financing programs such as Property Assessed Clean Energy, Energy Performance Contracts and Pay-for-Success are potential methods for overcoming financing hurdles. Access to low-cost financing from State Housing Finance Agencies, other government agencies, or Community Development Financial Institutions provides further support for primarily affordable MF properties.
Lack of Control over Tenant Behavior
Resident engagement programs can educate tenants on the best ways to use the existing energy and water resources in their apartments, and teach them additional ways that they can become more efficient in their consumption behavior. These educational programs can be on-site or online. Studies show that if the MF property staff also participate, then tenant engagement programs can produce significant results that help reduce MF owner fears regarding the impact of resident behavior on energy savings.
Best Practices for Installing Green Upgrades at MF Properties
Three primary programs have had success in engaging MF owners to go green: Direct Install (DI), WAP, and one-stop-shop.
Both WAP and DI programs focus on “low-hanging fruit” measures (i.e. low-cost, high-saving measures) and offer them at no to little cost. Both WAP and DI are very popular with MF owners. WAP is only available for properties serving low-income populations while DI programs from local utilities are accessible to all MF properties. However, these programs come at a high opportunity cost. Because they don’t cover more extensive retrofits such as heating and cooling systems, appliances, windows, and other shell improvements, property owners miss out on the larger ticket items that typically provide greater energy savings and health improvements but have high payback periods.
One-stop-shops bundle the DI/WAP solutions with other green upgrades to provide a reasonable payback on the bundled package. Bundling the green upgrades with other rehab needs also allows MF owners to achieve a better end result that makes their MF property more affordable, sustainable, and profitable, typically at little to no additional cost.