The following news summaries are compiled from NMHC's Update newsletter. For more information on all of NMHC's legislative and regulatory issues, read the NMHC Update here.
NMHC/NAA Push Energy Incentives in Tax Reform Efforts
Tax reform continues to be the subject of intense discussion in our nation's capital. While prospects for legislation remain uncertain, tax reform has the capacity to significantly impact owners, operators and developers of multifamily rental housing when they build, operate, sell and even transfer apartment communities to their heirs. The apartment industry favors pro-growth reform that avoids disadvantaging our industry relative to other asset classes.
Notably, on April 4, 2013, NMHC/NAA responded to a request from the House Ways and Means Committee to submit input on tax reform priorities. The Ways and Means Committee has created 11 working groups to study various areas of the tax code. Once interested parties submit their views, the Joint Committee on Taxation will submit a report to the Committee due on May 6 that summarizes comments received. The full Committee is then expected to continue working on comprehensive reform proposals that could see action later this year.
In our submission, NAA and NMHC underscored our view that tax reform must address both the individual and corporate sides of the tax code. Flow-through entities that dominate the apartment industry and pay tax based on the individual side of the code should not shoulder the cost of corporate tax reform.
In addition to comprehensive tax reform, NMHC/NAA urged Congress to maintain current tax treatment of carried interest, retain the deduction for business interest, protect the Low-Income Housing Tax Credit program and preserve the current law on estate taxes.
Finally, NMHC/NAA also submitted a second letter that indicated the importance of tax incentives for improving energy efficiency in commercial buildings and large multifamily properties as a means of leveraging private investment in qualified building retrofits.
Multifamily Energy and Water Study Underway
NMHC recently partnered with Urban Land Institute, Commercial Real Estate Finance Council (CREFC) and Fannie Mae Multifamily Business to launch the Multifamily Energy and Water Research Survey. This survey is part of a broader national effort to understand trends in energy and water consumption and related costs in multifamily properties.
Participation in the survey is voluntary. ICF International, the firm conducting the survey, has selected at random a number of properties across the country to kick off the research. However, all NMHC member firms are encouraged to participate. The survey is available starting this week at www.FannieMaeGreenInitiative.com.
Final survey results will be sent to participating property owners.
The Federal Housing Finance Agency (FHFA) is soliciting comments on a proposed rule that would change underwriting standards for Fannie Mae and Freddie Mac with regard to PACE bonds. These bonds aim to promote energy efficiency and renewable energy projects for residential and commercial buildings by providing long-term, low-cost funding from local governments. The proposed rule would require Fannie and Freddie to immediately act to address existing loans with PACE encumbrances while preventing them from both purchasing loans with PACE liens and accepting first-lien PACE obligations on a mortgage.
This proposed rulemaking follows earlier FHFA action to limit Fannie and Freddie’s involvement in the PACE program. In July 2010, FHFA directed Fannie and Freddie to take “prudential actions to limit their exposure to financial risks associated with first-lien PACE programs.” The agency then prohibited Fannie and Freddie from purchasing loans with these first-lien features in 2011. FHFA was subsequently sued in California district court and ordered to undertake a formal rulemaking process; FHFA has appealed this ruling. If the appeal is granted, FHFA will withdraw the rulemaking; otherwise, comments are due by July 20.
Twenty-five states have enacted legislation authorizing PACE programs. In addition, the PACE Assessment Protection Act of 2011 (H.R. 2599), which would prevent Fannie, Freddie and other federal mortgage lending regulators from adopting policies that contravene established state and local property assessed clean energy laws, has received bipartisan support.
A copy of the notice and information on submitting comments are available athttp://1.usa.gov/NM3fYx. Of particular note, FHFA referenced some of NMHC/NAA’s earlier comments on the pre-proposal in the notice. Additional information, including NMHC/NAA’s original comments, is available at www.nmhc.org/goto/60843.
Industry publication Multi-Housing News Online recently featured an article by Paula Cino, NMHC’s director of energy and environmental policy and a member of the NMHC/NAA joint legislative staff, on new green and energy building codes. Cino’s article highlighted NMHC/NAA study, “Impact of the 2009 and 2012 International Energy Conservation Code in Multifamily Buildings,” and offered additional analysis of the new International Green Construction Code (IgCC), released by the International Code Council in March. To read the full article, go to http://bit.ly/M97tYz.
New NMHC/NAA Analysis: Impact of the 2009 and 2012 Energy Codes on Apartment Construction Costs
NMHC/NAA are pleased to announce the publication of an important new research report examining the nation’s most widely adopted building energy code—the International Energy Conservation Code (IECC).
Many states have started adopting the 2009 IECC, which contains significant changes over the prior version—the 2006 IECC. The just-released 2012 edition, which includes even more aggressive changes and significant administrative differences, is also being vetted for adoption.
If adopted on the local level, these codes will require meaningful changes in the ways apartment buildings are designed and constructed. Depending on the geographic region and the version of the code adopted, they could also add several thousand dollars to the cost of each apartment unit. Even in a moderate climate, the combined costs of the new codes could add up to $4,400 per unit in construction costs. Building owners and designers will have to individually analyze projects to determine the most cost-effective compliance paths.
NMHC/NAA’s new report, Impact of the 2009 and 2012 International Energy Conservation Code in Multifamily Buildings, offers a detailed comparison of the 2009 and 2012 IECCs compared to the 2006 edition. It breaks out these costs for a typical low-rise property and a typical high-rise property by climate zone.
In addition to the full report, we have prepared a single document identifying the compliance costs for low- and high-rise properties in each climate zone. We have also prepared a summary of the cost of complying for each climate zone.
These materials are designed to aid member firms in preparing for upcoming code requirements where the more stringent codes are adopted. It is also developed to be a tool for local apartment advocates to help local jurisdictions understand the real implications adopting these codes will have on housing costs in their localities.
The full report and all the collateral documents are available at www.nmhc.org/goto/IECC-Study.
NMHC/NAA and our coalition partners secured an important victory this month when the International Code Council (ICC) agreed to exclude apartments from having to comply with its new International Green Construction Code (IgCC) where it is adopted locally.
The IgCC was originally written with the understanding that it would not cover residential development. As a result, it was developed without input from the apartment sector and includes many provisions that would be extremely onerous, and in some cases unachievable, for apartment firms. For example, it would require use of products and practices not typically used, and not fully vetted, for multifamily construction.
