Minimum Energy Standards
Adoption of Energy Efficiency Standards for New Construction of HUD- and USDA-Financed Housing – Final Determination
 
On April 26, 2024, HUD published the final energy standards determination in the Federal Register. With this Notice, HUD and USDA adopt the 2021 IECC and ASHRAE 90.1-2019 as the minimum energy efficiency standards for covered programs.
 
HUD's policy update for this Notice can be found here.
 
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 standards, subject to a cost-benefit housing “affordability and availability” test. The Notice provides the determination that the most recently published standards do not negatively impact the affordability and availability of HUD- and USDA- covered housing.

The adoption of the 2021 International Energy Conservation Code (IECC) and ASHRAE 90.1-2019 yields significant annual and lifetime cost savings to homeowners and renters, improves resident health and comfort, and increases the climate resilience of both single family and multifamily covered housing.

HUD last updated its energy standards 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. Publication of this Notice places the agencies in full compliance with the statute.

Implementation

In response to public comments, HUD and USDA adopted a flexible compliance schedule, ranging from six months to two years after the effective date of this Notice. This extended compliance schedule addresses different operational and administrative requirements of the programs covered by the Notice.

  • FHA-insured and USDA single family programs will be required to implement the new standards by 18 months after the effective date of the Notice (November 2025).
  • Builders in high-poverty rural areas will receive additional time to comply with the Notice, up to 24 months after the effective date.
  • Other programs have implementation periods ranging from six to 12 months, or have implementation periods contingent on publication of Notices of Funding Opportunity (NOFO).

Program

Event

Compliance Date*

HOME and Housing Trust Fund (HTF)

Participating Jurisdiction or HTF Grantee Funding Commitment

180 days after effective date**

FHA-Insured Multifamily

Pre-application Submitted to HUD

12 months after effective date

FHA-Insured Single Family

Building Permit Application

18 months after effective date

Public Housing (Capital Fund, Project Based Vouchers)

HUD approvals of development proposals for new Capital Fund or mixed financed projects

12 months after effective date

Competitive Grants (Choice Neighborhoods, Section 202, Section 811)

NOFO Publication

Next published NOFO after effective date

Rental Assistance Demonstration

N/A

Already effective by Federal Register Notice July 27, 2023

USDA Section 502 Guaranteed Housing Loans

Building Permit Application

18 months after effective date

USDA Section 502 Direct Loans

Application Selected for Processing

18 months after effective date

USDA Section 523 Mutual Self Help Loans

Application Selected for Processing

18 months after effective date

All programs, persistent poverty rural areas***

Based on program-specific event, above

24 months after effective date

*Effective date begins 30 days after the publication of the Notice in the Federal Register.

**If HOME/HTF funding layered with other HUD funds, the later program compliance date applies.

***Persistent poverty rural areas across all programs should follow the area-specific implementation guidance rather than that outlined for each HUD and USDA program.

Covered Housing
  • The 2021 IECC applies to new single family and low-rise multifamily housing and ASHRAE 90.1-2019 applies to mid- or high-rise multifamily (4+ stories). The Notice covers new construction only. Existing housing and manufactured housing are not covered by the statute.
  • 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 Benefits
  • Energy efficient homes are more comfortable and have improved “passive survivability,” by maintaining livable temperatures for longer and enabling families to withstand extreme heat and cold events like heat waves, blizzards, or wildfires more safely – including during power outages.
  • Updated energy standards may also contribute to lower asthma rates as well as reduced respiratory symptoms, and generally benefit resident health.
  • 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[1]. This will result in significant positive impacts to residents, both homeowners and renters, as they will see a reduction in their monthly energy costs when residing in a unit or home built to these standards.
  • Energy cost savings across all impacted units from the IECC are estimated at as much as $2.1 billion over 30 years, or a net savings of an estimated $1.3 billion after mortgage and other financing costs. Adoption of ASHRAE 90.1-2019 will yield another $1.1 million in annual energy cost savings and an estimated $53 million in net life-cycle cost savings over 30 years.[2]
  • These standards will generate an estimated reduction of as much as 6.35 million metric tons in carbon emissions over 30 years, the equivalent of taking 46,000 cars off the road every year. This equates to annual societal cost savings of $13.9 million.
Affordability Findings

IECC [3]

  • For single family homes, the average cost to the homebuyer of the 2021 standard is estimated to be approximately $7,200/unit over the 2009 IECC, or about 2.2% of the cost of a new FHA-insured home.[4] 
  • Over a 30-year mortgage, these standards will save the average single family homeowner an estimated $25,100 in energy bills, producing a net savings of an estimated $15,000 per household after increased mortgage payment, mortgage insurance premium, and property taxes from the added cost of the energy investment. The impacts will vary across climate zones, states, and localities depending on changes in market conditions; however, HUD found the standards to be affordable and cost effective within each state.
  • For low-rise multifamily housing, the average cost of the 2021 standard is estimated to be approximately $3,002/unit. Over a 30-year mortgage, families will save $10,500/unit in energy bills, producing an estimated net savings of $6,350.
  • Energy costs are one of the few household expenses where significant cost savings can be achieved through efficiency, both in the short- and long-term, resulting in decreased costs for the resident.
  • Using baseline DOE estimates adjusted for inflation, HUD estimates average annual energy savings of almost $1,000 per household per year for single family homes and more than $400 per household in low-rise multifamily housing.
  • The primary impact on affordability will be related to additional upfront costs, which are estimated at $550 or one tenth of one percent of the cost of a new FHA-insured home.

