Green Preservation of Affordable Multifamily Housing. Michelle McDonough Winters New Partners for Smart Growth February 6, 2010

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1 Green Preservation of Affordable Multifamily Housing Michelle McDonough Winters New Partners for Smart Growth February 6,

2 What is LISC? LISC is dedicated to helping nonprofit community development organizations transform distressed communities into healthy and sustainable communities of choice - good places to work, do business, and raise children. LISC local offices serve 29 urban areas and Rural LISC works with 74 partner CDCs in 36 states nationwide LISC s Affordable Housing Preservation Initiative: Provided $80 million in financing since 2002 to preserve 15,000 homes Capacity building, financing, project-specific TA, creation of preservation strategies and partnerships, and policy analysis Information products such as Recapitalizing Affordable Rental Housing, and Practitioners Guide to the Section 515 Program, Getting Started with Green Preservation 2

3 LISC s Green Track Record LISC supports a wide range of green projects, including: training for green jobs construction of new affordable housing and retrofit of existing homes urban farms and farmers markets green schools and environmental education program parks and city street clean-up efforts. Since 2004, LISC and its affiliate, National Equity Fund, have supported: over 20,000 units of green affordable housing over $650 million in grants, loans and equity LISC s Green Development Center formalized in 2007 LISC s Preservation Initiative collaborates with GDC on Green Preservation activities 3

4 LISC s Green Preservation Activities Policy Legislative and regulatory analysis and advocacy Capacity Building Events Symposia in Boston (July 2009) and SF Bay Area (January 2010) Additional events and webinars planned for 2010 Peer Networking Green Retrofit Program Peer Group LinkedIn Green Affordable Housing Preservation Group Publications Getting Started with Green Preservation Green Rehabilitation of Multifamily Rental Properties Lending Green Loan Fund launched in 2009 Technical Assistance Project-specific assistance Targeted local initiatives 4

5 LISC Green Preservation Resources 5

6 Building Industry Capacity for Green Preservation Definition and Scope: What can be done to green an existing property? Finance: How do we pay for it? Process: How do we assess and prioritize green retrofits? Measurement: How do we know what we did matters? Sustainability: How do we keep the properties green? 6

7 Preservation Context 2 million units of subsidized mortgages and Section 8 housing nationwide built in 1960s to early 1980s 1.5 million units of Low-Income Housing Tax Credit housing Utilities make up 30% of HUD-assisted housing operating costs HUD spends $5 billion on utilities annually Increases in energy costs threaten physical and economic viability of properties Outdated building systems negatively impact resident health and the environment 7

8 What Do We Mean By Affordable Housing? Federally Subsidized Privately owned but publicly subsidized housing through HUD, RHS, IRS Public Housing Federally subsidized State and local public housing Private Housing Market Rate Affordable Approximate Distribution of Affordable Housing by Type * Total is Joint Center estimate of rents affordable to lowest income families 8

9 Timeline of Federal Housing Programs Deep Subsidy Public Housing Housing Act of 1937 Section 8 Housing and Community Dev t Act of 1974 ELIHPA & LIHPRHA Low-Income Housing Preservation Acts of 1987 & 1990 MAHRA Multifamily Assisted Housing Reform and Affordability Act of Shallow Subsidy 202 Elderly Housing Housing Act of (d)(3) BMIR Housing Act of (IRP) Housing and Urban Dev t Act of 1968 LIHTC Tax Reform Act of

10 Assisted Housing Stock Section 8 Rental Assistance Tenants pay 30% of income toward housing Subsidized FHA Mortgages Rents are budget-based Low-Income Housing Tax Credits Rents set affordable to targeted incomes between 40% and 60% of AMI * Includes only 9% LIHTC Units 10

11 What is Green? ENERGY & WATER ENVIRONMENT HEALTH The Green Triangle Location Efficiency Source: Kim Vermeer 11

12 Viability: Utilities Costs Much Greater than Anticipated Water Cost per Unit Electric/Gas Cost per Unit NY Equity Fund Properties 12