However, in late 2010, the ICC Board of Directors removed the multifamily exclusion. NMHC/NAA and a coalition of organizations successfully appealed the decision. As a result, the scoping of the final IgCC exempts multifamily buildings four stories or less in height. Apartments taller than four stories must comply with the IgCC, but they can comply with the NMHC/NAA-supported National Green Building Standard (ICC-700, NGBS, silver level or above) or ASHRAE 189.1 in lieu of the IgCC.
Member firms should still actively monitor any local adoption of the IgCC, however, as each jurisdiction has the discretion to require low-rise properties to comply with the IgCC by complying with the NGBS.
The ICC has begun work on the 2015 editions of its model building codes. ICC publishes 15 model codes in all. For the first time, the organization has divided the codes into two groups—Group A and Group B–and is considering changes to each group on a staggered schedule.
The Group A codes, which are being undertaken first, include the International Building, Plumbing and Mechanical codes. Other codes of significant interest to the apartment sector, including the International Fire Code and the International Energy Conservation Code are included in Group B.
NMHC/NAA and our building codes consultants attended important meetings in Chicago last week where the ICC’s committees began deliberations on the more than 2,200 code change proposals submitted for the Group A codes. We are closely reviewing a number of proposals that would impact apartment construction, including a new proposal to provide fire fighter breathing air makeup systems in buildings more than 120 feet in height.
Those changes will be further debated during the ICC code hearings April 28-May 6 in Dallas, TX, which NMHC/NAA will also attend. The final code hearings will be held in October.
Window Sellers Forced to Dial Back Energy Efficiency Claims
On February 22, the Federal Trade Commission reached separate settlements with five window replacement sellers—Gorell Enterprises, Long Fence & Home, Serious Energy, THV Holding and Winchester Industries—over energy savings claims. According to a release, the agreements will stop replacement window sellers from making "exaggerated and unsupported" claims about the performance of their products as well as the amount consumers could save on monthly energy bills. Moreover, the settlements call for future claims of energy savings to be backed by scientific evidence.
More Opportunities to Improve Energy Efficiency Identified
Recognizing the significant upfront costs inherent in improving energy efficiency in multifamily buildings, three new reports have been issued recently that highlight a number of partnerships and programs that could be leveraged to accelerate the adoption of energy-saving products and systems in new and existing construction projects.
- Recognizing the Benefits of Energy Efficiency in Multifamily Underwriting. Deutsche Bank recently released the results of an innovative study of energy efficiency retrofits at 230 affordable multifamily housing projects in New York City. The results outline a model for incorporating energy savings projections into multifamily loan underwriting practices, a new development that could unlock more capital for retrofit projects.
- Better Buildings Through Executive Action: Leveraging Existing Authorities to Promote Energy Efficiency and Sustainability in Multifamily and Commercial Buildings. On January 18, a coalition headed by the U.S. Green Building Council (USGBC) released a follow up to a 2010 report that identified 30 existing federal programs available to enhance building performance without new legislation. The new report outlined nearly three dozen additional executive actions across 23 agency programs that could promote a green building agenda without new funding from Congress.
- Engaging as Partners in Energy Efficiency: Multifamily Housing and Utilities. Citing $3.4 billion in untapped energy savings in multifamily properties nationwide, the Center for Neighborhood Technology (CNT) Energy and the American Council for an Energy-Efficient Economy (ACEEE) published a white paper on January 26 that detailed strategies for the multifamily sector to engage utility companies for additional investment and resources to improve energy efficiency.
Congress Halts Ban on Incandescent Light Bulbs
The final FY 2012 appropriations bill passed by Congress on December 17 included a provision to rollback controversial light bulb efficiency standards set to take effect January 2012.
Despite media and other reports to the contrary, the new standards, enacted as part of a 2007 energy law, would not have banned incandescent light bulbs. They did, however, require bulbs to be 25% to 30% more efficient than today. This change would have effectively phased out less expensive incandescent bulbs in favor of more expensive compact fluorescents, LED and redesigned incandescent bulbs that meet the new standard. However, the funding bill prohibits the U.S. Department of Energy from implementing or enforcing the new standards this fiscal year.
This uncertainty has contributed to confusion in the marketplace, so apartment firms should be aware that the full range of lighting products continue to be available to them in the coming year when making design and purchasing decisions.
NMHC/NAA Seek Multifamily Exemption from New International Green Construction Code
This month, the International Code Council (ICC) completed work on a new International Green Construction Code (IgCC) that, as it currently stands, would apply to apartment properties, if adopted on the local level. NMHC/NAA are actively seeking an exemption for apartment firms because the code, as written, would be extremely onerous and, in some cases, unachievable for apartment firms.
The IgCC is the first model code for green buildings. It includes comprehensive requirements for building environmental performance such as energy efficiency, water conservation, indoor air quality, site development and materials selection. It is not a standalone document, but rather an "overlay" code, meaning that jurisdictions can choose to adopt it in addition to existing building, energy and fire codes.
Earlier versions of the code allowed multifamily buildings to comply with the NMHC/NAA-supported National Green Building Standard (ICC-700, NGBS) in lieu of the IgCC. However that exception was removed by the ICC Board of Directors late last year. A proposal to restore the multifamily exclusion was rejected at final hearings on the code earlier this month. NMHC/NAA, NAHB and BOMA are appealing to the ICC Board to exempt apartments and are hoping for action by the end of this year or early next year.
Since residential development was originally excluded from the code’s scope, the IgCC was developed without input from the apartment sector and would require use of products and practices not typically used and not fully vetted for multifamily construction. Conversely, NMHC/NAA were directly involved in the development of the NGBS—the first green building standard for all residential construction.
Of note, the NGBS and the IgCC have substantially different formats. While the NGBS is a points-based system, which allows developers to decide what practices to incorporate in a project, the IgCC requires the local adopting authority to decide what will be mandatory for their jurisdiction during the adoption process.
NMHC/NAA members should be aware of any actions to adopt the IgCC in their jurisdiction. Apartment firms should advocate for inclusion of a full multifamily exemption and/or an alternative compliance option allowing apartment firms to follow the NGBS.
On November 18, NMHC/NAA submitted comments to the Department of Energy (DOE) questioning a proposed methodology for calculating the costs of new residential energy codes published in the Federal Register (76 FR 56413).
