Affordable Housing Developers Eye Massive Funding Increase For Energy Efficiency In Biden's Budget

Glittering trophy office towers and mixed-use developments come to mind when conjuring images of renewables and energy efficiency in buildings, but in the future, that association could extend to the realm of affordable housing.

President Joe Biden’s proposed budget for the 2022 fiscal year includes a wide swath of programs and initiatives that would speed up the integration of energy-efficient technologies, renewables and sustainability into affordable housing across the country.

But policy experts say the full cost of transforming the affordable housing sector isn’t known, and debate is ongoing about how much should be paid for by the federal government. And while incentives exist, extra costs are still being shouldered by developers who choose to build energy efficiency into such housing.

Incorporating energy efficiency and renewable technology in affordable housing was not much of a priority for federal lawmakers until President Barack Obama’s administration, according to Natural Resources Defense Council Senior Policy Advisor Khalil Shahyd.

During Obama’s presidency, NRDC worked with the U.S. Environmental Protection Agency as it prepared the Clean Power Plan regulation on carbon emissions. The organization helped develop the Clean Energy Incentive Program, which was an attached program that would have provided additional incentives for early investments in energy efficiency for affordable housing.

Up until that point, most discussions, programs and services were heavily focused on issues of resiliency, Shahyd said. It was the first time, particularly within the climate context, that the focus shifted to reducing carbon emissions and improving energy efficiency specifically for low-income communities.

“We're just really getting to this space where we're starting to see a lot more emphasis, particularly under this administration, [around] some of those questions,” Shahyd said. 

The issue received limited attention during the Trump administration, but it is now back in the spotlight as part of Biden’s push to address climate change. 

Biden’s proposed 2022 fiscal year budget includes more than $300B allocated to building, preserving and revamping homes, schools and federal buildings across the country. The efforts fall under Biden’s almost $2.3 trillion American Jobs Plan, which proposes a massive overhaul of U.S. infrastructure and investment in jobs over the next eight years.

The budget includes increased funding for some programs and new initiatives to boost sustainability in housing, according to Shahyd. One example is a proposed increase in funding for the U.S. Department of Energy’s Weatherization Assistance Program, which reduces energy costs for about 35,000 low-income households a year by increasing energy efficiency.

Right now, the Weatherization Assistance Program receives $3.8M each year. The proposed budget would allocate $1.7B annually.

“By increasing that budget, that would allow administrators to increase the per-unit spending cap on weatherization, to do deeper retrofits and to pay the workers — which means less turnover, which are long-term savings for that program as well,” Shahyd said.

Biden has also proposed to spend $27B investing in a Clean Energy and Sustainability Accelerator, a public-private initiative that would function like a green bank, seeking investments and procurements in areas such as renewables, resiliency, energy efficiency and industrial de-carbonization.

Alongside these initiatives, the U.S. Department of Housing and Urban Development’s proposed 2022 budget requests $800M for targeted investments to improve the quality of housing through climate resilience and energy efficiency.

One of those investments includes a new Green and Resilient Retrofit Program, which allocates $250M to provide funding to owners of assisted multifamily properties. Those funds would be used to rehabilitate these properties to be more energy-efficient, healthier and more resilient to extreme weather events.

Shahyd noted that $250M is still not enough to address the scale of the need, as on average, retrofitting a multifamily unit can cost up to $10K. However, it’s an improvement on the original Multifamily Energy Innovation Fund program developed during the Obama administration, which was only allocated $25M.

“We're still not where we need to be, but clearly HUD needs to be a much larger player in this field, and we're happy to see them begin to take steps in that direction,” Shahyd said.

Affordable housing developers like A.J. Patton, managing partner at 548 Capital, have been closely watching the Biden administration’s proposed budget. Patton’s firm acquires and retrofits multifamily buildings in the Midwest, focusing on making them more energy-efficient.

Patton said the trickle-down effect of things like tax credits, incentives, financing and grant programs could all have a significant impact on his business. He pointed to the DOE’s program as just one example of an initiative that helps developers incorporate energy efficiency into affordable housing.

“Those [programs] are happening in real time, and they have real value,” Patton said. 

Maximizing energy efficiency in multifamily housing means looking at a combination of materials, finishes and systems, according to Patton: everything from windows and insulation, to the heating and cooling systems in the building, to energy-efficient appliances and LED lighting. Topping all that off in all of 548 Capital’s buildings is rooftop solar.

Patton’s focus on energy efficiency is a product of his own personal experience: As a child, he remembers his family receiving a $400 gas bill, which resulted in the gas being shut off. Now, as a developer in the affordable housing space, his firm is highly focused on maximizing energy cost savings for low-income tenants.

Not every developer has that same level of motivation to integrate energy efficiency and green technology in affordable housing, as it’s more expensive than traditional energy infrastructure. Patton estimated that retrofitting buildings with those kinds of materials and technology can run between 12% and 15% more expensive than a regular refurbishment.

Support for retrofitting and incorporating green energy is more common at the state or local level. Developers can receive incentives or credits from utilities for energy-efficient improvements, and in some states, there are subsidies for solar installation. But for the rest, Patton said developers are generally on their own. 

“There is some support, [but] it’s not overwhelming. It's closer to about 6 to 7% of the construction costs,” Patton said. 

Patton said he believes the only way to encourage more developers to embrace these kinds of technologies in affordable housing is for the industry to start talking about the issue from a future cost-savings perspective. 

“You may not believe in climate change, or energy efficiency or sustainable technologies, but I can interest you in savings. So there's an economic conversation [and] dialogue that can be had,” Patton said. 

Frances Colón, senior director, international climate for the Center for American Progress, said she agrees on the need to emphasize how making green investments in housing will save both the government and private developers money down the line. That goes in hand with working to make those technologies more affordable, and more available, to low-income people.

“I think that's why these conversations have to be had across the table with stakeholders as well, like the developers. They're front and center in building these units that are going to be the resilience of the future,” Colón said.

Translating federal initiatives and policies into action that benefits affordable housing was always going to be a challenge, but one problem that stands out to Shahyd is the fact that there hasn’t been a comprehensive analysis done of what the extent of the cost increases will be.

“Right now, what we have are a bunch of scattered programs and budget proposals from this administration. But we haven't had a full accounting of what the actual costs to the affordable housing sector are, and how much of that burden can and should the federal government help to support as we make this transition,” Shahyd said.

That includes accounting for what Shahyd calls “naturally occurring” affordable housing, which is not subsidized by the federal government, but which tends to organically appear in cheaper and less desirable areas of cities.

Patton said he would like to see a program that sets an energy-efficiency threshold for developers to meet, where they could then receive some kind of tax incentive or grant to perform the necessary improvements. However, such a program would need to be targeted specifically at low-income census tracts.

“You want to make sure the people that need it the most get it, and those neighborhoods get it. Not necessarily the developer, but the neighborhoods get those specific improvements,” Patton said.

Despite the challenges, Colón said that she believes now is the moment to seriously push for integrating greener technology in affordable housing. Across the U.S., two-thirds of people believe the government needs to do more to address the impacts of climate change, a Pew Research Center survey found.

“I think we have the awareness on the climate crisis. I think we have the right players in place in the government. I think the world is aligned,” Colón said. “I am very hopeful that in the legislation that we will pass, that we will have the tools to address these climate challenges — most importantly, with people at the center.”