Full Citation
Title: Public Policy for Net Zero Homes and Affordability
Citation Type: Miscellaneous
Publication Year: 2023
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Abstract: Climate change is an urgent crisis. Currently more than one-quarter of carbon emissions in Massachusetts come from the building sector, primarily through on-site combustion of oil and methane for the heating of residential and commercial buildings. Achieving net zero carbon emissions in Massachusetts will require achieving net zero carbon emissions from buildings statewide, both by creating more energyefficient building envelopes and by decarbonizing heating, cooling, and other appliances. At the same time, Massachusetts residents are experiencing a housing cost crisis that disproportionately and negatively affects low- and moderate-income households. Roughly one out of every two renter households (49 percent) and nearly one out of every three (30 percent) homeowner households with a mortgage in Massachusetts were housing cost burdened in 2021, meaning that they were paying 30 percent or more of their income towards housing costs. Today, it is more expensive to build most energy-efficient homes than it is to build conventional homes. Increased construction costs lead to increases in home prices and decreases in housing production. This report identifies a range of effective policy tools that policymakers can use to meet critical goals for climate emissions, housing production, and housing affordability. This report analyzes and answers three questions: 1. How does the cost of building homes that are compliant with Massachusetts’ new municipal optin specialized stretch energy code compare to the cost of building similar homes that are compliant with the current stretch code? 2. Based on these cost estimates, how is the opt-in specialized stretch energy code likely to affect housing affordability in Massachusetts? 3. How can public policies simultaneously advance the transition to net-zero housing while also addressing the housing affordability crisis? Models of single-family home and townhouse construction and surveys of builders of single and multi-family housing indicate that the specialized stretch energy code is likely to increase the cost of construction of single family homes and townhouses by roughly 1.8 to 3.8 percent (approximately $10,000 to $23,000 for the median single family home), depending on the pathway to compliance selected, and increase the cost of construction of large multi-family buildings by roughly 2.4 percent, at least initially. It is important to interpret these numbers in the context of an evolving and diverse marketplace. Labor and material costs have been in flux; low-carbon technologies continue to advance; and builders themselves are still working out the least expensive routes to compliance for diverse projects on diverse sites. Several large non-profit builders of multi-family affordable housing noted that as developers and contractors have become more accustomed to Passive House construction, incremental costs have declined and will continue to decline. The economic modeling here shows that these increases in construction costs could push the median single-family home in Massachusetts out of reach for between 15,000 and 33,000 households, before taking into account any public financial incentives for green building. The increased energy efficiency of homes will potentially offset some of the increase in construction costs, but not all, as explored below. Some of the increased construction costs will be passed on to homebuyers and renters, while some will be absorbed by builders in the form of reduced profit margins. Increases in construction costs, however, are likely to reduce construction starts overall, as fewer projects pencil out and fewer households can afford new homes, putting further pressure on housing supply and affordability. We find that the increased costs will be felt most by households with low and moderate incomes. Policymakers have multiple tools to increase housing affordability while advancing the Commonwealth’s climate agenda. Since local land use regulations are currently a major driver of the high cost of housing, reform of local land use regulations to facilitate the construction of more housing units should accompany the strengthening of green building standards. Zoning reform can also improve the carbon efficiency of the state’s settlement patterns. Other tools to simultaneously improve the energy efficiency of buildings and housing affordability include efforts to streamline the permit process, to restructure financial incentives to keep them in place for longer periods of time, to increase technical assistance for green building, to facilitate use by realtors and appraisers of the Residential Green and Energy Efficient Addendum, to improve underwriting of energy-efficient homes, to expand financing sources through the new Massachusetts Community Climate Bank, to increase support for low-income renters, and to consider new tax classifications and exemptions for highly energy-efficient buildings. One of the most powerful tools to simultaneously increase housing affordability and decrease carbon emissions is land use