Making Building Performance Standards Work for Affordable Housing

As states and localities work toward their climates goals, they look to new policies to reshape how each industry sector operates. For the building sector, these policies take the form of building performance standards (BPS). These standards set clear targets buildings must meet to reduce emissions and energy consumption. While BPS is intended to improve energy performance, lower utility costs, and drive health and climate benefits, implementing BPS can put an unnecessary and avoidable burden on specific building types, namely affordable housing.

For affordable housing, which operates on thin margins, restrictive financing, and limited access to capital, poorly designed BPS can create real risks including compliance burdens that strain budgets, fines large enough to threaten affordability, and retrofit timelines that don’t align with how properties operate in reality. However, with the right policy mechanisms, BPS can be a vital tool that states and localities leverage to drive equitable clean energy benefits for these communities.

This NHT Update outlines the key barriers affordable housing faces under BPS and the specific policy mechanisms - flexible compliance pathways, targeted technical assistance, and dedicated funding - that jurisdictions can put in place to address them. 

How to Develop an Alternative Compliance Pathway for Affordable Housing

To ensure the alternative compliance pathway actually works for affordable housing, the pathway must offer delayed compliance options for buildings not suitable to be retrofitted, incorporate technical assistance to support compliance requirements comprehension for building owners and next steps, and connect properties with funding sources to develop compliance scopes of work.

Flexible Non-Compliance Fines

Often, if a building is not in compliance with their jurisdiction’s standards, building owners are required to pay a fine based on the excess energy used or emissions emitted above the target. Fines based on program requirements across the country can range anywhere between $100 to upwards of $2,000,000. For affordable housing, this range creates two scenarios: 1) fines are too low to motivate building owners to reduce energy consumption and emissions or 2) fines are so high that they threaten the financial stability and affordability of the property. 

If a jurisdiction requires building owners to pay fines for energy use and emissions above the standard’s target, fines should be structured in a way that encourages owners to take steps to reduce emissions and energy use without risking the building’s affordability. For example, Seattle’s Building Energy Performance Standards (BEPS) offers reduced non-compliance penalties for failure to meet the city’s greenhouse gas intensity targets of $2.50/sqft for multifamily rental properties compared to $7.50/sqft for other multifamily buildings. In Washington, D.C., there are proposed changes to BEPS guidelines that would allow affordable housing building owners to commit non-compliance fees towards improvements in their building to meet BEPS compliance requirements rather than paying these fees to the District.

Aligning Compliance Timelines with Recapitalization

Even if alternative non-compliance fines and penalties are available for affordable housing, these buildings will still struggle to comply without a delayed compliance pathway. Affordable housing has limited access to upfront capital and, because it serves low-income households, properties operate on tight margins and likely cannot generate sufficient net income to cover non-essential costs. Property reserves are also often insufficient to cover the cost of repairs or upgrades in full, and owners often need permission from investors to access properties reserves. Access to upfront capital is made even more difficult because of restrictions on access to debt to fund upgrades. The amount of debt affordable housing can leverage is limited based on cash flow and underwriting standards and is often further limited by restrictions imposed by existing mortgage lenders, making mid-cycle upgrades nearly impossible. 

This means it is easiest for affordable housing owners to take on new debt and access new funding to pay for energy efficiency and electrification measures to support BPS compliance when a property is refinancing. The cost of upgrades can be folded into the new first mortgage and developers have increased access to capital such as tax credits and equity. By offering a delayed compliance pathway for affordable housing that aligns with the building’s typical year-15 recapitalization, building owners can be intentional with their scopes of work and incorporate comprehensive energy efficiency and decarbonization measures that align with their jurisdiction’s standards. Seattle’s BEPS policy provides multifamily buildings with a longer runway to comply with the standards than non-residential buildings, allowing greater flexibility and more time to plan for compliance. Under this policy, affordable housing owners also has additional time to meet final net-zero standards.Colorado BEPS allows buildings to request a compliance timeline adjustment under certain eligibility criteria including to align work with recapitalization or refinancing timelines, or if the building owner can demonstrate a plan to replace heating and cooling systems at the end of life where the system’s end of life occurs after the compliance period.

