Many multifamily housing developers are expressing concern over the Biden administration's plans to mandate that all new homes meet the latest energy codes as a condition for certain federal home loan programs, according to a recent survey.
Earlier this year, the Department of Housing and Urban Development (HUD) and the Department of Agriculture (USDA) announced that they would require all HUD- and USDA-financed new single-family construction housing to comply with the 2021 International Energy Conservation Code (IECC). HUD-financed multifamily housing must adhere to either the 2021 IECC or ASHRAE 90.1-2019 standard, which is used by larger multifamily buildings.
Energy codes, like other model building codes, are updated every three years. States and municipalities adopt these codes at their own pace, often making amendments based on local climate, geography, construction practices, and other factors. Most of the country has not yet adopted the 2021 IECC, effectively turning HUD’s recent move into a national mandate.
The National Association of Home Builders (NAHB) conducted its latest Multifamily Market Survey (MMS), asking multifamily housing builders and developers about the impact of these new energy code rules.
When asked about how these rules would affect their development plans, 56% of respondents indicated that higher costs would dissuade them from pursuing some projects. At a time when both presidential candidates are calling for more housing to be built, this policy could potentially reduce building activity.
Another 44% of respondents said that adhering to the 2021 IECC/ASHRAE 90.1-2019 standards would lead them to charge higher rents. While HUD stated in its announcement that stricter energy codes would save homeowners and renters money by lowering utility bills, those savings might not materialize if rents increase.
The new rule will take effect for multifamily properties in May 2025 and applies only to specific federal loan programs. Proponents have used this narrow application to downplay its broad impact. However, only 11% of survey respondents currently build in areas that have adopted the 2021 IECC, meaning most developers will need to adjust to new codes.
The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, is also considering adopting this policy for its single-family and multifamily mortgage programs.
Survey respondents were even more skeptical about potential adoption by Fannie Mae and Freddie Mac. About 61% said it would discourage additional affordable housing projects while 63% believed it would deter new market-rate projects. Many respondents noted they would likely charge higher rents, avoid certain projects altogether or seek alternative financing sources. Others mentioned reducing apartment sizes or amenities as potential responses.
NAHB is collaborating with members of Congress on legislation aimed at negating HUD's and USDA's moves. NAHB staff are also working with FHFA officials to inform decision-makers about the potential negative impacts on both multifamily and single-family development.
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