policy. Current land use regulations prevalent in municipalities across the Commonwealth require carbon intensive living patterns and drive up the cost of housing. Some of the municipalities adopting the specialized stretch energy code have extensive large-lot, large-unit, singlefamily land use regulations that mandate energy intensive, environmentally destructive, and unaffordable living patterns. Legislative action tying the adoption of the opt-in specialized stretch code to land use regulations enabling dense and pedestrian-oriented land use patterns, such as smaller minimum lot and unit sizes, larger height limits, and more by-right multi-family zoning could increase the reduction in carbon emissions and simultaneously increase affordability. State legislative action is urgently needed to address local zoning barriers to energy-efficient and affordable housing production. State and local permitting requirements add substantial time, cost, and uncertainty to current home construction. State efforts to streamline these permit requirements could enable the construction of more affordable energy-efficient homes. Financial incentives for more energy-efficient construction are an important tool. An obstacle to the effectiveness of some existing incentive programs is lack of certainty about their duration. Explicit commitments by the state as to the durability of these incentives would enable home builders to rely on them in their financing models. The Massachusetts Commission on Clean Heat recently proposed the creation of a Building Decarbonization Clearinghouse to be a single point of contact for all decarbonization programs. The creation of such a clearinghouse as a single point of contact, with a commitment to longterm incentive availability, streamlined application processes, and adjustment of incentives for inflation, would be a beneficial step to advancing housing production, affordability, and decarbonization. Increased technical assistance and training to small home-builders and subcontractors regarding how to comply with the new specialized stretch energy code would be beneficial. The Massachusetts Clean Energy Center’s Passive House Design Challenge and its support for large multi-family builders beginning to build to Passive House standards could serve as a model for smaller builders beginning to comply with or exceed the specialized stretch energy code. Realtors not only connect buyers and sellers but can play a role in educating buyers and sellers about the value of energy-efficient homes, while appraisers are essential to the underwriting process. Increased use of the Residential Green and Energy Efficient Addendum is necessary to increase home purchasers’ awareness of the increased value and decreased utility costs of energy-efficient homes and also to accurately underwrite these homes. Federal action to ensure that energy-efficient improvements and associated utility cost savings are capitalized into property appraisals and that those appraisals will be accepted by the government-sponsored enterprises (GSEs) would simplify the financing of more energy-efficient homes for home buyers. In the interim, it would be helpful for the state to encourage Massachusetts financial community development financial institutions to offer energy-efficient mortgages that accurately underwrite energy-efficient homes and their associated cost savings. The new Massachusetts Community Climate Bank can facilitate investment in low-carbon, climateresilient housing. A mission-driven financial institution designed to use public funding to attract private investment to clean energy projects through loans or investment funds, Green Banks can be an important new tool in reducing building carbon emissions and simultaneously increasing affordability. To the extent that some energy-efficient multi-family buildings may shift some utility costs from landlords to tenants, support for low-income tenants is important to ensure that vulnerable households in the Commonwealth do not disproportionately bear the burden of decarbonization. The combination of the current climate change and housing affordability crises requires bold action. The Commonwealth’s Global Warming Solutions Act of 2008 and the Act Creating a Next Generation Roadmap for Massachusetts Climate Policy of 2021 are fundamental steps to reduce carbon emissions in Massachusetts but will not, alone, reduce carbon emissions from new residential buildings to zero. Housing Choice legislation and the MBTA Communities Act are helpful steps towards reducing some of the obstacles that local land use regulations create to building more energy-efficient and affordable housing, but it falls far short of the changes to land use needed to meet current housing needs and far behind more ambitious legislation other states, such as Oregon, California, and Maine, have recently passed. In sum, action by the state leg…
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Authors: Bakhshi, Payam; Cribbs, John; Pourmokhtarian, Afshin; Steil, Justin; Tan, Zhengzhen; Zheng, Siqi
Publisher: Home Builders & Remodelers Association of Massachusetts
Data Collections: IPUMS USA
Topics: Work, Family, and Time
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