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Rental Efficiency Standards: A Win for Equity and Climate

COVID-19 and the ensuing economic downturn have exacerbated the existing housing crisis, leaving more than 8 million renters struggling to make payments. As they navigate financial difficulties, utility bills add an additional burden. This problem...

COVID-19 and the ensuing economic downturn have exacerbated the existing housing crisis, leaving more than 8 million renters struggling to make payments. As they navigate financial difficulties, utility bills add an additional burden. This problem is further compounded by the lack of energy efficiency in rental homes, which poses both an equity and environmental crisis.

Introducing minimum energy efficiency standards for residential rental properties, the City of Burlington, Vermont, took a significant step on May 10. Unanimously approved by the Burlington City Council, these standards will come into effect on January 1st, 2022, helping renters lower their costs and reduce greenhouse gas emissions.

Rentals: Higher Energy Consumption

On average, rental buildings consume 20% more energy per square foot compared to owner-occupied buildings. This disparity is primarily caused by the "split incentive problem." Landlords have little incentive to improve energy efficiency when they aren't responsible for energy bills, and tenants are unlikely to invest in improvements they may not fully benefit from. Unfortunately, these poorly-performing homes are often occupied by low-income residents, people of color, and other underserved communities who can least afford to pay exorbitant energy bills.

While previous policies addressing home energy efficiency have only benefited a small fraction of homes, rental efficiency standards have the potential to improve the quality of life and affordability for renters. By reducing home energy costs, particularly for the worst-performing rental units, these standards can alleviate unfair burdens for the most vulnerable residents in a city.

The key to rental efficiency standards lies in reducing the total cost of living for building occupants. Though landlords may pass retrofit costs onto tenants, they ultimately benefit from improved tenant retention. As long as energy bill savings surpass the increased rent, tenants can enjoy reduced energy costs. Most standards target the worst-performing homes to ensure that retrofits yield significant energy bill savings compared to the upgrade costs. Affordability is maintained through additional strategies such as cost caps on upgrades, financing options, incentives, and exemptions for specific properties.

Starting with the Real Energy Hogs

Rental efficiency standards can achieve efficiency in two primary ways: by using operational data or through an asset rating. Burlington's approach relies on operational data, requiring rental units consuming more than 90,000 Btu of energy per conditioned square foot annually for space heating to improve their efficiency. For context, the median U.S. rental home consumes about 53 kBtu per square foot of energy per year for all end uses, including heating.

Typically, compliance with efficiency standards is achieved by upgrading various aspects of a home like windows and insulation. Over time, the energy efficiency threshold can be further tightened to demand increasing levels of efficiency. Other standards, such as Boulder's SmartRegs program, are based on asset ratings, with buildings inspected and scored based on their overall energy efficiency determined by components like windows, air sealing, and insulation.

Many rental efficiency policies are implemented through existing rental licensing or certification programs, streamlining the implementation process and making them more attractive to city governments. State governments can further simplify the process by standardizing checklists or scoring systems used by municipal governments and providing training or certification for rental inspectors.

Resilience and Jobs

Efficiency standards not only improve home safety and resilience but are also crucial for renters, who often include the most vulnerable residents in a city. Poorly insulated and improperly sealed homes are unable to protect occupants from extreme heat or cold, especially during power outages. Buildings constructed to modern efficiency standards offer significantly better protection than older, unweatherized homes. With the increase in strong storms and extreme weather events due to climate change, the importance of this protection continues to grow.

An unfortunate example of the consequences of poorly weatherized homes was the power crisis experienced in Texas last February. When millions of these homes were left without power for an extended period, the damage was extensive. Improving insulation and air sealing significantly extends a building's "hours of safety" by maintaining a livable temperature for a longer duration during power outages.

Efficiency-focused initiatives also contribute to job creation and workforce development. The energy efficiency sector already employs almost 2.4 million people nationwide. Requiring building improvements not only helps develop the contractor workforce but also prioritizes creating job opportunities for women and people of color. Organizations such as RichmondBUILD Academy, Rising Sun Center for Opportunity’s Climate Careers program, Elevate Energy’s Contractor Accelerator, and RMI and Emerald Cities Collaborative’s Contractor Academy are actively working towards building a diverse workforce. Training and workforce development are essential for ensuring that the market is prepared to deliver on these policies, as well as future building decarbonization goals.

Helping Cities Achieve Climate Goals

Rental efficiency standards are more than just policy; they also serve as a meaningful climate action. Buildings are the largest source of greenhouse gas emissions in many cities, with over 50% of homes in these cities being rented. Burlington, with nearly 30% of its homes being rented, aims to become a net-zero energy city by 2030. Reducing energy consumption from rental properties is a significant step towards achieving this goal.

In cases where state law prohibits setting energy requirements for existing rentals, energy labeling and disclosure can provide renters with valuable information on energy costs to protect against energy insecurity. Rather than mandating efficiency improvements, these policies involve measuring, recording, or estimating a home's energy use and sharing that information with prospective occupants. Making this information easily accessible encourages efficiency improvements and stimulates the market for home retrofits.

Just two days after the Burlington City Council voted in favor of rental efficiency standards, the Montpelier City Council also unanimously adopted a home energy information ordinance. Montpelier's policy focuses on home sales, but disclosure policies can also be applied to rentals. Many cities, including Columbia, Missouri, and Somerville, Massachusetts, are actively working on rental efficiency standards. The Urban Sustainability Directors Network and numerous municipalities in Michigan are also exploring these policies. Across the United States, cities are making progress in implementing various residential energy policies, including building electrification, rental efficiency standards, and energy labeling.

As the demand for racial and income equity, housing affordability, green jobs, and climate action intensifies, the potential impact of well-designed rental energy efficiency standards will continue to grow. RMI's rental efficiency toolkit is a comprehensive resource that offers further guidance on policy considerations. To learn more about rental efficiency standards or explore their suitability for your municipality, please reach out to Jake Glassman at [email protected].

Map showing rental efficiency states Map showing rental efficiency states