BPS Technical Assistance

In addition to compliance pathways designed for affordable housing, building owners need help understanding the steps needed to meet building performance standards, including reporting requirements. To ensure affordable housing can successfully comply with BPS, free technical assistance services must be offered to ensure building owners understand compliance requirements, complete benchmarking and other reporting requirements, develop scopes of work that align with immediate and long-term performance standards, and identify incentives to support energy efficiency and emission reduction measures. 

Reporting Support 

Most jurisdictions require covered buildings to report their energy use and emissions annually in EPA’s ENERGY STAR Portfolio Manager (ESPM). For first time users, ESPM can be complicated and confusing. Depending on the building’s utility providers, it can also be difficult to collect the necessary energy data and connect utility meters to ESPM and BPS portal accounts. This creates an administrative burden on affordable housing when staff already face capacity constraints. To ensure timely and accurate reporting, jurisdictions must offer technical support to help owners benchmark in ESPM. Additionally, jurisdictions should work with utility providers to ensure there is a clear process for owners to request and receive utility data, and read their benchmarking data so they understand what next steps are required to ensure BPS compliance. As part of Boston’s Building Emissions Reduction and Disclosure Ordinance (BERDO), the city offers one-on-one support to help building owners report and verify their utility data, assess data quality issues, and understand their emission compliance status and options.

Compliance Planning 

In addition to utility data collection and analysis support, affordable housing providers will need technical assistance to develop scopes of work that ensure BPS compliance through measures that are practical and appropriate for each building. Because BPS establishes interim milestones for emissions and energy use reductions before a final target, scopes of work should reflect that same phased timeline. Zero-Over-Time (ZOT) planning when paired with comprehensive building audits, gives owners a clear, structured pathway to meet both interim and final BPS targets. ZOT planning provides a strategic framework for achieving zero emissions incrementally over time. The City of Boston offers ZOT planning support through BERDO’s Building Decarbonization Advisor Program which pairs owners with “building science experts” to create ZOT plans for their buildings and offers financial assistance to close funding gaps for equipment purchases and engineering studies.

Technology Guidance 

To maximize the impact of audits and ZOT planning efforts, jurisdictions should provide updated guidance on compliance measure best practices. As new, unvetted technology continues to emerge across the industry, it is important that affordable housing providers, who cannot take a risk on unfamiliar systems, understand the full array of options that make sense for their building and climate zone. For example, certain heat pumps are optimized for cold climate regions and would underperform in more moderate climates. Vetting available technologies also protects affordable housing providers from inadvertently installing equipment that their maintenance staff are unfamiliar with or that manufacturers lack the field capacity to service and repair. 

BPS Funding Support

In addition to affordable housing compliance pathways and technical assistance, jurisdictions must offer targeted incentives to support BPS compliance planning efforts. Building owners can only plan for what they know, which depends on their ability to fund predevelopment assessments. Without financial support, many affordable housing providers will have to rely on outdated or lower-quality assessments, making it more difficult to plan effectively. By offering incentives that cover the cost of energy audits, assessments, and scope of work development, BPS administrators can enable affordable housing providers to access high-quality data and reports that are needed to make comprehensive compliance decisions. 

Montgomery County, Maryland offers a technical assistance program through the county’s Green Bank that provides funding for studies to inform multi-year building improvement plans -- including audits -- to support building owners in meeting the county’s BEPS. The state’s Department of Housing and Community Development administers the Greenhouse Gas Reduction program (GHGRP), targeting electrification, energy conservation, and alternative energy generating systems in buildings required to comply with Maryland BEPS.

Washington, D.C.’s DC Sustainable Energy Utility (DCSEU) works with the Department of Energy and Environment and the DC Green Bank to administer the Affordable Housing Retrofit Accelerator (AHRA). AHRA helps building owners understand BEPS compliance requirements, identify energy-saving opportunities, and secure financing and other incentives. D.C. has allocated Home Energy Rebate funding to expand AHRA and support deeper energy savings in BEPS-covered buildings.

Conclusion 

Building performance standards are a critical policy tool that states and other jurisdictions can use to address utility costs, air pollution, and greenhouse gas emissions. These standards also help drive needed energy efficiency and electrification efforts in communities. To ensure BPS delivers the desired results, policies must be designed for all building types, but especially affordable housing. This means allowing flexible fines that don’t threaten affordability, delayed compliance timelines that align with recapitalization cycles, technical assistance to support comprehensive planning, and targeted funding for predevelopment work. 

To learn more about building performance standards and how NHT can support your jurisdiction’s work, connect with our Policy team.