A bill to make energy efficient homes more marketable? Location efficiency when choosing where to live? Think about it – homeowners seem to be choosing to stay in one location for longer. This trend is leading more and more (at least my clients) to consider and choose more energy efficient homes (not just greenwashed). The longer one chooses to stay in a home – particularly a more efficient home – the more potential energy (read: dollars) savings, right?
A bill to improve the accuracy of mortgage underwriting used by Federal mortgage agencies by ensuring that energy costs are included in the underwriting process, to reduce the amount of energy consumed by homes, to facilitate the creation of energy efficiency retrofit and construction jobs, and for other purposes.
When I first looked at Senate Bill 1106 on Govtrack, the bill was purported to have a 2% chance of making it out of committee. That chance is now 1%. It’s premise is useful, and I encourage everyone to read it in its entirety, for no reason other than to see the valid points the authors make.
A few of the bill’s highlights (bolding mine):
â—¦ (4) the current test for loan affordability used by most covered agencies, commonly known as the `debt-to-income’ test, is inadequate because it does not take into account the expected energy cost savings for the homeowner of an energy efficient home; and
â—¦ (3) require a covered agency to include the value home buyers place on the energy efficiency of a house in tests used to compare the mortgage amount to home value, taking precautions to avoid double-counting and to support safe and sound lending.
â€¢ To the extent that a covered agency uses a test such as a debt-to-income test that includes certain regular expenses, such as hazard insurance and property taxes, the expected energy cost savings shall be included as an offset to these expenses. Energy costs to be assessed include the cost of electricity, natural gas, oil, and any other fuel regularly used to supply energy to the subject property.
â€¢ (c) Determination of Estimated Energy Savings-
â—¦ (1) AMOUNT OF ENERGY SAVINGS- The amount of estimated energy savings shall be determined by calculating the difference between the estimated energy costs for the average comparable houses, as determined in guidelines to be issued under subsection (a), and the estimated energy costs for the subject property based upon the energy efficiency report.
â—¦ (2) DURATION OF ENERGY SAVINGS- The duration of the estimated energy savings shall be based upon the estimated life of the applicable equipment, consistent with the rating system used to produce the energy efficiency report.
â—¦ (3) PRESENT VALUE OF ENERGY SAVINGS- The present value of the future savings shall be discounted using the average interest rate on conventional 30-year mortgages, in the manner directed by guidelines issued under subsection (a).
To my eye, the bill is useful, reasonable and rational. Thus, it’s probably not likely to get out of committee. That cynicism aside, what can buyers do when they want to be more locationally efficient?
Update 25 June 2013 – John Semmelhack has an interesting post in which he elucidates the impact this bill would have on a homeowner, using simple math that clarifies why this is a great idea:
For homes with HERS ratings (standard on PHIUS+ projects), the loan underwriter would be required to add the projected energy savings to the homeowner’s income when conducting a debt-to-income analysis. This addition would likely range from $1,500-$2,000 for typical PHIUS+ houses. The lender or appraiser would also be required to add the present value of the energy savings (over the life of the loan) to the value of the home when conducting a loan-to-value analysis.Â For instance, the present value of 30 years’ worth of $2,000 annual energy savings (at 4% discount rate) is about $35,000. That is to say, the appraiser/lender would need to add $35,000 to the value of the house to account for the energy savings. A home that would otherwise be appraised at $350,000 would now be valued at $385,000 for this analysis.
Combine energy efficient mortgages with location efficiency when choosing where to live, and we might be onto something. Atlantic Cities examines the LEED-ND program and some of its methodology.
For this reader, the study confirmed once again that shortening driving trip distances through central locations (as in redevelopment sites) is the single most important thing we can do to reduce vehicle miles traveled and associated carbon and other emissions. Working for mode shifts (for example, from driving to transit or walking) alone is unlikely to produce robust changes in behavior. Only three of the twelve projects had predicted walk mode shares of more than 15 percent, and the highest predicted transit mode shares were around 10 percent (still more than twice the national average; the authors concede that their ability to estimate transit mode share was limited and actual performance might be substantially higher).
I could have written this story today rather than in 2008 where I discussed the impact higher gas prices will have on home buyers’ decision making processes -
If driving to the store/work/etc costs an additional ten to fifteen dollars for those properties not close to urban centers, and the properties the are close to urban centers are able to save that gas money â€“ isn’t it reasonable to conclude that that theoretical savings of three to five hundred dollars a month would then be applicable to one’s mortgage payment?
Think about it – what are the factors, what are the “things you want to be close to” that are important to you? Then see about finding a home that meets those needs. Plug: search for homes in Charlottesville by radius.
I recall that the Belvedere neighborhood in Charlottesville was a part of the LEED Neighborhood Development program initially, but I think that they didn’t continue their involvement in the program.
For further reading along these lines, you could do some reading on location efficient mortgages – “A Location Efficient MortgageÂ® (LEM) is a type of mortgage that recognizes the savings available to people who live in location efficient communities.” And here are a few stories I’ve written over the years touching on LEMs.