Minimum Energy Standards

Adoption of Energy Efficiency Standards for New Construction of HUD- and USDA-Financed Housing

Preliminary Determination and Solicitation of Comment

UPDATE: HUD and USDA have extended the public comment period for this Notice until August 7, 2023. See Federal Register Notice here.

HUD welcomes any public comments on the Notice during the public comment period, which is open from May 18, 2023 to August 7, 2023. Interested parties can submit comments through the Federal Register or Regulations.gov.

Background

This Notice fulfills a statutory requirement under the Energy Independence and Security Act of 2007 (EISA) that requires HUD and USDA to jointly adopt the most recently published energy codes, subject to a cost-benefit housing “affordability and availability” test.

As required by statute, the Notice provides a Preliminary Determination that on balance these codes will not negatively impact the affordability and availability of the covered housing. If implemented, adoption of the codes would yield significant annual and lifetime cost savings to homeowners and renters, improve resident health and comfort, and also increase the climate resilience of both single family and multifamily covered housing.

The Preliminary Determination can be found here, and the accompanying Regulatory Impact Analysis here.

HUD last updated its energy codes in 2015 when it adopted the 2009 edition of the International Energy Conservation Code for single family/low rise buildings and the 2007 edition of ASHRAE 90.1 for multifamily buildings with 4 or more stories. HUD and USDA are currently four code editions behind the statutory requirements. Once finalized, this Notice would place the agencies in full compliance with the statute.

HUD welcomes any public comments on the Notice during the public comment period, which is open from May 18, 2023 to August 7, 2023. Interested parties can submit comments through the Federal Register or during one of HUD’s three live listening sessions.

Listening Session 1 – State, local, and tribal elected officials, local code officials and government representatives. Registration link (June 1, 3:00pm – 4:30pm ET): https://www.zoomgov.com/meeting/register/vJIsde6uqjsiHSSEhHXiobwB2HRPgeI1Rvo
Listening Session 2 – General public. Registration link (June 6, 3:00pm – 4:30pm ET): https://www.zoomgov.com/meeting/register/vJIscemqqj4pHwNtCJ3rWt5tuNKuC_Cy6SM
Listening Session 3 – Single family and multifamily financing and building industry representatives. Registration link (June 8, 3:00pm – 4:30pm ET): https://www.zoomgov.com/meeting/register/vJItc-uhpz8tE7CO2gZQSEcGSw6s_8xiils

The slide deck used during the listening sessions can be found here.

Impacted Housing

Note that the Notice covers new construction only. Using 2019-21 production as a baseline, if implemented today a total of approximately 168,000 new housing units could be impacted by this Notice each year. The great majority of these (151,000) are new single family or low-rise multifamily housing units covered by the International Energy Conservation Code (IECC), while an estimated 16,500 units are larger multifamily housing covered by ASHRAE 90.1.
These estimates are based on current state code adoption of the 2021 IECC and ASHRAE 90.1-2019 codes as of September 2022. More than 20 states are currently considering the 2021 IECC and may adopt the standard in 2023 or 2024; as more states adopt that standard, fewer units will be impacted because the state standard will equal the standard considered in this Notice.
The largest single category of new housing likely to be impacted by the Notice is FHA-insured homes. Additional programs impacted by this Notice are FHA-insured multifamily programs; the HOME Investment Partnerships Program and Housing Trust Fund program; Section 202 and 811 Supportive Housing competitive grants, Rental Assistance Demonstration (RAD) housing; Public Housing Capital Fund, Choice Neighborhoods; USDA Section 502 direct or guaranteed loans and Section 523 grants.
Excluded from the standards set in this Notice are programs not specified in the EISA statute (e.g., CDBG, CDBG-DR, CDBG-MIT, Indian Housing programs, Housing Choice Vouchers, Continuum of Care); and programs specified in the statute that no longer provide capital advances for construction (e.g., HOPE VI).

Overall Impacts

Energy cost savings for the 2021 IECC are estimated by DOE to be almost 35% over the current HUD-USDA (2009) standard, and 8.7% over the most recent (2018) standard.
HUD estimates that adoption of these codes will overall save homeowners and renters between $972 million and $1.48 billion. ^[1] Annual savings to the consumer are estimated at approximately $74 million/year.
The Notice estimates reduced carbon emissions will yield additional societal cost savings of $79 million over 30 years ($1.6 million to $5 million annually).
The updated codes will generate an estimated reduction of 2.2 million metric tons of CO2.

Affordability Findings

For single family homes, the average cost to the homeowner or developer of the 2021 code is estimated to be $5,500/unit over the 2009 IECC, or about 2% of the cost of a new FHA-insured home ($263,000).^[2] Annual debt service on this amount is estimated at $247/year, with annual energy cost savings of $750/year for a net average savings of $500/year.
On a life-cycle basis, this will yield a Life Cycle Cost savings benefit of $14,500 on a typical 30-year mortgage.
The numbers are even more favorable for multifamily housing. HUD estimates an added construction cost of just $18/unit, or $575 for a prototype 32-unit, 4-story mid-rise apartment building. Life Cycle Cost Savings are estimated to be approximately $6,000/unit or $188,000/building.
The primary impact on affordability will be related to additional downpayment requirements: there will be a modest additional downpayment requirement of between $331 and $435, representing less than one tenth of one percent of the total cost of the new home.

Availability Findings

For multifamily housing, given the very limited additional costs associated with the adoption of ASHRAE 90.1 ($18/a unit), HUD sees little or no impact on the availability of multifamily housing covered by the Notice.
For single family housing, the availability analysis is more challenging. HUD’s finding uses a standard price elasticity demand model which estimates that the 2% average increase in construction cost could reduce production of new FHA-insured homes by 1.5%. This is a worst-case scenario because it does not account for any of the positive impacts in the form of energy savings and increased energy efficiency, as well as higher resale values documented in some studies.
HUD reviewed the impacts of the prior (2009) IECC adoption to see whether there was any differential impact on FHA market share. HUD did not find a lower share of new FHA-insured homes in states whose codes exceed the 2009 IECC vs. states with less stringent standards.

IRA Tax Credits

The Infrastructure Reduction Act makes available significant tax credits for builders building to the Energy Star New Homes ($2,500) or DOE’s Zero Energy Ready Home (ZERH) standards ($5,000) which are expected to incentivize builders to build to these higher standards. The 2021 IECC is a minimum baseline requirement for Energy Star Version 3.2 and ZERH standard. These tax credits may offset some of the incremental costs associated with building to the 2021 IECC identified in the Notice.

^[1] Range of long-term savings over 30 years, high estimate uses a 3% discount rate, low estimate a 7% discount rate.
^[2]DOE estimates an added first cost of $2,352 over the 2018 IECC, or less than 1 percent of the cost of the average FHA-financed new home.

Content current as of July 19, 2023.