Multifamily Builders Sound the Alarm on New Energy Codes in Mortgage Programs

Many multifamily housing developers are concerned about plans by the Biden administration to mandate all new homes to be built to the latest energy codes as a requirement for certain federal home loan programs, according to a new survey.

The Department of Housing and Urban Development (HUD) and Department of Agriculture (USDA) said earlier this year they would require all HUD- and USDA-financed new single-family construction housing to be built to the 2021 International Energy Conservation Code (IECC) and HUD-financed multifamily housing be built to 2021 IECC or ASHRAE 90.1-2019 standard, the commercial energy code used by larger multifamily buildings.

Like other model building codes, energy codes are released every three years, and states and municipalities adopt the codes on their own timelines, often making amendments to align the codes with local climate, geography, construction practices and other considerations. Most of the country has yet to adopt the 2021 IECC, effectively making HUD’s recent move a national mandate.

In its latest Multifamily Market Survey (MMS) of multifamily housing builders and developers, NAHB asked a series of special questions about the new energy code rules and the impact they will have on the market.

When asked about the impact the move will have on their development, 56% of respondents said that the rules would dissuade them from pursuing some projects due to higher costs. At a time when both presidential candidates are calling for more housing to be built, this policy will do the opposite by curtailing building.

Another 44% of respondents said that the requirement to follow the 2021 IECC/ASHRAE 90.1-2019 would cause them to charge higher rents. HUD said in its announcement of the new policy that the more onerous energy code would save home owners and renters money by lowering utility bills. But those savings will never materialize if rents are higher.

The new rule, which goes into effect for multifamily properties in May 2025, applies only to a narrow set of federal loan programs, which its proponents have used to downplay the broad impact of the mandate. But just 11% of survey respondents said that they already build in an area that has adopted the 2021 IECC, meaning a vast majority of developers will be building to new codes.

The Federal Housing Finance Agency (FHFA), the regulator and conservator of Fannie Mae and Freddie Mac, is also reviewing the policy for possible adoption in its single-family and multifamily mortgage programs.

When asked about the impact should Fannie and Freddie adopt the new energy code requirement, survey respondents were even more skeptical. Some 61% of respondents said it would discourage additional affordable housing projects, and 63% said it would discourage new market-rate projects. Most said they would charge higher rents and avoid certain projects, and many would be forced to seek other sources of financing, reduce the size of apartments or amenities, or take other actions.

NAHB is working with members of Congress on a bill that would negate the move by HUD and USDA. NAHB staff is also working with the FHFA to educate decision makers on the dire impact this new mandate will have on multifamily and single-family development.