In Delaware, we have been working hard to improve energy efficiency in the new residential building sector. Delaware was one of the first states to establish a coalition of building energy stakeholders. We also review new building energy codes for adoption every three years and are working toward progressive net-zero-energy targets.
For the last couple of years, the State has been working collaboratively with the Home Builder Association of Delaware (HBADE) to promote energy efficiency and green home construction through the Green for Green Rebate program.
Even though Delaware home builders are building more efficient homes than ever before, significant market barriers remain a problem. One of the major barriers identified by the Delaware Energy Codes Coalition (DECC) is the inability to appropriately value an energy-efficient home at the point of sale.
Current mortgage underwriting and appraisal rules do not recognize the value of energy efficiency. Consequently, mortgages often do not cover the initial incremental cost of constructing energy-efficient homes. A recent study by the National Association of Home Builders revealed that while home buyers recognize the value of higher efficiency homes, appraisers generally do not have a mechanism that allows energy efficiency to be incorporated into the assessment of a property. This disconnect means that buyers have a tougher time qualifying for a mortgage for a higher efficiency home, putting these homes at a disadvantage in the available housing stock.
Considering that utility bills can make up a significant portion of a household’s expenditures (often more than both property taxes and homeowners insurance, which are factored into a mortgage calculation), it is only logical to factor in the home’s efficiency as a component in determining its value. The Sensible Accounting to Value Energy (SAVE) Act seeks to fix this market deficiency by including the energy efficiency of homes in appraisals and calculations used to determine mortgage eligibility. The SAVE Act would help homebuyers and lenders better evaluate the true value of homes and make energy- efficient homes more affordable.
Fortunately, DECC has started the conversation with the appraisal community. However, the State’s latitude in changing the appraisal and mortgage underwriting rules is limited. It would take us years to make the changes needed to include energy efficiency in home appraisals. This is a prime example where federal leadership through the SAVE Act could save states like Delaware the time and resources needed to unlock the economic benefits of the residential energy efficiency market. The SAVE Act is exactly what Delaware needs to make the widespread adoption of energy-efficient homes a reality.
Bahareh Van Boekhold is a Principal Energy and Sustainability Planner at the State of Delaware- Division of Energy and Climate.