DOE intends to use this methodology to analyze new code proposals, assist the private code-making bodies and support the government’s code advocacy efforts. Of concern, the methodology does not adequately reflect the real-world conditions of the apartment sector.
Instead, DOE is relying on single-family data and cost assumptions, which are not generalizable to multifamily properties. NMHC/NAA have recommended that a separate financial analysis be conducted for multifamily buildings and other apartment-related calculations be expanded to capture the diversity of multifamily building types.
AUGUST 29, 2011
DOE Building Labeling Initiative
In an effort to avoid partisan politics in Congress, the White House is now moving significant energy policy reforms, including controversial building labeling provisions, through executive action. On August 8, the Department of Energy (DOE) announced a new program, the National Asset Rating Program for Commercial Buildings (AR Program), to rate new and existing buildings on their expected energy performance. While voluntary energy efficiency and benchmarking programs like EPA’s Energy Star are generally designed as energy management tools, the AR Program is specifically designed to impact valuation and transactional decisions.
DOE is accepting comments on the proposal through September 22 and says it will unveil a pilot project on September 30. NMHC/NAA joined with other national real estate trade associations in objecting to the Department’s pro forma request for information from the affected parties. We will continue to educate the Administration about the unique characteristics of the apartment sector and the need for carefully tailored industry metrics.
On August 15, a New York federal court dismissed the class action lawsuit filed against the U.S. Green Building Council (USGBC). The suit alleged that the USGBC concealed data showing poor energy performance by some LEED-certified buildings and deceived consumers, building professionals and jurisdictions by advertising that LEED certification results in reduced building energy consumption. It also claims LEED unfairly placed non-LEED practitioners at a competitive disadvantage.
The dismissal hinged on technical grounds, however, and not on the merit of the claim with the court finding that the plaintiffs lacked standing to sue. Despite the dismissal, the lawsuit illustrates the growing concerns over unsubstantiated green claims as well as green building performance problems.
EPA has announced an Energy Star rating for multifamily high-rise buildings; prior ratings were for low-rise properties only. The designation may be applied to new and substantially renovated properties that meet specific criteria, notably that they are designed to be at least 15 percent more energy efficient than ASHRAE Standard 90.1-2007.
The program differs significantly from the Energy Star rating system that is available to commercial properties. There are two paths to earning the Energy Star designation: developers may choose a prescriptive package developed by EPA or a customized approach using ASHRAE-approved energy modeling software. Additional information is available at www.nmhc.org/Content/ContentList.cfm?NavID=602.
As part of an initiative to reduce costs and compliance burdens on businesses, on August 23, the White House identified several regulations it says can and will be streamlined without compromising regulatory efficacy. It estimates the effort will save $10 billion over the next five years.
Of interest to the apartment industry is EPA’s decision (announced in July) not to adopt additional post-renovation requirements following renovation, repair and painting activities on certain pre-1978 properties. EPA says this will save affected parties up to $300 million annually. (See the July 26 NMHC Update.)
EPA has indicated that it will undertake a formal rulemaking aimed at streamlining safe drinking water regulations, which among other things currently require some public water suppliers (including certain property owners that bill separately for water) to provide disclosures and take remedial action if water quality measures indicate excessive levels of lead and other hazards.
The Agency will also propose improvements to rules governing the certification and training of pesticide applicators to streamline the certification process and increase worker protections. EPA says it will also revise various rules under the Clean Water Act. Unfortunately, the stormwater rules for existing properties that are currently under development and opposed by NMHC/NAA were not on the list of those slated for revision. We will continue to work with EPA as these rulemakings move forward to represent the apartment sector.
Senate Committee Advances Building Energy Efficiency Measure
On July 14, a Senate committee approved an energy efficiency bill (S. 1000) with several provisions of interest to apartment firms. Thanks to strong advocacy by NMHC/NAA and other real estate associations, the measure encourages improvements in building energy performance through provisions such as a loan guarantee program to assist property owners in financing energy efficiency upgrades in existing buildings.
Significantly, the authors of the bill, Senators Jeanne Shaheen (D-NH) and Rob Portman (R-OH), substantially modified language regarding building energy code metrics that passed the House in 2009, which was strongly opposed by NMHC/NAA and other real estate trade associations, although the revised provisions remain problematic.
Prior legislative efforts would have required the Department of Energy (DOE) to adopt arbitrary code efficiency levels that were up to 50 percent more stringent than current code levels. S. 1000 instead requires DOE to establish building efficiency targets and to develop building codes accordingly. While NMHC/NAA believe that this language provides flexibility in establishing target performance levels, we remain concerned that an expanded role for the federal government in the building code arena will undermine the existing code development process and state-level code enforcement. Importantly, the bill specifically requires DOE to consider the cost effectiveness of new efficiency mandates.
Language was also removed that would have established a “zero-net energy” building performance goal by 2030.
It is unclear whether the measure can move through the Senate and House given competing priorities and budget concerns.
Energy Retrofit Initiative Could Create 114,000 Jobs
The Obama Administration’s proposed Better Buildings Initiative (BBI), a package of tax and other incentives to retrofit existing commercial buildings released in February, would create over 114,000 jobs, according to a new University of Massachusetts-Amherst research report.
The study, which was commissioned by the Real Estate Roundtable, the U.S. Green Building Council and the Natural Resources Defense Council, says the BBI would generate $3 billion in private investment over two years.
The greatest jobs-creating impact—over 77,000 new jobs—would come from a provision that would revise the existing Section 179D tax deduction to make it more attractive to property owners and to make it useable for REITs, which have a limited ability to benefit from tax incentives.
NMHC/NAA support the BBI and other incentives to help property owners improve the energy efficiency of their properties. While there is little Congressional support for any new spending initiatives, advocates hope the new jobs projections might encourage Congressional action.
New FHA “Green” Refi Program Announced
HUD last week announced Green Refinance Plus, a new risk-sharing program between FHA and Fannie Mae to provide existing affordable rental housing properties that refinance with up to 5% additional loan proceeds (an average of $150,000 to $250,000 per loan) to fund energy- and water-saving upgrades.
The program is limited to refinancing expiring mortgages for Low Income Housing Tax Credit, project-based Section 8 and other properties with state and local subsidies. Required loan-to-value and debt service coverage ratios will be determined on a project-by-project basis.
