Building America Case Study: Rehabilitations of USDA Multifamily Homes

Southface research has identified pathways to improving the energy efficiency and health and safety of affordable housing rehabilitations and retrofits through upgrades to the funding and work scope development process.  Each year, billions of federal dollars are used to construct and rehabilitate affordable housing through the U.S. Department of Housing and Urban Development (HUD)  Low Income Housing Tax Credit, U.S. Department of Agriculture (USDA) Rural Development Program, and other federal programs.  Rea Ventures Group, LLC partnered with Southface, a member of the U.S. Department of Energy’s (DOE) Partnership for Home Innovation Building America research team, to rehabilitate 418 low-income multifamily rental apartments located at 14 properties in Georgia.  Plans for rehabbing these 22-year-old residences followed a process prescribed by the USDA Rural Development program, including conducting a Capitol Needs Assessment (CNA) prior to project funding.

The research described in this report holds great potential to significantly improve the process for including energy efficiency in developing and implementing federally-funded multifamily rehabilitation projects through the USDA, HUD and other programs. CNAs are used to develop scopes of work (SOWs) for preserving and rehabilitating these homes. The purpose of the CNA is to assess the condition of the property and develop an SOW that includes rehabilitation costs.

Because these properties have unique financing mechanisms and long-term ownership requirements, property owners are especially motivated to invest in upgrades that will increase durability and tenant retention—but energy efficiency measures are not emphasized. For instance, parking lot, sidewalk, siding repair and carpet and kitchen cabinet replacement are standard. Yet, these buildings represent a large stock of rural affordable housing that has the potential for significant energy and cost savings for property owners and tenants.

Southface has analyzed the energy-upgrade potential of one typical property in the Rea Ventures portfolio. With the standard Rea Ventures upgrade measure package, this property is predicted to achieve 11–15 percent source and site energy savings compared to the existing building conditions. Additional savings greater than 30 percent may be possible, if certain equipment space constraints and additional barriers can be overcome.  However, there were some cost- effective measures that were not implemented, such as air sealing, sealing HVAC boots to the drywall and installing LED lighting.

The developer was challenged to implement many above code upgrades because of constraints imposed by the process used to develop the SOW and secure funding. A critical flaw is that equipment and building energy efficiency is not considered until after the SOW is approved and funds are allocated. At that point, few, if any changes can be made. If a building science professional had assessed the building and provided upgrade recommendations that could have been incorporated into the SOW, an additional 10–15 percent energy savings could have been achieved. Analysis suggests that the majority of the savings achieved on these projects comes from meeting federal appliance standards and Georgia energy code upgrades, because these homes were originally constructed in 1993, when appliance standards and energy codes were much less stringent.

HUD and the USDA have aligned their efforts to improve their current CNA process to incentivize energy efficiency measures. Residents have lower utility bills when high performance measures are implemented, but owners cannot necessarily charge higher rents to recoup the additional cost of the measures—often referred to as a “split incentive.” The new process is employed via the Multifamily Accelerated Processing Guide and eTool. This approach attempts to rectify the split incentive by rewarding projects with favorable underwriting terms and allowing owners to raise rents to reward them for lower utility bills. The current draft guidelines require revision to be most useful to this building type, which is common in the Southeast.

Rea Ventures has found that green certified buildings are of superior quality and provide a secure investment vehicle through the tax credit syndication process. That is, when the company receives a Low Income Housing, New Markets, Historic or Renewable Energy Tax Credit, it can sell that tax credit to investors to offset the investor’s own federal tax liabilities. The tax credits have a superior value because the marketplace perceives that energy efficient and green certified buildings have superior quality and provide a more secure investment vehicle.

Southface was recently highlighted in the U.S. Department of Energy’s Building America Update as a “Residential Success” for our rehabilitations of U.S. Department of Agriculture multifamily homes and our efforts to create better buildings for all. Read the case study here.


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