Balancing Who Benefits

Under U.S. Department of Housing and Urban Development (HUD) regulations, a housing unit is classified as affordable if the monthly "housing burden" to the resident is no greater than 30 percent of that resident's income. Publicly subsidized housing, regardless of ownership, is restricted to people and families earning a certain percentage below area median income (AMI), usually between 40 and 80 percent of AMI. Thus, the maximum housing burden for an affordable unit restricted to low-income people will be 30 percent of that percentage of AMI. Table 5.3 shows an example of the maximum housing burden of a family earning 40 percent of AMI, where AMI is $50,000.

The crucial issue is that the definition of "housing burden" includes utility costs. Local public housing authorities (PHAs) set utility allowance schedules that take into account whether a home has electric or gas cooking or if air-conditioning is supplied, and are prorated on the basis of the number of bedrooms in a home. In a rental property, a developer must deduct this utility allowance when setting actual rents, or include the utility allowance in the rent and pay for the respective utilities. In a home ownership situation, this utility allowance is deducted from the maximum allowable mortgage payment a potential owner is allowed to incur. Table 5.4 extends the example given in Table 5.3, using a utility allowance of $100 to derive a maximum allowable monthly rent.

The link between the New Ecology, Inc. study's findings and the issue of maximum allowable rent and utility allowances is the fact that utility allowances are set based on a sample of affordable housing units within the PHA territory. Because older, less efficient buildings dominate the sample, utility allowances rarely reflect actual utility costs in newer, energy-efficient buildings, and developers are unable to capture the operating cost savings of up-front investments in energy efficiency. Developers—be they intent on pursuing environmental goals or simply lowering the monthly expenses for low-income tenants— may still choose to make investments in energy efficiency. However, standard utility allowances can be a strong economic disincentive to make significant investments in energy-efficient technologies.

There are, however, several ways to capture the benefits of energy efficiency and on-site energy generation through


adjustments to the standard utility allowance. First, developers are able to apply for project-specific utility allowances. Energy modeling data and information on the high-efficiency elements of a project—windows, insulation, equipment, appliances—can be submitted as support for a reduced utility allowance based on the lower bills the tenants are expected to receive. The second option is to use an energy-efficient (EEUA) and/or on-site generation (OSUA) utility allowance schedule, if it has been established, or advocate that the local PHA establish these schedules. These schedules can be used by any developer in the PHA territory that meets certain criteria to related energy efficiency (meeting the ENERGY STAR® home standard, for example) or by documenting the expected kilowatt-hour production of an on-site solar or other distributed generation system. The estimated savings are then used to reduce the conventional utility allowance by most but not all of the projected savings. This protects the tenant in the event the savings do not meet projections, while also allowing the owner to increase rents and thus overall operating income. A projected 25 percent energy savings could thus generate a 20 percent reduction of the standard utility allowance, leaving a 5 percent buffer to protect the tenant in the event the savings turn out to be slightly less than projected. Table 5.5 further extends the example given in Tables 5.3 and 5.4 with a 20 percent reduction of the utility allowance from energy savings, thereby increasing the allowable monthly rent.

In home ownership projects, a similar disconnect exists between who makes the initial investment and who benefits, placing similar constraints on the design process. Because of limits on the allowable sale price, the developer may not be able to capture any additional costs related to meeting an energy efficiency or green standard. Utilizing an energy-efficient mortgage (EEM) allows the developer to sell the home for a higher price, and thus recoup the increased costs, while maintaining the same overall housing expense for the owner. Buyers purchasing homes built to the ENERGY STAR home standard are eligible for EEMs, which increase the potential buyer's income slightly to reflect lower expected utility costs. For example, an expected savings of $25 per month would generate approximately $4,000 in additional borrowing power, or roughly the additional first cost associated with reaching the ENERGY STAR standard in most states. By capitalizing the energy savings, the EEM enables developers to incorporate energy efficiency features into their projects without restricting the pool of potential buyers. EEMs can be used in combination with most HUD mortgage guarantee programs for tribal housing (Section 184)2 and first-time or

FIGURE 5.3. Standard Utility Allowance.
FIGURE 5.4. Energy-Efficient Utility Allowance.

Rent to Owner: $450

FIGURE 5.5. On-Site Energy Generation Utility Allowance.

low-income homebuyers (Section 203(b)).3

0 0

Post a comment