For more information visit http://1.usa.gov/jNNPTl.
Energy Efficiency Bill Introduced
On May 12, Senators Jeanne Shaheen (D-NH) and Rob Portman (R-OH) introduced the Energy Savings and Industrial Competitiveness Act of 2011 (S. 1000). While the bill would establish a grant program to incentivize energy efficiency improvements, it also includes onerous building energy code language that has long been opposed by the real estate sector.
In an improvement over previous versions, the bill does not dictate arbitrary improvements of a certain percent above current codes. Instead, it calls for a Department of Energy rulemaking to establish a national model energy code that is pegged at achieving “zero net energy” buildings by 2030.
NMHC/NAA strongly support cost-effective and practical improvements in building efficiency codes, but oppose efforts to federalize or otherwise undermine the current process of code development by independent organizations such as the International Code Council and ASHRAE and state-level adoption.
Although the bill includes provisions that have previously received bipartisan support, it is unclear how the measure moves forward given other Congressional priorities and budget concerns.
Building Energy-Efficiency Tax Credits
In a May 5 letter to Congress, NMHC/NAA joined a diverse group of more than 80 stakeholders in urging Congress to add a new provision to the current energy tax incentive for energy-efficient buildings (Commercial Building Tax credit, Section 179(d)). As currently written, a property (new construction or retrofit) must demonstrate a 50 percent improvement over a specific version of the building code to take advantage of the credit. Since the credit became available, however, it has proven exceedingly difficult for building retrofits to meet these high performance standards. Thus, the credit is failing to provide the intended incentive for efficient building system upgrades. Our letter urges lawmakers to instead establish a new tax credit to address improved energy performance in existing buildings. The proposal calls for a sliding scale of tax incentives based on demonstrable improvements in energy performance relative to the building’s pre-renovation performance. We are also asking Congress to make it possible for REITs, which have a limited ability to benefit from tax incentives, to fully participate in the incentive.
The National Green Building Standard (NGBS) (ICC 700-2008) has achieved a significant milestone, surpassing 2,000 project certifications nationwide. First published in 2009, the NGBS is the only code-based green building program for residential construction and provides an alternative to non-standardized green rating systems such as LEED.
To date, 21 multifamily projects have been certified under the NGBS, totaling more than 1,200 apartment units. An additional 67 multifamily properties are currently in the certification pipeline.
The development of the NGBS was a top priority for NMHC. Prior to the NGBS, apartment firms considering building green had to follow guidelines designed for either high-rise commercial properties or single-family houses. As a result of NMHC's participation in the standard’s development process, this is the only residential green building program based on input from the apartment industry.
Work is already underway on the next edition of the NGBS, and NMHC/NAA have been selected to serve on the new NGBS development committee. In addition, NMHC/NAA's Director of Energy and Environmental Policy, Paula Cino, was selected to chair the committee’s Multifamily Task Group. To learn more about the NGBS program and track the revision process, visit http://bit.ly/ghW2jt.
After considerable delay, the International Code Council (ICC) has scheduled a March 31 hearing to consider NMHC/NAA’s appeal of the 2012 International Energy Conservation Code (IECC). In November 2010, NMHC/NAA and numerous other organizations filed appeals with the ICC, challenging onerous changes made to the 2012 IECC during last year’s code hearings. As reported in the December 8 Update, the code would require a 30% increase in energy efficiency over 2006 levels and would impose burdensome and costly requirements on new multifamily buildings.
The ICC received three separate appeals objecting to irregular voter participation and violations of ICC’s bylaws and voting procedures during the hearing for the 2012 IECC. Appeals action has been delayed while the appeals were consolidated, and NMHC/NAA’s concerns will be considered as part of this larger action moving forward. Due to the significant scope of this matter and the large number of interested parties, ICC has established a webpage to manage and distribute information about this appeal.
Timely resolution of this matter is particularly important given that state and local governments will soon begin to consider adoption of the 2012 code. Further, interest remains strong in Congressional efforts to mandate this code, and even more stringent versions. NMHC/NAA continue to advocate for incentive-based cost-effective building efficiency measures rather than onerous code mandates.
FEBRUARY 4, 2011
Obama Announces Better Buildings Energy Efficiency Initiative
Yesterday, President Obama announced a new "Better Buildings Initiative" to improve energy efficiency in commercial buildings, including apartments.
The plan includes several ideas long advocated by NMHC/NAA. Importantly, it takes an incentive-based approach to building efficiency and does not include the unworkable mandatory building code regulations included in other legislative proposals.
The proposal would reform the existing Section 179(d) building efficiency tax incentive, which has largely gone unclaimed by property owners for many reasons. It would change the deduction to a more generous tax credit and create more incentives for owners to undertake costly retrofits on existing properties. It would also ensure that REITs could take advantage of the credit.
NMHC/NAA have consistently supported amending the Section 179(d) tax incentive; however it is too soon to know whether Congress will accept Obama's plan to offset its cost by reducing tax incentives for the oil and gas industry.
The proposal would also create a pilot program within the Department of Energy (DOE) to guarantee loans made to owners for property upgrades as the lack of financing is a major obstacle to greening our existing buildings. And it would create an initiative to train the next generation of commercial building technology workers.
NMHC/NAA issued a press statement applauding the President’s proposal, which will be included in his FY 2012 budget. The actual details of the program remain to be formulated, however, and many would require Congressional approval to be implemented. We will work with the Administration and Congress over the coming months as the initiative takes shape.
Input Sought on 2012 National Green Building Standard
Work is beginning on the 2012 edition of the National Green Building Standard (NGBS) (ICC 700-2008). The NGBS, which is the only green building standard developed with input from the apartment industry, offers local jurisdictions considering green mandates and incentives an alternative to non-standardized green rating systems such as LEED.
While NMHC/NAA served on the NGBS’s initial development committee, it is important that multifamily practitioners continue to participate in the update process. Committee members are currently being sought, with applications due January 4, 2011.
Members are also encouraged to submit suggestions to improve the NGBS to NMHC/NAA or directly to the standard committee by January 31, 2011. To learn more about applying for the committee or submitting a proposed change, visit http://bit.ly/NGBSUpdate. For additional information, contact NMHC’s Vice President of Building Codes, Ron Nickson, at email@example.com or 202/974-2327.
