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Updated Home Energy Efficiency Standards Could Affect One in Four Homes

Updated efficiency standards from HUD and USDA will lower bills and make homes safer. Here’s how.

On April 25, the US Departments of Housing and Urban Development (HUD) and Agriculture (USDA) announced final energy efficiency standards for new home construction. The refreshed standards will impact up to a quarter of all new homes nationwide and will cut energy bills by up to a third, paying for the efficiency improvements within two years on average. The affected units include affordable housing apartments (supported by HUD programs) as well as starter homes eligible for low-down-payment mortgages (insured by FHA and USDA). This announcement comes on the heels of a rule requiring new and majorly renovated federal buildings to be zero-emissions by 2030.

The announcement has been greeted with celebration from affordable housing advocates and energy efficiency experts alike. But how many households will this rule impact? Where? How much will families save? We’re here with answers — and charts.

Dropping home energy use

The new standards are based on the 2021 International Energy Conservation Code (IECC) and ASHRAE Standard 90.1-2019. The previous standards were outdated, relying on two codes that are over 15 years old: the 2009 IECC and ASHRAE 90.1-2007. According to the US Department of Energy, model codes have come leaps and bounds since then: they reduce new buildings’ energy use by a third for taller apartment buildings and by more than a quarter for single-family houses and low-rise apartment buildings.

View the Historical Model Energy Code Improvement chart here

View the BECP Status of State Energy Code map here

Despite the potential for serious energy savings, most homes built today do not need to comply with the 2021-era codes. In fact, only six states have residential codes that approach the updated standards’ efficiency. This update from HUD and USDA will raise the bar and save energy for affordable homes in the other 44 states.

National impact, state standouts, and extreme weather preparedness

New homes are being built in the Southeast at the highest rate in the country, with about 768,000 units under construction as of March 2024. Texas and Florida stand out as top locations for homes supported by HUD, USDA, and the Federal Housing Administration (FHA): the two sunny states are projected to host over 45,000 and 23,000 annual new units respectively. Together they make up over 40 percent of annual covered homes. The next four most affected states — Georgia, North Carolina, Arizona, and South Carolina — bring the total to over 60 percent.

The updated standard will help prevent high bills during hot weather — and, critically, will protect families from heat waves. For example, a study by three national laboratories and the US Department of Energy (DOE) estimated that during a 7-day heat wave and power outage in Houston, Texas, a house built to the 2021 IECC would stay at safe temperature and humidity levels for the entire week, while a typical house would only remain safe for four days. Bringing Houston’s housing stock up to the newly finalized HUD-USDA standards, would prevent about 80 percent of heat wave-related deaths.

Northern states will also benefit from the updated standards’ impact. Households are projected to save over $18,000 on their housing and energy bills over a 30-year mortgage in several northerly and mountainous states, including Alaska, Maine, Iowa, the Dakotas, Kentucky, and West Virginia. The new standards also reduce risks from extreme cold: for example, the DOE study suggests that Minneapolis residents would be safe for about twice as long during a cold-snap outage in homes built to the updated standards compared with the average Minneapolis house.

Solar homes get a boost

Over 35,000 multifamily units per year are expected to be more efficient thanks to the updated standards. The largest category of homes affected, however, is modest homes financed with assistance from the FHA. Between FHA and USDA programs, federal mortgage assistance is projected to support over 127,000 new single-family homes built to the updated energy savings standards annually.

Homebuyers will quickly recover the small down-payment increase from the new code. HUD and USDA estimate that up-front costs for homebuyers — the down payment, closing costs, and so on — will increase by $550 on average due to this rule. And code compliance costs will add about $37 to monthly mortgage payments. However, homeowners will save over $80 on monthly energy bills, meaning a yearly savings of $524. Overall, the average homeowner will reach positive cashflow in about 18 months.

Impact could extend beyond covered homes

Between FHA- and USDA-supported mortgages and HUD-supported affordable housing, the new rule could apply to one in four new homes, ensuring countless more families receive the economic and resilience benefits of energy efficiency. Shifting such a large chunk of the market may have positive ripple effects, encouraging homebuilders to incorporate higher-efficiency materials and techniques into even more homes. It could also encourage more jurisdictions to update their energy codes, aligning local enforcement with federal agency requirements. The DOE is eliminating one frequent barrier to code updates — inadequate staffing and funding. Over $1.2 billion in grants is being distributed to states and localities updating their codes thanks to the Bipartisan Infrastructure Law and Inflation Reduction Act.

The updated codes’ efficiency and resilience benefits could be secured for even more families. The Federal Housing Finance Agency (FHFA), in its role as regulator and conservator of Fannie Mae and Freddie Mac (collectively the Enterprises), could adopt 2021 IECC and ASHRAE 90.1-2019 as minimum energy standards for all homes whose mortgages they acquire. Not only would such a policy bring the total proportion of new homes covered up to two in three: it would also boost the climate resilience of the Enterprises’ portfolios, ensuring they can continue their mission of providing liquidity to home mortgage markets and empowering community development nationwide.

FHFA Secretary Barbara Thompson has indicated the agency and the Enterprises are studying the matter, and FHFA will make its decision about such a policy by the end of June. With rich benefits on the table for homebuyers and the Enterprises, the agency has plenty of reasons to take up this standard.