ASHRAE 90.1 [5]

  • The numbers are even more favorable for multifamily housing built to the ASHRAE 90.1-2019 standard. HUD estimates a construction cost of $18/unit and energy cost savings of $224/unit/year for multifamily buildings built to ASHRAE 90.1-2019. For privately-owned buildings, net Life Cycle Cost savings are estimated to be approximately $5,800/unit or $188,000 for a prototypical 32-unit, 4-story mid-rise apartment building.
Availability Findings
  • For multifamily housing, there are very limited additional costs associated with the adoption of ASHRAE 90.1-2019. As a result, HUD sees little or no impact on the availability of multifamily housing covered by the Notice.
  • For single family housing, the Regulatory Impact Analysis found limited noticeable impact on the supply of existing housing. The increased construction costs associated with building to the 2021 IECC could reduce the production of new homes covered by this Notice by 1.5%, representing a 0.2% reduction of all homes available to FHA-insured homebuyers. This is a worst-case scenario that 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.
  • In addition, 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 standards exceed the 2009 IECC vs. states with less stringent standards.
Revisions to the Final Determination

In response to public comments, HUD and USDA made several important updates to the Preliminary Determination, including:

  • Flexible compliance dates. HUD and USDA have provided significant flexibility in implementing the new standards, ranging from six months to two years, including an eighteen-month implementation period (through November 2025) after the 30-day effective date of the Federal Register Notice for single family homes.
  • Updated economic factors. HUD and USDA updated the economic factors for the IECC analysis to reflect increased prices due to changes to the economic landscape from 2020 to 2023. Changes included adding a supply chain cost increase factor of 37% and an energy price increase factor of 32%.
  • Impact on rural areas. HUD and USDA provided an extended implementation timeline for high needs rural communities defined by USDA as persistent poverty rural areas. This gives more time for increased training needs of builders, appraisers, and code officials in these communities.
  • 2024 IECC. HUD will accept the 2024 IECC or future editions of IECC, as an alternative compliance path for the 2021 IECC, contingent on a final determination from DOE that the 2024 standard meets or exceeds the performance of the 2021 IECC.
Technical Assistance and Available Supporting Funding
  • HUD expects to provide technical assistance and training to builders and lenders impacted by this determination through its Community Compass Technical Assistance and Capacity Building program. Additionally, significant funding for technical assistance is being made available through the Department of Energy’s Bipartisan Infrastructure Law (BIL) and Inflation Reduction Act (IRA)-funded technical assistance grants.
  • HUD’s technical assistance and training will include a focus on the potential “appraisal gap” identified by some commenters. An appraisal gap occurs when efficiency enhancement costs are not valued accurately, resulting in an appraisal value that does not accurately reflect the energy efficient improvements, potentially undervaluing an energy efficient home. HUD recognizes the appraisal gap issue and will help address it through a coordinated plan to increase outreach and training for underwriters and appraisers.
  • The IRA makes available significant tax credits for builders, which may be utilized to offset some of the incremental costs associated with this Notice.
    • For single family, the Section 45L tax credit encourages building to the EPA's Energy Star Single Family New Construction (up to $2,500 credit) or DOE’s Zero Energy Ready Home (ZERH) (up to $5,000 credit) standards.
    • For multifamily, Section 45L tax credits are also available for buildings certified to Energy Star Multifamily New Construction (up to $2,500 per unit) and ZERH (up to $5,000 per unit) programs, (maximum available when meeting prevailing wage requirements).
    • Since the 2021 IECC is the baseline energy standard for both Energy Star and ZERH, they will be accepted as a pathway for compliance with the requirements of this Notice.
  • Additional funding is expected from a wide range of other sources, including EPA’s Greenhouse Gas Reduction Fund and DOE's Home Electrification and Appliance Rebates contingent on how states and grantees implement these programs, as well as stackable 179D depreciation, and Section 48 Investment Tax Credits for multifamily housing.
    • DOE's Home Electrification and Appliance (HEAR) Rebates, with up to $14,000 for low- and moderate-income households may also be available for new housing, contingent on how the rebates program is administered within a given state.
    • EPA's recently awarded Greenhouse Gas Reduction Fund (GGRF) funds ($20 billion) may also be available for low-cost financing for developers that meet program requirements, including targeting to low-income communities, non-profit developers, and community lenders.
    • The Commercial Buildings Energy Efficiency 179D Tax Deduction is available for energy efficiency investments in new multifamily construction with deductions ranging from $0.50 to $5.00 per square foot that can be stacked with the 45L and Section 48 tax credits.
Frequently Asked Questions (FAQs)

[1] Range of long-term savings over 30 years with a 3% discount rate. Results in 2021 dollars.
[2] Results for affordability analysis of the 2021 IECC adjusted to 2023 dollars in response to public comments.
[3] HUD developed the cost estimates using a modified DOE methodology. HUD relied on the original analysis developed by PNNL in 2020 and updated the results to reflect the economic landscape of 2023.
[4] HUD estimates an added first cost of $3,087 over the 2018 IECC, or less than 1 percent of the cost of the median FHA-financed new home.
[5] Results for affordability analysis of ASHRAE 90.1-2019 are in 2021 dollars. The Preliminary Determination can be found here, and the accompanying Regulatory Impact Analysis here.

 

 
Content current as of April 26, 2024.