In late October, the ICC approved the final changes to the 2012 edition of the International Energy Conservation Code (IECC) that will require a 30% increase in energy efficiency over 2006 levels.
Such a dramatic increase will impact building design, installed lighting fixtures (in both common areas and dwelling units), wall thickness, ceiling thickness, the type of windows installed and the overall building air leakage. It will also require expensive testing to verify compliance.
The 2012 IECC also creates separate requirements for low-rise apartments and properties with four or more stories, lumping the latter into the provisions that apply to commercial properties.
NMHC/NAA support the move toward more energy efficiency building codes and have advocated for a trade-off based system that allows developers flexibility in meeting the more stringent requirements. Unfortunately, those trade-offs were eliminated in the final vote, due to a rise in the number of state energy officials at the hearings and a drop in the number of building code officials who were victims of state and local budget cuts.
This resulted in votes that were cast without consideration of whether the proposals are cost-effective or even achievable given current technology. NMHC/NAA have filed several appeals with the ICC, objecting both to the process of the final votes and the contents of the final standard.
Importantly, the 2012 IECC only applies in jurisdictions that specifically adopt it. For that reason, member firms are encouraged to actively monitor state and local code adoption activities and to oppose adoption of the 2012 IECC.
The New Congress: New Balance of Power Complicates Industry's Legislative Agenda
When the 112th Congress convenes on January 5, Republicans will control the House and will have eliminated the Democrats' filibuster-proof majority in the Senate. The result will either be total gridlock or reluctant cooperation on a few issues in advance of the 2012 elections.
The most obvious impact on the apartment industry's agenda will be in the House, where the Republican takeover means they will control the flow of legislation and will appoint new committee chairmen.
Environmental Policy and Energy Incentives
Republican control of the House effectively kills comprehensive climate change (cap-and-trade) legislation in the 112th Congress. There is bipartisan interest among members from coal states to constrain the ability of the Environmental Protection Agency (EPA) to regulate greenhouse gasses through regulation as well, an issue likely to come up as early as the lame-duck session. Piecemeal energy bills may advance, and NMHC/NAA will continue to press for an array of grants, rebates and tax incentives for energy retrofits in apartments.
We anticipate that Republicans will also hold hearings on a number of regulatory issues of interest to NMHC/NAA, including stormwater management and lead-based paint. Although a bill expanding the Clean Water Act was defeated in the last Congress, EPA retains considerable existing authority to carry out its stated objective to regulate post-development water runoff, among other things.
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Energy Legislation Stalled
The Senate has reached an impasse over sweeping energy and climate change legislation and is unlikely to pass a comprehensive bill this year. Several far-reaching measures addressing carbon caps, energy production, building and transportation efficiency, among other issues, have failed to achieve broad support, forcing Senate leaders to refocus on a small, targeted energy bill. NMHC/NAA's primary concerns in energy legislation are onerous building energy codes and mandatory building labeling language.
The House passed an extensive energy and climate package last summer (H.R. 2454), but the Senate wasn't able to come to a consensus on a far-reaching package. A much-anticipated compromise proposal released in May by Senators John Kerry (D-MA) and Joseph Lieberman (I-CT) was scaled back In the face of waning support to limit carbon emissions from the utility sector only. That effort stalled in July when Senate Majority Leader Harry Reid (D-NV) proposed a narrow energy bill, principally focused on oil spill and drilling issues. That measure also was unable to secure the 60 votes needed to pass.
Although unlikely, this modest Senate package could be paired with the broad House-passed legislation, which does contain the NMHC/NAA-opposed building codes and labeling provisions, in a conference committee after the fall elections. Even without election pressures, numerous controversial provisions and economic concerns work against passage of a significant energy and climate bill this year.
Importantly, the NMHC/NAA-opposed provisions enjoy bipartisan support, so they could be enacted separately even in the absence of a comprehensive energy bill. NMHC/NAA will continue to educate lawmakers about the need for building efficiency incentives instead of one-size-fits-all energy performance mandates.
PACE Energy-Saving Loans Restricted
The Federal Housing Finance Agency (FHFA) released guidance on July 6 that severely limits the ability of multifamily properties to use Property Assessed Clean Energy (PACE) loans to finance energy efficiency retrofits of existing buildings. Under the PACE program, participating jurisdictions use municipal bonds proceeds to fund energy upgrade loans to property owners. The loans are repaid through an additional assessment on the borrower’s property tax bill.
As the GSE regulator, FHFA objects to fact that most PACE debt acquires a senior lien over existing mortgages. The guidance essentially prohibits the GSEs from purchasing mortgages subject to PACE financing. FHFA is also requiring the GSEs to refine their policies for all borrowers in jurisdictions with PACE programs, including adjusting loan-to-value ratios, requiring additional loan covenants and tightening debt-to-income ratios. As a result, most jurisdictions have suspended their PACE initiatives.
Rep. Mike Thompson (D-CA) is pursuing legislation to reverse the FHFA policy, and California has filed a federal lawsuit to overturn it. However, the FDIC and the Office of the Comptroller of the Currency have subsequently echoed the concerns raised by FHFA and have issued an alert to banks to mitigate the risks posed by PACE loans.
Given the limitations of the PACE program, Fannie Mae has convened a Green Rental Task Force to better understand existing energy-efficiency programs and to explore new possibilities in green and energy retrofit financing. NMHC/NAA participate in the task force.
Davis-Bacon Wage Requirements Could Derail Building STAR
Efforts to enact a rebate and technical assistance program for commercial property owners who make energy-efficiency improvements were derailed when the House version of the legislation added a provision requiring that the work be done by contractors following federal Davis-Bacon prevailing wage requirements.
The legislation (S. 3079/H.R. 5476), known as Building STAR, was supported by NMHC/NAA and a coalition of other organizations. Among other things, the measure would create a new two-year program providing rebates to property owners for qualifying energy-efficiency retrofit measures.
In a letter sent to lawmakers last week, we objected to the Davis-Bacon requirements, noting that they will undermine the job creation, energy efficiency and environmental benefits of the Building STAR program by making it more difficult for companies to participate.
Earlier this year, the GAO identified comparable requirements as one of the reasons for delayed disbursements in the federal stimulus bill (H.R. 1). We will continue to urge lawmakers to remove the wage provisions. The future of the $6 billion proposal is in doubt, however, given the crowded legislative calendar and rising concerns over increased deficit spending.
