HUD Launches Energy-Efficiency Incentives for Affordable Housing Owners

Building on $2 billion in financing commitments from the private sector for energy-efficiency updates to commercial buildings under the President’s Better Buildings Challenge, HUD recently expanded the challenge to multifamily housing and launched the Better Buildings Accelerators to support state- and local government-led efforts to cut energy waste and eliminate market and technical barriers to greater building efficiency.

The program goal is to increase energy efficiency in buildings by at least 20 percent by the year 2020. Fifty multifamily housing partners, representing roughly 200,000 units, have committed to the challenge. HUD and the Department of Energy are partnering with owners of market-rate multifamily housing, public housing authorities, low-income housing tax credit property owners, and HUD-assisted multifamily property owners.

The multifamily housing partners will create strategies to increase energy efficiency in a variety of ways, including through lighting improvements, heating and cooling system upgrades, rooftop solar installations, new financing for energy retrofits, and green construction. Their goal is to reduce energy consumption by at least 20 percent during the next 10 years.

Those participating in the challenge commit to developing an energy reduction plan within six months of joining the program, announcing publicly a showcase project and initiating that project within 12 months, and sharing information about the results of their efforts, among other things.

Here's an overview of the proposed incentives available to Better Buildings Challenge (BBC) participants:

  • Allow Better Buildings Section 202 and Section 811 PRAC properties to invoice energy savings payments associated with property and tenant utility allowance reductions as an eligible expense to the property's budget. PRAC properties typically have a more difficult time recapitalizing, and their budget rent-setting process allows HUD to include reasonable eligible expenses. This incentive targets a segment with great need by allowing owners to recoup energy savings in their budget to service debt or access surplus cash associated with energy savings installed to reach the Better Buildings Challenge of 20 percent consumption savings.
  • Temporarily offer additional distributions to for profit and nonprofit owners of Section 8 properties. In order to allow owners of Section 8 properties to capture excess cash associated with energy savings that they otherwise would not be able to, HUD will allow additional distributions for the 10 years of BBC. There will be accountability checkpoints created to ensure owners are reaching their energy savings targets, and the distribution will be on a property-by-property basis.
  • Allow management fee inclusion of energy/green measures. This incentive will allow management companies to pay for the additional cost of best practices in energy management. Given BBC’s requirement for data reporting, this incentive will alleviate some of the cost barriers associated with entering the competition. The eligible activities will include the cost of data collection, input, benchmarking, and potentially green operations and maintenance activities.
  • Allow expedited approvals for “stand-alone” greening in the field. [HUD’s Office of ?]Multi-Family Housing will approve certain stand-alone green measures (that are not part of a larger rehab) with a clear set of parameters and schedule for BBC participants in order to enable streamlined green rehab. These pre-approved measures would not require a full review and approval in the field, which can be time consuming.
  • Invite Better Buildings participants to send HUD proposals if they want to use On-Bill Repayment. HUD policy neither expressly permits nor expressly prohibits the use of On-Bill Repayment (OBR), On-Bill Finance, or utility tariff programs as mechanisms for financing energy and water retrofits. Since HUD regulations might be interpreted to require HUD’s approval, owners and lenders need clarification before moving forward with On-Bill options. This incentive invites Better Buildings participants to propose how to utilize on-bill repayment or finance, where applicable.
  • Adopt Mark to Market (M2M) waiver amendment. Several owners have expressed a concern that older M2M properties undergoing rehab are not given proper incentives to green their properties. Currently, only existing M2M properties that achieve a green certification via rehab (such as LEED and Green Communities) are eligible for the Incentive Performance Fee (IPF) that increases owner distribution. This policy is inconsistent with the policy for properties entering the M2M Green Initiative for the first time. This incentive allows existing M2M properties that adopt 75 percent of the green energy measures and all the water conservation measures recommended in the Green PCNA access to the IPF, consistent with the policy for first time M2M Green Initiative properties.