13 Resident Health: Indoor Air and Environmental Quality Indoor air is more polluted than outside air People spend approximately 90% of their time indoors 80% of most people s exposure to pesticides occurs indoors Poor indoor air quality has detrimental effects Substantially higher rates of respiratory illness (e.g., 50% - 370%) in high density buildings have been associated with very low ventilation rates Asthma disproportionately affects children from lower-income families and from specific racial and ethnic groups In 2005, 13 percent of black children were reported to have asthma as compared with 9 percent of both Hispanic and white children Centers for Disease Control; EPA; Lawrence Berkeley National Labs; HUD Office of Healthy Homes 13

14 Impact on the Environment Buildings in the United States contribute 38.9 percent of the nation s total carbon dioxide emissions, including 20.8 percent from the residential sector. Building-related construction and demolition (C&D) debris totals approximately 160 million tons per year, accounting for nearly 26 percent of total non-industrial waste generation in the U.S. Sources of the building-related C&D debris wastestream include demolition (accounting for approximately 48 percent of the waste stream per year), renovation (44 percent), and new construction (8 percent). EPA Green Building Stats 14

15 Green Rehab Goals: More Than Just Energy Energy and Water Conservation Reduce energy consumption Renewable energy sources Reduce water consumption Healthy Housing Ventilation Moisture management Integrated pest management Reduce exposure to volatile organic compounds (VOCs) Implement smoke-free policies Environmental Impact Recycled materials Resident recycling Local materials sources Divert demolition and construction waste from landfills Minimize water run-off 15

16 Ways to Build In Green to Existing Housing Targeted Green Retrofit Addresses replacement of outdated items May work best on newer or better condition properties Achievable cost/unit Limited ability to add debt Operations & Replacements Barriers and disincentives Limited ability to add debt Preservation Transaction Transfer of the property to a new owner Refinance/recapitalization Substantial cost/unit Opportunity for deeper green Weatherization EECBG/SEP Green Retrofit Program LIHTC & Other Traditional Financing Sources 16

17 Financing Green Preservation Traditional Financing Tools LIHTC, Section 8, Bonds, etc. HOME Program upcoming rule changes New/Targeted Federal Sources HUD Green Mark to Market, Green Retrofit Program HUD Neighborhood Stabilization Program 1 & Particularly NSP 2 DOE WAP, SEP, EECBG Tax Credits Renewable Energy HUD Energy Task Force recommendations Utility and State Programs Rebates, grants, etc. see Innovative Financing Energy Service Companies (ESCO) / Energy Performance Contracting Power Purchase Agreements Property Assessed Clean Energy (PACE) Leveraged Savings 17

18 HUD Green Retrofit Program Program Basics A pilot initiative to encourage owners of affordable, multifamily properties to rehabilitate and operate their properties using sustainable Green Building principles Up to $15,000 per unit in loans or grants total $250 million Eligible projects are Section 8, Section 202 (elderly) and 811 (disabled) Incentives paid to owners to participate: 4% of retrofit upfront; 3% of operating costs annually from surplus cash; optional job creation incentive Extends affordability for 15 years What is a Green Retrofit? Materially lower electric/heating/water consumption Materially lower emissions of harmful chemicals Materially longer useful life Materially more bidegradable or easily recycled Materially lower use of raw materials/more recycle content Materially lower transportation costs 18

19 HUD Green Retrofit Alternatives Required Optional Products and Appliances Heating and Cooling Water Heaters Building Envelope Lighting Ventilation and Indoor Air Quality Landscaping Integrated Pest Management Recycling Hazardous Waste Disposal Green management of construction debris Combined Heat and Power (Cogeneration) Green/renewable Energy Fuel Cells Green Roofs Reflective Roofs/Shingles Flooring Siding CFL or LED fixtures Porous Pavers Retention Ponds Greywater Recycling 19

20 GRP Required Owner Commitments Owners must accept 75% of green recommendations by cost Owner must develop a Green Operations and Maintenance Plan, including: Use of Green Components for operations and replacements Materially lower use of chemicals for cleaning and maintenance Adherence to Integrated Pest Management principles Preventing entry of pests and early detection to minimize pesticides (eliminating Access, Water, Shelter, and Food) Pesticides only allowed if an infestation is found Maintain green property management qualifications Ongoing resident and staff training Collection and reporting of data 20