Senate Climate Change Legislation Excludes Onerous Building Code Provisions
On May 12, Senators John Kerry (D-MA) and Joseph Lieberman (I-CT) released a long-awaited draft of their climate change legislation. The "discussion draft" is the result of months of work by Kerry, Lieberman and Senator Lindsey Graham (R-SC); Graham later withdrew his support over a political rift with Senate Majority Leader Harry Reid (D-NV) over immigration reform.
Importantly, the Kerry-Lieberman bill does not address building energy efficiency standards. While the Senate Energy and Natural Resources Committee has held days of hearings on this topic and did advance a provision related to building energy performance and standard setting within the context of the building codes, this work was not referenced in the legislative language that has been released.
The Kerry-Lieberman measure seeks to cut U.S. greenhouse gas emissions 17 percent from 2005 levels by 2020; comparable to the targets in H.R. 2454. Its focus is regulating the biggest sources of greenhouse gas in the nation's economy. It also preempts states from running their own cap-and-trade programs.
The measure has not been formally introduced in the Senate; it is not clear whether the building-specific provisions will be folded in. It remains unclear how lawmakers will move forward given the crowded legislative calendar and November elections.
Energy/Climate Change Bill Stalls in Senate
Last week's expected release of a long-awaited climate change bill being drafted by Senators Lindsey Graham (R-SC), John Kerry (D-MA) and Joe Lieberman (I-CT) was derailed in the wake of Majority Leader Harry Reid's (D-NV) announcement that he would move immigration reform before the energy bill.
The announcement prompted Graham, also an active participant in the immigration debate, to withdraw his support, saying that the two issues were sufficiently complex and critically important that they should not be competing for floor time. Reid's subsequent remarks that energy would move first have not been sufficient to secure Graham's return to the climate change measure.
Although its contents are not yet known, the Kerry/Lieberman/Graham bill has been carefully crafted by its co-sponsors to address some of the most contentious energy issues, including the future of nuclear energy and off-shore drilling.
While release of the bill has been postponed, Kerry has submitted a "description" of it to the EPA for a detailed cost analysis in hopes of keeping the measure moving forward.
On April 22, Vice President Biden announced that $452 million in Recovery Act dollars will be used to fund energy efficiency building retrofits. The funding is being distributed through 25 regional, state and local efficiency programs selected by the Department of Energy's Retrofit Ramp-Up initiative.
A number of these programs specifically target multifamily properties, and assistance will range from technical services to grants and low-cost financing.
In addition, the Administration clarified that this funding did not diminish the need for additional building retrofit incentives and encouraged Congress to pass the pending "Home Star" bill (H.R. 5019) that provides efficiency rebates for single-family houses. The House is expected to take up the $6 billion bill, also known as "cash for caulkers," this week.
NMHC/NAA have been working with a coalition of real estate and environmental interests to enact a comparable Building Star program to provide technical and financial assistance to multifamily and commercial building owners to improve energy and water efficiency.
The Senate Energy Committee held a hearing on the Building Star measure in March; however, no comparable legislation has been introduced in the House. Overall, this effort has been stalled by cost concerns and differences over labor-related provisions, making the future of the bill unclear.
On April 22, Earth Day, the House Financial Services Committee passed bipartisan legislation supported by NMHC/NAA that promotes sustainability and energy-efficiency practices in HUD-assisted multifamily housing. The GREEN Act (Green Resources for Energy Efficient Neighborhoods, H.R. 2336) provides incentives for new and existing structures financed by HUD that meet or exceed minimum energy-efficiency standards established in the bill.
It also authorizes (but doesn't fund) a four-year, 50,000-unit demonstration program of building rehabilitation strategies and energy-efficient technologies.
NMHC/NAA staff worked closely with the sponsor of the legislation, Representative Ed Perlmutter (D-CO), to tailor language regarding green appraisals. As a result of our efforts, a future rulemaking on how appraisals will value energy efficiency and other green features will permit stakeholders to offer suggestions on how such features should be evaluated.
H.R. 2336 also directs the Comptroller General to conduct an analysis of whether certain provisions of the current building energy code pose an obstacle to deploying distributive energy generation technology and water efficiency measures in federally assisted multifamily housing.
An earlier version of the bill passed the full House in 2008 and again in 2009 as part of climate change legislation (H.R. 2454) and is expected to pass again. Senate passage is unclear at this time.
On April 29, a coalition headed by the U.S. Green Building Council released a report detailing the "existing authorities" and appropriations in place throughout the federal government to promote a green building agenda.
According to the report, the Obama Administration can use over 30 existing federal programs worth $72 billion to enhance efficiency in multifamily and commercial properties with no new legislation.
The document details numerous ways the Administration can shift the focus of existing programs to include an emphasis on green alternatives, such as reforming the appraisal and underwriting processes at Fannie Mae and Freddie Mac and integrating sustainability criteria in competitive grants and funding formulas.
The report, "Using Executive Authority to Achieve Greener Buildings," is available at http://bit.ly/axpjhH.
ICC Publishes Green Building Code
The International Code Council (ICC) has released the initial draft of its new International Green Construction Code (IGCC), the first model code for green buildings. The IGCC was designed to be compatible with the widely adopted ICC family of codes and standards, including the National Green Building Standard (NGBS).
Importantly, the IGCC directs most residential projects, including multifamily buildings three stories or less, to comply with the NGBS. Multifamily buildings four stories or more have the choice of either following the new IGCC provisions or complying with the NGBS.
The IGCC provides apartment firms with a complete toolbox of green building guidelines while increasing the visibility and credibility of the NGBS. However, building owners and developers are cautioned that the code is still in draft form and has not been fully vetted through the code development process.
Since official publication of the IGCC is not expected before 2012, firms should be alert for jurisdictions considering the premature adoption of draft versions.
An additional concern is the fact that the IGCC incorporates ASHRAE's green building standard 189.1 as an alternative compliance option within the IGCC. As currently written, a jurisdiction that approves use of ASHRAE 189.1 for IGCC compliance is agreeing to rely solely on the 189.1 provisions--eliminating the ability of building designers to follow the IGCC's own criteria. This is a departure from the usual structure of alternative compliance options, and we are concerned that adopting jurisdictions will not fully understand the implications of their selections.
