Energy efficiency has been described as everything from the new green to low hanging fruit to "fruit lying on the ground."And while we have seen some progress in terms of home energy efficiency, barriers for homeowners remain. Among the the top noted hurdles: Inertia (we can help) and cost. A recent article in the Wall Street Journal brought to light several existing programs from lenders designed to increase the rate of energy efficiency retrofits in existing housing. The piece provides a good assessment of these programs, which include the following:
- Homeowners seeking a second mortgage or refinancing may have the costs of energy efficiency upgrades bundled into the mortgage to be repaid over the life of the loan, so long as they agree to reduce their current energy usage by a certain amount.
- Purchasers of a newly constructed property that meets Energy Star standards may receive up to a $1,000 credit on closing costs that creep up on signing day.
- Borrowers wishing to increase their qualifying income level for loans may be able to use low monthly energy bills. Participating lenders include: Bank of America's Countrywide Financial, CitiMortgage, and lenders who sell their loans to Fannie Mae and Freddie Mac. Here's how the deal is described in the Wall Street Journal:
If borrowers earn $3,000 a month and save $400 on bills, the lender would consider their income $3,400. Borrowers can potentially add quite a bit to their qualifying income this way, since even simple fixes can bring big savings on energy bills. Air sealing, for instance, helps reduce heating and cooling costs by as much as 30%, and runs just $300 to $500 if you do it yourself, or $1,500 to $2,000 for a contractor.
While these are constructive steps, they are all mortgage-based approaches which, for the most part, have yet to ignite a broad efficiency fire. There has been much discussion as to why this is the case, but it should come as no surprise, in this economic climate, that homeowners don't have a 20-30 year investment horizon for efficiency.
A small credit on closing costs is positive, for sure, but incremental tweaks like this are drops in the bucket, and getting efficiency mobilized in a substantial way demands much larger thinking.
A promising program in play in Colorado and Maine that entitles homeowners to save on their interest rates comes closer to the mark, and feels more similar to the ingenious program developed by Architecture 2030, which entitles home owners to reduce their interest rate correlating directly to the percentage saved.
The key assumption in all of these programs is that home energy improvements increase the value of homes. It is great to see mortgage markets beginning to reflect this, as the sooner housing markets recognize the tangible value of energy efficiency, the sooner we'll get out of incrementalism start seeing the kind of massive fundamental change that our housing stock and our planet so desperately need.