Advancing Building Performance Standards while Preserving Affordable Housing

Advancing Building Performance Standards while Preserving Affordable Housing

The enormity of the climate crisis requires tackling a massive source of carbon emissions. Energy use in residential and commercial buildings creates 40% of U.S. carbon dioxide emissions. State and local policymakers are using a new tool to attack this challenge: Building Performance Standards (BPS).

BPS requires existing buildings to meet energy use or carbon emissions targets. Building owners that do not meet the standard must act to improve their building's performance through energy or carbon-reducing measures or pay an alternative compliance fee. 

BPS can positively impact affordable housing residents and surrounding communities by providing flexibility and support to help affordable housing owners overcome technical and financial challenges to improve their building's energy performance. NHT is actively working to impact BPS policies in several jurisdictions to ensure that flexibility and support are available.

Most recently, NHT commented to the Maryland Department of the Environment (MDE) on proposed regulations for a statewide BPS. In 2022, the Maryland General Assembly directed MDE to develop requirements for commercial and multifamily buildings larger than 35,000 square feet to achieve a 20% reduction in net direct greenhouse gas (GHG) emissions by January 1, 2030, and net-zero direct GHG emissions by January 1, 2040. Reducing net direct GHG emissions requires electrifying onsite end uses, such as heating systems, that burn fossil fuels like oil and natural gas.  While a laudable goal, these requirements can create real challenges for affordable multifamily housing providers due to the difficulty financing building upgrades, the challenges of meeting compliance timelines, and the slim margins available with existing funding to upgrade equipment to meet BPS standards, without additional grants or low-cost loans.

The General Assembly directed MDE to develop regulations that "provide the maximum flexibility to the owners of covered buildings to comply with building energy performance standards.” Despite this, MDE's proposed regulations do not include any flexibility for affordable housing.

We informed MDE that several situations require flexibility for affordable housing, including:   

• If the cost of compliance is significant, and financial incentives are not available to defray the costs;
• If the compliance timeline does not align with the refinancing cycle/timing of the property and the building owner lacks sufficient cash flow and/or the ability to take on new debt to pay for building upgrades; and
• Additional time may be needed because technological solutions are not available or are cost-prohibitive to electrify all building systems.

We also described strategies used by other jurisdictions that have adopted or are planning to adopt BPS policies, recognizing the importance of flexibility for affordable housing. For example, Seattle's proposed BPS policy provides affordable multifamily owners a longer runway to comply with the standards than market-rate multifamily and non-residential buildings, allowing greater flexibility and time for developing technical assistance and financial incentives. In Washington, D.C, the Department of Energy and Environment, based on recommendations by NHT, developed financial distress criteria specific to affordable housing to justify the need for a compliance delay, including if a building owner can document cash flow constraints or restrictions on the using net cash flow for energy efficiency measures.

The momentum for adopting BPS requirements is growing. In January 2022, the Biden Administration announced the National BPS Coalition, which consists of state and local jurisdictions representing 20% of the nation's multifamily building stock. Coalition members have committed to advancing building performance requirements in their jurisdiction by April 2024.

At a time of increasing construction costs, declining housing resources, and mounting climate challenges, getting these policies right is critical. BPS will drive positive action for residents and the environment if flexibility and resources help affordable housing owners comply with the requirements. Otherwise, we risk putting additional strain on our already-precarious supply of affordable housing and undermining the stability that it provides for many residents and their communities.