NMHC/NAA will continue to support the development of the IGCC and its reference to the NGBS and will provide further guidance for apartment firms facing adoption of the ASHRAE 189.1 standard.
The IGCC draft is available at http://bit.ly/9MsaWd.
ICC Drafts International Green Construction Code
The International Code Council is working on a draft version of an International Green Construction Code (IGCC), which will be released for public comment on March 15. The IGCC covers apartment properties.
As reported in the February 10 Update, the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) has also recently published a new green building standard, Standard 189.1.
Importantly, the IGCC will reference the National Green Building Standard (NGBS) (which ASHRAE 189.1 does not) and multifamily buildings can comply with the IGCC by either following the new IGCC provisions or by simply complying with the NGBS. The NGBS has been a top priority for NMHC/NAA, and we were instrumental in ensuring that apartments were included in the green building standard.
NMHC/NAA continue to advocate for green building standards that specifically address multifamily buildings and that provide meaningful and cost-effective green solutions to the apartment industry.
NMHC/NAA Attend White House Clean Energy Economy Forum
As mentioned in the February 10 Update, the EPA, HUD and the Department of Transportation are working together to create more sustainable communities. NMHC/NAA were invited to participate in a White House Clean Energy Economy Forum on March 3 as part of that initiative.
HUD Secretary Shaun Donovan, Transportation Secretary Ray LaHood and Chairman of the Council on Environmental Quality Nancy Sutley addressed the Obama Administration's commitment to sustainable communities, focusing on collaborative efforts between HUD and the Department of Transportation to link planning, transportation and housing. The agencies pledged that efforts to stimulate energy-efficient houses and communities would continue.
List of Multifamily Properties Automatically Eligible for Weatherization Assistance Released
On January 25, the Department of Energy (DOE) implemented a new rule streamlining the Weatherization Assistance Program (WAP). Under the new NMHC/NAA-supported rule, assisted and tax credit multifamily units included on a list published by the DOE automatically meet certain WAP income eligibility requirements and may meet other requirements without the need for further evaluation or verification.
Prior to these new rules, apartment properties had to verify the income of every resident to apply for weatherization funds, even though HUD and the IRS were already collecting resident income verification data for subsidized properties.
The DOE list of eligible multifamily buildings has been published and is available at www.nmhc.org/goto/5126.
Seattle Program to Require Energy Rating and Performance Disclosure of Apartments
On January 25, Seattle passed a first-of-its kind-ordinance requiring annual energy performance rating and performance disclosure in all multifamily buildings with five or more units. Beginning in 2012, apartments must benchmark their energy performance using the Energy Star Portfolio Manager or a similar, yet-to-be-specified tool. Performance data must be reported to the city annually and disclosed to current and prospective residents, potential buyers and lenders upon request.
Seattle’s legislation follows a growing trend in building energy benchmarking mandates, yet is unique both in its broad applicability to all multifamily buildings and the breadth of disclosure requirements compared to similar laws in New York City and Washington, DC. As such, Seattle has initiated a pilot program to better understand the implementation needs of the multifamily sector.
The pilot program provides our industry with a unique opportunity to help shape the final regulatory requirements. This is especially meaningful since it is expected that Seattle’s program will be replicated in other jurisdictions. Firms with a presence in Seattle are currently being sought for inclusion in the pilot program.
For more information about the pilot program and how to get involved, please contact NMHC's Paula Cino at 202/974-2345 or firstname.lastname@example.org.
Climate Change/Energy Legislation Stalled
Congress remains unable to pass a comprehensive climate change bill. While there was some possibility that lawmakers would be able to come to agreement on a set of initiatives, that effort, led by Senators John Kerry (D-MA), Joe Lieberman (I-CT) and Lindsey Graham (R-SC) appears to have foundered under the weight of other “must-do” legislation. With health care, a jobs/tax extension bill and financial reform on the agenda, there is little possibility that a climate bill will pass this year.
Work on energy policy is nevertheless continuing. ”Cap and dividend” is being talked about as a strong alternative to the ”cap and trade” measured passed by the House. While both scenarios envision a limitation (cap) on greenhouse gas emissions, the cap and dividend plan does not create a massive derivative trading scheme likely to benefit large utilities. The dividend plan, advanced by Senators Maria Cantwell (D-WA) and Susan Collins (R-ME) would return funds to consumers to offset the cost of higher utility prices.
Congressional Staffers are trying to attach energy provisions to legislation that is expected to have an easier time passing, such as a future "jobs" bill. The President has indicated strong support for a bill that would create green jobs and help property owners improve the energy efficiency of existing properties.
The House passed a jobs bill as part of a broader appropriations measure (H.R. 2847) before adjourning in December. Senate Majority Leader Harry Reid (D-NV) says the jobs initiative will move forward in phases. The first phase involves a scaled-back $15 billion jobs bill that passed the Senate on Tuesday and does not include any incentives for building retrofits.
NMHC/NAA continue to support measures that provide both technical and financial assistance to property owners to improve the energy and water performance of their properties. Currently, a coalition of interests has offered support for a "Building Star" program that would provide incentives for the retrofit of certain features on commercial properties, including multifamily. Senator Jeff Merkley (D-OR) has indicated that he will introduce legislation to create the Building Star program. Whether it is possible for this measure to move as part of a later phase of the jobs bill or as a stand-alone measure is unclear.
ASHRAE Publishes New Green Building Standard
On January 22, the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) published a new green building standard (Standard 189.1) covering new and substantially renovated commercial buildings, including multifamily properties over three stories.
Standard 189.1 represents a significant departure from existing green building programs and standards, such as the National Green Building Standard and the LEED rating systems, because it does not allow users the flexibility of selecting from a menu of sustainable practices. Instead, all of 189.1's provisions are mandatory and regulate a broad spectrum of building practices including energy and water efficiency, site sustainability, indoor air quality, materials and resource conservation and building operations.
As a development committee member, NMHC/NAA successfully removed the most onerous provisions from draft versions, including arbitrary caps on apartment unit size and requirements for on-site renewable energy systems (regardless of geographic appropriateness and technical feasibility).
We also successfully incorporated common-sense exceptions for multifamily buildings from measures impractical for residential occupancies. While the final standard is an improvement over earlier versions, it still requires the use of products and technologies not used and unproven in the multifamily sector.
