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According to research from the Sierra Club, roughly 50 percent of tenants in the U.S. are cost-burdened by utility payments. As building owners nationwide address much-needed energy efficiency improvements in aging rental housing stock, there’s a growing emphasis on mitigating steep rent increases for renters.
With 144 million renters in the U.S. impacted by the housing crunch, natural disasters that lead to fewer available rental units, and rising utility costs, building owners acting to improve efficiency is a laudable goal. But, in some cases, these efficiency improvements can exacerbate affordability by driving up rental costs.
Policymakers Act to Mitigate Costs
With the focus on reducing emissions from housing, renters are worried that home rehabs, including energy efficiency upgrades like air sealing, insulation, and the replacement of fossil fuel appliances, could lead to steep rental increases. In response, local mandates enacted in New York, California, and elsewhere recently aim to protect tenants from being further cost-burdened, according to a Context article published this week.
Capitalization of Upgrades into Rent
For building owners, energy efficiency improvements often require significant upfront investments. In markets where landlords expect to recoup costs for these projects, higher rents are possible. However, some landlords may pass some of the cost savings from reduced utility bills to tenants while still ensuring a return on their investment through a slight rental increase.
Studies show that properties with energy-efficient features can command higher rents, and tenants in areas with high energy costs or significant environmental awareness may be willing to pay more for homes that promise lower operating costs and a smaller environmental footprint.
And while there is a correlation in some cases between energy efficiency improvements and increased rental costs, it’s not consistent across all U.S. rental markets. Lease agreement structure, regional rental trends, the scale of the energy improvements, and local regulations on rent spikes can determine the extent to which a rental cost increase occurs.
Conclusion
For stakeholders and consumers, understanding the nuances is important for balancing the goals of improved efficiency and maintaining affordable rental housing.
As state and local policymakers prioritize building decarbonization and climate-resilient infrastructure, some offer attractive incentives for building owners to make much-needed improvements and keep costs low.
Pennsylvania, for example, instituted the Whole-Home Repairs program that funds home upgrades with the stipulation that landlords can’t raise rents more than 3 percent above the base rent per year. “We don’t want costs for maintenance to be passed on to tenants and therefore put these apartments out of reach,” State Senator Nikil Saval said.