Multifamily Energy-Efficiency Bill May Receive Federal Approval

Before leaving for summer recess, the United States House of Representatives passed an innovative bipartisan energy-efficiency-finance bill that may change the landscape for resource efficiency in affordable multifamily housing.

The Private Investment in Housing Act of 2015 (PIHA) authorizes the United States Department of Housing and Urban Development (HUD) to initiate a pay-for-success demonstration project that would provide energy- and water-efficiency retrofits for 20,000 units of government-supported multifamily affordable housing without any government funding.

PIHA received strong bipartisan support in the House; it must now pass the Senate before it can be implemented. Its prospects seem strong. [[{"type":"media","view_mode":"media_large","fid":"2102","field_deltas":{},"attributes":{"alt":"New York City apartment building balconies","height":"600","width":"400","style":"float:right","class":"media-image alignright size-medium wp-image-17790 media-element file-media-large","data-delta":"1"},"fields":{}}]]

Language authorizing this demonstration project has been included in the Senate Transportation, Housing and Urban Development, and Related Agencies appropriation bill for 2015 and 2016 and the Energy Savings and Industrial Competitiveness Act sponsored by Sen. Rob Portman (R-Ohio) and Sen. Jeanne Shaheen (D-NH).

During the demonstration project, HUD would contract with an intermediary that would raise private capital and contract with energy service companies to finance and complete cost-effective upgrades. A third party would then audit retrofitted properties to quantify the energy savings achieved.

HUD would pay the intermediary a percentage of the verified savings captured through the project. Investors would be repaid their initial investment plus a financial return out of these funds.

Currently, HUD spends $7 billion annually on water and energy costs for government-supported properties. The demonstration projects aim to reduce these costs by 20 percent, although the actual cost savings will vary from project to project. If the projects don’t achieve their energy-savings goals, HUD will not return any money to the intermediary and the investors will not receive returns.

This demonstration project must also prove that the pay-for-success model can address the hurdles that face resource-efficiency deployment. It is well documented that demand for energy-efficiency retrofits are often lower than would be anticipated given their expected cost savings.

Likewise, the cost-effectiveness of energy-efficiency retrofits, especially in low-income housing, has come under increased scrutiny recently.

Advocates of PIHA believe that the pay-for-success model is well-suited to overcome these barriers. According to Rebecca Schaaf of Stewards of Affordable Housing for the Future (SAHF), “The risks of the project are not on HUD, they are on the intermediary and investors… if the project isn’t cost-effective, the intermediary and investors will bear the costs.”

Supporters of the demonstration project hope to overcome the potential low-demand issues by shifting the burden of securing financing to the intermediary. This is a “strong incentive” for multi-family property owners who “have difficulty financing stand-alone retrofits,” according to Schaaf.

Schaaf and other key advocates for PIHA also said they hope that HUD’s public support for the resource-efficiency adoption will help to encourage building owners to participate.

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