Creating a Market for Energy Efficient Homes: The SAVE Act to the Rescue

The SAVE Act provides home ownership cost transparency - and rewards energy efficient owners at the same time.


***Today’s post comes from good friend and colleague, Corey Fitch. Corey is an accomplished energy auditor, BPI Building Analyst, PTCS Certified Technician and Senior Project Manager at Puget Sound Solar in Seattle. Corey was asked to provide a perspective on the SAVE Act, a piece of legislation that would enhance borrowing power for homeowners who focus on energy efficiency.***


Residential buildings consume 22% of the total energy used in the United States. This sector of energy consumption has been targeted as one of the primary areas where energy efficiency can produce significant reductions in energy consumption. At a local level, the City of Seattle has established efficiency goals for single family residences that seek to reduce the average energy consumption by 30% before 2024, and 80% by 2050. These are very aggressive goals, with a clear metric performance. What’s missing are regulatory instruments and market drivers to bring these goals to fruition.


Energy codes are the primary tool for state and local governments to ratchet up efficiency requirements, but revising codes is a highly bureaucratic process, and the progression of most energy codes is wildly out of line with the ambitious goals we have set for ourselves. What’s more, existing homes live outside the reach of energy code regulations, and short of time-of-sale requirements, regulators and policy makers lack a tool to address the energy consumption of these home.


Green building and energy efficiency certification and labeling programs such as EnergyStar, Built Green and The Living Building Challenge have shown promise for regulators as “reach codes” that use market differentiation to incentivize builders and homeowner to invest in energy efficiency. Furthermore programs like Clean Energy Works Oregon and Community Powers Works in Seattle, provide a robust host of services to encourage homeowners to reduce their environmental impact. The missing piece is true transparency and valuation of energy use in homes.


Currently, energy use for a specific home is a black box to a would-be buyer, but differences in the energy performance of that home could end up costing a homeowner thousands of dollars more per year than a similar home down the block. This could amount to hundreds of thousands of dollars over the course of a typical 30yr loan.


The Sensible Accounting to Value Energy Act, or SAVE Act seeks to lend transparency to these hidden costs while allowing builders and homeowners to take credit for the energy efficiency improvements they make. This proposed piece of legislation would require the energy efficiency of a home to be factored into the appraisal process by mortgage underwriters, adding resale value to homes that show higher energy efficiency performance. Under this SAVE Act, expected energy costs would be included in the debt-to-income (DTI) ratio along with property taxes and insurance during underwriting adjusting the homebuyer’s borrowing power accordingly, and lenders would be instructed to add the net present value (NPV) of expected energy savings when calculating the loan-to-value ratio which would allow homeowners to finance energy efficiency improvements as part of the mortgage for a new home purchase. We already include expenses like property tax and homeowners insurance in mortgage underwriting; why not include energy costs that can easily exceed both of these expenses combined?


The SAVE Act proposes two means of estimating energy use for homes, either through the use of a $/square foot average for the region, or through an independent energy audit of the property. I hope to see the latter including in the final language of the bill, because without a true performance metric I don’t see this program achieving its intended effect.


This simple and logical regulatory requirement would shed light on the true costs associated with the ownership of specific homes, provide a means for consumers to make informed purchasing decisions, and allow builders and sellers to better market their efforts to achieve higher levels of energy performance by assigning a dollar amount to energy efficiency improvements.