Thoughts on the new federal energy code impacting a quarter of all new housing

A new residential building code is being adopted for USDA and HUD housing, and the two narratives that are coming from this adoption are that the homes will be more energy-efficient and save people money in the long term. However, the increased upfront cost will potentially shut some people out from being able to afford that home. Both of these arguments can be true at the same time. We should be concerned about these issues as inflation harms homeownership through construction cost increases. Yet, homes built less efficiently drive up the total cost of homeownership as energy prices rise. The good news is that the improvement in the building code could position homes and multifamily buildings to align with incentive programs to help reduce the cost. These include the Inflation Reduction Act 45L Tax Credit, which can provide up to $5000 per home or unit in addition to local utility program incentives. For example, in Michigan, Consumers Energy boosted home rebates. The other benefit to the HUD/USDA ruling that many overlook is that it allows the use of third-party residential green building certification programs. GreenHome Institute’s Education Manager is quoted in the recent GBA article on this issue explaining how third-party green building programs, including LEED, National Green Building Standard, Enterprise Green, and other viable certification programs (such as GreenStar Homes Certification) will be exciting to builders. This is because many of these programs offer choice and flexibility, meeting these standards by focusing on different aspects of the five pillars of residential green building: Energy, Health, Materials, Water, and Place. In some aspects, builders focus on what is important to them when pursuing the certification to meet the requirements, which can also be tied in to further funding sources, rebates, and increased home or building value. Increasing home health/comfort and building resiliency as the climate worsens brings intangible value not directly measured in immediate financial returns, thus another benefit of meeting this higher standard. Even insurance companies are coming out to support these codes to protect insurance cost increases from climate events. Let’s also opine for a minute on who will be enforcing these building codes in states and local jurisdictions that still need to adopt them. Considering how building codes are adopted, there is no national federal energy code, so who will be going in to ensure that only federally funded homes meet these energy efficiency standards in all these states? We understand the code is enforced by the builder’s sign-off statement and a lender’s review. Is this an appropriate way to ensure a code is met? 

In the meantime, in summary, the Inflation Reduction Act tax credits and local incentives encourage better buildings, and third-party green certifications offer an enforcement mechanism to ensure they meet these standards.