The Biden administration’s latest energy efficiency rule for new home construction will push up costs and make housing even less affordable at a time when house prices have just hit record highs, according to two home builders associations.
Last week, the U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of Agriculture (USDA) announced the adoption of updated minimum energy standards for new single-family and multifamily housing construction built with federal financing or funding.
The Biden administration, which has set its sights on fighting the supposed ill effects of climate change, boasts that the new rules will generate an estimated reduction of as much as 6.35 million metric tons in carbon emissions over 30 years.
The updated energy efficiency standards, which go into effect on May 28, are referred to in the agencies’ Final Notice as 2021 IECC (for houses and low-rise multifamily dwellings) and ASHRAE 90.1-2019 (for high-rise multifamily buildings).
The Biden administration claims that the new rules won’t negatively affect housing affordability and availability. Although it acknowledges that there will be a “relatively modest” increase in the costs of building homes to the new standards, it claims that this will be more than offset by lower energy bills over the long term.
“After consideration of public comments, HUD and USDA determine that the 2021 IECC and ASHRAE 90.1-2019 will not negatively affect the affordability and availability of housing covered by [the Energy Independence and Security Act of 2007],” the notice reads.
The minimum energy standards update is a statutory requirement under the act.
However, the claimed lack of effect on housing affordability and availability is disputed by the National Association of Home Builders (NAHB) and its affiliate the Home Builders Association of Greater Kansas City (KCHBA).
The two associations say that the new rules raise the price of the average new home by more than $30,000, which will take more than 48 years to recoup through lower energy bills.
The NAHB argues that the “ill-conceived” policy will do little to reduce overall energy use while hurting the most vulnerable home buyers and renters, and exacerbating the housing affordability crisis.
‘Additional Increase in Price of $31,853’
The Biden administration says in the notice that the adoption of the new codes will have a “limited impact on overall affordability for low- or moderate-income buyers” and that, over the longer term, there will be “significant” cost savings due to lower energy bills.The agencies say that, when the costs and savings are all tallied up, the new standards will ultimately save residents an estimated $15,071 for single-family homes and $5,886 per multifamily unit over 30 years compared with homes built under existing requirements.
“As a result of the updated energy standards, energy efficiency improvements of 37 percent will cut energy costs by more than $950 per year, saving homeowners tens of thousands of dollars over the lifetime of the home,” the agencies said in a press release.
The upfront costs of the new rules can be rolled into a Federal Housing Administration mortgage, the agencies say, “which means that after paying for their mortgage, taxes and insurance, families can put almost $400 back in their pocket every year, saving almost $25,000 over a 30-year mortgage or $15,000 after financing.”
These figures are disputed by the home builders associations.
The KCHBA carried out a study asking builders in Missouri to provide cost data for achieving the 2021 IECC requirements on locally built homes.
“With these code changes, there would be an additional increase in price of $31,853” for the average new home in Kansas City, which is currently priced at $406,503.
“With energy cost savings of only $657/year, the simple average payback for this would be 48+ years,” the association wrote in a statement.
“If the consumer had to finance these costs in a 30-year mortgage at 4 percent interest, the additional annual mortgage expense would be $1,104/year, costing them $447 MORE than what they were saving in energy costs.”
The association also stated that for every $1,000 added to the price of a home, more than 950 families are priced out of the market.
“This code update would price 30,292 families out of the Kansas City market,” the KCHBA wrote, adding that the new rules are “not appropriate” for the greater Kansas City area.
The national homebuilders association said that the trade-off touted by the Biden administration is “unreasonable” as it would do little to offer meaningful energy savings for residential homes and, by raising the prices of new construction, would inadvertently make older, less efficient homes more attractive, putting upward pressure on prices of existing homes.
“This ill-conceived policy will also act as a deterrent to new construction at a time when the nation desperately needs to boost its housing supply to lower shelter inflation costs,” the NAHB said in a press release.
A cost-benefit analysis of the new rules carried out by NAHB estimates that the national average additional construction cost (taking both single- and multi-family dwellings into account) ranges from $6,548 to $9,301.
The national average payback period for complying with the new rules ranges from 32 years to 67 years.
The HUD did not respond to a request for comment on the associations’ criticism and cost analysis of compliance with the 2021 IECC regime.
The new rules come as house prices have risen to record highs.
The Federal Housing Finance Agency house price index rose by 1.2 percent from January to February, climbing to a reading of 423, a new all-time high.
The S&P Case-Shiller National Home Price Index jumped by 6.4 percent year over year in February, the fastest rate of price growth since November 2022.