Energy Department Streamlines Weatherization Assistance Program
On January 25, the U.S. Department of Energy (DOE) issued new rules streamlining the Weatherization Assistance Program application process. The NMHC/NAA-supported rule makes certain HUD-assisted and Low-Income Housing Tax Credit (LIHTC) properties automatically eligible without further evaluation or verification.
Prior to these new rules, which are effective as of February 24, apartment properties had to verify the income of every resident to apply for weatherization funds, even though HUD and the IRS were already collecting resident income verification data for subsidized properties.
NMHC/NAA have urged the DOE and HUD to make these changes to the application process since 2006.
Beyond Building Codes: Building Retrofits Take Center Stage
Efforts to improve the energy efficiency of the U.S. building stock are increasingly looking beyond new construction and focusing on retrofitting existing buildings. On October 19, Vice President Biden's Middle Class Task Force announced a plan to use Recovery Act funds to encourage energy retrofits in residential buildings.
Unfortunately, a principal component of the plan is to develop energy performance labels that can be used in building valuation and transactions, mimicking controversial building labeling provisions of the House-passed Waxman-Markey energy bill (H.R. 2454).
Significant industry push-back resulted in legislative language specifically excluding existing buildings from the labeling requirements of the House bill. NMHC continues to press for the expansion of voluntary energy efficiency programs like Energy Star and caution lawmakers against any program that will impose undue costs or hamper real estate transactions.
In related news, Enterprise Community Partners announced a $4 billion commitment to accelerate the greening of affordable housing. In part, this initiative will provide funding for energy and water efficient retrofits in multifamily buildings. More information about grant and loan opportunities for green building from Enterprise is available at www.enterprisecommunity.org/financial_products/.
Sustainability and Energy Efficiency Concerns Temporarily Drop in Economic Downturn
Federal efforts to stimulate green building haven't prompted many investors to change their investment decisions, according to a new ULI report. Climate Change, Land Use and Energy 2009 finds that 57 percent of the respondents said the economic downturn had significantly or somewhat weakened the business significance of climate change and energy issues. Many say they are waiting to see how they will be affected by regulations yet to come on the federal, state and local levels.
In addition, investors tend to view energy efficiency -- rather than climate change -- as an important bottom-line issue, and are more apt to reshape their business strategies around reducing energy costs rather than reducing greenhouse gas emissions.
While interest rates and job growth dominated investment concerns among the survey respondents, the majority said that issues related to climate change will be increasingly important in the years ahead and many are preparing for that by conducting energy-efficiency analyses and increasing their internal expertise. Nearly 50 percent said they have developed significant expertise in energy or energy-efficiency issues, and one-third have developed professional expertise in sustainable community development.
The report also finds that 80% of firms incorporate energy-related questions into their due diligence and that many are developing internal metrics to define sustainability instead of using the widely accepted green rating systems, such as LEED, NGBS and EPA Energy Star.
The ULI study is available at: http://tinyurl.com/ULIClimateChange.
Congress Forms Livable Communities Task Force
While sustainability may be taking a back seat to the economy for some firms, it is firmly taking root in Congress and the Obama Administration.
Earlier this year, HUD, EPA and the Department of Transportation created an Interagency Council on Sustainable Communities, and Senator Christopher Dodd (D-CT) has introduced a Livable Communities Act (S. 1619) that would create a grant program for communities to plan smart growth projects.
Last week, 19 Congressional Democrats formed a new task force to promote livable communities. The group will focus on curbing oil dependence, cutting greenhouse gas emissions, and promoting good urban planning that links housing and transportation.
NMHC welcomes these high-profile efforts to advance our long-held mission of encouraging smart growth and overcoming opposition to apartments. We will use these opportunities to promote apartments as the most sustainable form of housing. Firms are reminded that NMHC has produced numerous resources to help them create a new appreciation for compact development, including an NMHC-ULI density toolkit and a compelling “Plan for Tomorrow” presentation.
OCTOBER 19, 2009
Senate Climate Change Bill Takes Alternate Approach on Energy Codes
Senators Barbara Boxer (D-CA) and John Kerry (D-MA) introduced the Senate's long-awaited climate change bill, the Clean Energy Jobs and American Power Act (S. 1733), on September 30.
This bill offers more pragmatic and practical alternatives to several issues in other energy bills that were problematic for building owners. Most notably, it eliminates specific energy efficiency building code targets and timelines, leaving those decisions to an EPA rulemaking.
An NMHC-opposed provision in the House of Representatives’ climate change measure (H.R. 2454) would require the Energy Department to establish and enforce a national energy efficiency building code that is 30% more efficient than current standards by 2010 and 50% more efficient by 2016. The Senate bill also does not include a building labeling requirement.
The Senate Environment and Public Works Committee will begin three days of hearings on S. 1733 on October 27, allowing the EPA to first complete a cost analysis of the measure. While Boxer says she is confident the bill will pass the committee by mid-November, Senate Majority Leader Harry Reid (D-NV) has cautioned that a floor vote may have to be delayed into 2010.
There is only a small window in 2010 to act, however, before pending mid-term elections will make it difficult for lawmakers to take up this controversial bill. The result could be a scaled-down energy bill with no climate change or cap-and-trade provisions. NMHC will continue to work with lawmakers to ensure they understand the apartment industry's needs and concerns.
We have produced a side-by-side analysis that compares the House and Senate climate change bills as well as another Senate energy bill (S. 1462). It is available at www.nmhc.org/goto/5144.
OCTOBER 1, 2009
Climate Bill May Be Pushed into 2010
The outlook for passage of a climate change bill in 2009 is increasingly unlikely as Senate Majority Leader Harry Reid (D-NV) signals that health care, financial regulation and must-pass spending bills take priority.
There is only a small window in 2010 to act, however, before pending mid-term elections will make it difficult for lawmakers to take up this controversial bill. The result could be a scaled-down energy bill with no climate change or cap-and-trade provisions. Under this scenario, the most onerous apartment-related provisions, including building code mandates and building labeling, may unfortunately be included in the scaled-down energy package.
In spite of the predicted delays, this week the Senate unveiled its long-awaited climate change bill, adding to the package of energy-related bills passed by a Senate committee this summer and the House's Waxman-Markey bill (H.R. 2454).
In the absence of legislation, the EPA is expected to take steps to regulate greenhouse gases (GHG) under the Clean Air Act (CAA) (see the April 29 NMHC Update). Unlike climate cha