21 GRP Lessons to Date Program Status as of January 6, ,000 properties / 1.2 million units eligible 750 applications received (530 unique apps) Over 200 properties / 20,000 units accepted for processing (as of Dec 31) First loans/grants closed in January Key Lessons to Date Green is a viable approach to housing preservation, energy conservation, and healthier living environments Utility and other benchmarking, measurement, and data analysis are critical to confirm savings opportunity Owner incentives are key Energy and water savers are low-hanging fruit Indoor Air Quality (IAQ) and other environmental benefit features must be requirements Green O&M plan is critical to ongoing success Industry is growing and evolving very quickly 21

22 Major DOE ARRA Programs Weatherization Assistance Program Began in 1976, with recent typical funding less than $250 million, now $5 bil under ARRA State Energy Program In current form since 1996, typically less than $50 million per year, now $3.1 bil All State Energy Offices required to develop an annual plan Energy Efficiency and Conservation Block Grant Authorized in 2007 Energy Independence and Security Act Funded first time in ARRA with $3.2 bil Modeled after CDBG Weatherization EECBG* SEP $5 billion State Agency WAP Providers Low-Income Residents and Projects $770 million $2 billion $3.1 billion State Agency 40% 60% Cities/Counties/ Tribes Subgrants to Nonprofits and Govts. for Building Retrofits Transportation/ Infrastructure Educational Programs Building Codes/Services * Remainder of $3.2 billion is direct competitive program State Agency Sub-grantees Building Retrofits Public Education Professional Training Energy Audits 22

23 New York State WAP New York establishing temporary subgrantees to focus on multifamily buildings specifically with ARRA WAP $ Set aside $50 million / $395 million ARRA total LISC/Enterprise awarded $15 million to weatherize 2,100 HUD/ LIHTC units in New York City Focus on Year 15 LIHTC, City funded, Section 202, Section 8 Portfolios targeted by other ARRA temporary awards: Project-based Section 8 Supportive Housing RD Section 515 Public Housing 23

24 Chicago s Multifamily Energy Retrofit Program - EECBG Leverages EECBG funds Applies the Energy Service Company (ESCO) model to private housing ESCOs conduct assessments of building energy performance, identify and oversee implementation of cost-effective retrofit measures ESCOs guarantee energy savings to use as a source of loan repayment Frequently used in public housing and usually feasible for larger properties 24

25 Building Industry Capacity Finance: How to pay for it? Accessing stimulus funds, break down silos Prioritizing, redirecting and targeting existing resources, eg. LIHTC Leverage cost savings Dealing with split incentives Process: How do we assess and prioritize green retrofits? Need for green rehabilitation standards Green Capital Needs Assessments & Energy Audits Measurement: How do we know what we did matters? Data collection is key Data sharing is even more important Sustainability: How do we keep the properties green? Green operations & maintenance, Integrated Pest Management Resident and management staff training 25

26 Policy Approaches to Green Preservation Choice Neighborhoods GREEN Act (Perlmutter) Section 8 rent increases; Split incentives problem Energy Efficiency and Modernization Act (Kilroy) Focuses on utility savers Green Dividends incentives for owners Allows use of residual receipts and reserves HUD data collection on utility consumption Green Affordable Housing Act (Himes) Meant to be broader Green approach Grants and loans for assisted housing Expanding Building Efficiency Incentives Tax incentives for LIHTC properties Climate Bill/Residential Energy and Environmental Performance Retrofit grants through states 26

27 HUD s Choice Neighborhoods Initiative $65 million in 2010 Requested $250 million in 2011 Based on HOPE VI program, but goes beyond Focuses on neighborhoods with concentrations of poverty resulting from both public and assisted housing Comprehensive approach to community revitalization 27

28 2011 Budget Priorities One of 4 High Priority Performance Goals for 2011 Foreclosure Prevention Rental Assistance Homeless Veterans Energy and Green Retrofits DOE and HUD will work together to support the achievement of the President s goal of weatherizing one million homes per year by enabling the cost effective energy retrofits of a total of 1,226,000 homes in fiscal year 2010 and fiscal year HUD will complete cost effective energy retrofits of an estimated 126,000 HUD-assisted and public housing units. HUD will complete green and healthy retrofits of 33,000 housing units. 28

29 LISC s Green Preservation Resources Affordable Housing Preservation Green Development Center Bay Area LISC 29