Monday June 24, 2024
On April 26, 2024, the US Department of Housing and Urban Development (HUD) published the final determination for adopting energy efficiency standards for new construction of HUD and US Department of Agriculture (USDA) financed housing. The effective date is May 28, 2024.
The Energy Independence and Security Act of 2007 requires HUD and USDA to adopt the most recent energy standards that improve efficiency, granted they do not affect the availability or affordability of new construction of single or multifamily homes. This contingency is significant, as a "cost-benefit housing affordability and availability test" was conducted before publication. HUD and USDA adopted the 2021 International Energy Conservation Code (2021 IECC) and ASHRAE 90.1-2019 after concluding there is no adverse effect on availability or affordability and that the standards will improve efficiency.
Incorporating energy-efficient design in new construction enhances the building's performance and helps to avoid future costly updates. Energy-efficient systems and technology are intentionally installed and synchronized instead of working around the building's limitations during a retrofit. For this reason, implementing conservation measures during the construction phase is more cost-effective.
What do the new standards entail?
The 2021 IECC sets minimum energy efficiency standards for new commercial and low-rise residential buildings. Similarly, ASHRAE 90.1 sets the minimum requirements for energy-efficient design for mid- or high-rise buildings, defined as four or more stories. Building components subject to these standards include the building envelope, lighting, power, HVAC, and domestic hot water. Like many standards, there are two pathways to complying with the 2021 IECC and ASHRAE 90.1: prescriptive and performance. Under the prescriptive path, the building's components must meet the specifications of the standard. Under the performance-based path, the building's total energy cannot exceed that of a similar building following the prescriptive pathway.
How will the standards affect homeowners and renters?
- Longterm cost savings
Implementing efficiency measures during construction can significantly reduce monthly energy bills for homeowners and renters. While upfront costs may be associated with compliance, HUD estimates positive net savings.
- Improved health and comfort
Many efficiency measures, such as effective insulation and fenestration, improve indoor air quality and thermal comfort. When implementing energy-efficient measures, resident comfort and health should be a top priority.
- Increased resiliency against extreme weather
Resilient buildings remain functional in the event of extreme weather. Resiliency applies to both the physical structure of the home and its operational efficiency. Resiliency is more crucial than ever, as increasingly extreme weather events can compromise residents' physical and financial well-being.
How will the standards affect properties and the market as a whole?
- Decreased environmental impact
As the term implies, energy-efficient measures ensure efficient energy usage and reduce waste. HUD estimates these standards will reduce total carbon emissions by 6.35 million metric tons over 30 years and result in total societal cost savings of $13.9 million.
- Improved operational efficiency
Operating at maximum efficiency reduces unnecessary waste and wear on operating systems, increasing the useful life of equipment, and improving overall functioning. As systems do not need to be updated or repaired as frequently, maintenance costs decrease.
- Increased market value
As regulations increase and more homes use energy-efficient designs, a property's market value may be affected by its efficiency. Implementing efficiency into new construction helps the property retain market value in the short and long term.
- Regulatory compliance
Complying with local and national regulations is critical for a property. Noncompliance can lead to costly fines, safety hazards, and decreased performance. Considering energy regulations at the time of construction will make future compliance easier.
When do the requirements begin?
After receiving feedback on the preliminary determination, HUD developed a more flexible compliance schedule based on the program type. The later compliance date applies if one program is stacked with another HUD funding. HUD and USDA programs required to comply include:
- Federal Housing Administration (FHA)-insured single-family program
- Compliance date: 18 months after the effective date
- Federal Housing Administration (FHA)-insured multifamily program
- Compliance date: 12 months after the effective date
- HOME Investment Partnerships Program (HOME)
- Compliance date: 180 days after the effective date
- Housing Trust Fund (HTF)
- Compliance date: 180 days after the effective date
- Section 202 and 811 Supportive Housing grants
- Compliance date: The next published Notice of Funding Opportunity after the effective date
- Rental Assistance Demonstration (RAD) housing
- Compliance date: This was put into effect July 27, 2023
- Public Housing Capital Fund
- Compliance date: 12 months after the effective date
- Choice Neighborhoods;
- Compliance date: The next published Notice of Funding Opportunity after the effective date
- Project Based Vouchers
- Compliance date: 12 months after the effective date
- USDA Section 502 direct or guaranteed lands, and Section 523 grants
- Compliance date: 18 months after the effective date
Are there added costs or incentives?
While these new standards come with added construction costs, HUD has identified the savings as more significant. If in compliance, HUD expects energy efficiency improvements of 37%, reducing residents' costs by over $950 a year.
The Inflation Reduction Act provides tax credits for upfront costs for new homes. The EPA and DOE also offer rebated financing options.
“Promoting energy efficiency in new construction aligns with the broader decarbonization objectives we are witnessing across the states and Canadian provinces, such as energy benchmarking, building energy performance standards and the Inflation Reduction Act in the United States. As energy efficiency programs and regulations continue to grow traction it is likely that new and existing homes will need to be “electrification ready” sometime soon,” says Kelly Dougherty, president of FirstService Energy.
Applying energy efficiency standards to new construction financed by HUD and USDA is reflective of the ongoing sustainability efforts in the housing sector, such as benchmarking requirements and building energy performance standards. While some opponents of the standards expressed concern over increased costs and affordability, after extensive studies, the HUD determined that the standards do not negatively affect the affordability or availability of homes. The continued development and application of these standards promote the importance of energy conservation measures, which will create more resilient housing in the United States.