Engaging NOAH property owners and tenants

Why use energy efficiency to combat the affordability crisis?

Simply, says Pottorff, because “keeping energy costs low means more affordable bills for tenants, while weatherizing those units also means increased comfort for residents.” (Of course, this is in addition to the environmental benefits.) Ensuring that energy bills are affordable helps keep Naturally Occurring Affordable Housing (NOAH) affordable.

Most housing in the Twin Cities metro area is unsubsidized, but NOAH is a specific subset of unsubsidized housing which is still affordable to families making 60% or less of the 13-county metro region’s area median income (AMI). In 2022, Minnesota Housing Finance Agency set this figure at a household income of $70,920 per year. 

Maintaining NOAH housing stock is a big deal. Three-quarters of the affordable rentals in the metro area are NOAH rentals — 167,000 units — and are typically occupied by residents with lower incomes. 

Since these units aren’t subsidized or regulated by the government, rent and the price of living can be sensitive to swings in the economy, building improvements, or new developments in the area, all which risk pricing out families who can no longer afford to live there. 

“As we heard in the surveys,” says Pottorff, “81% of respondents were concerned that their rents may rise in the future.” And for good reason — in St. Louis Park, 71% of the market rate rental housing stock in 2013 was affordable to those making 50-60% AMI. By 2018, only 49% was affordable. 

The pandemic and inflation put both renters and their property owners in a bind. In St. Louis Park, 38.2% of renter households pay more than 30% of their income on rent and are considered cost-burdened. Properties are becoming more expensive to manage — even though maintenance was often deferred on NOAH properties pre-pandemic, the national share of landlords deferring maintenance was six times higher in 2020 than in 2019, according to the Joint Center for Housing Studies of Harvard University's 2021 Improving America's Housing report [PDF]. If a property owner decided to make an improvement to their property, without government support that cost could likely be passed down to their tenants.

This creates a situation where a vulnerable subset of the city’s population is at risk of both higher rents and increasingly dilapidated housing. 

This is where energy efficiency incentives enter with the potential to address both problems at the same time.

If programs are designed with an appealing enough "carrot" (one that will significantly reduce the cost of energy audits and improvements), property managers can securely upgrade their buildings, either minimally increasing rent or not at all, and the energy savings that trickle down to residents can offset the additional costs or outright save money.

This allows for building repair, more comfortable and safer housing, and a more stabilized NOAH stock. And, of course, those additional environmental benefits.

For property owners, TerraLuna hosted a focus group, in addition to some in-depth individual conversations, offering each participant a $25 Visa gift card, resulting in six participants who collectively manage eight buildings totaling more than 300 units across the city. Conversations revolved around the city’s available affordability programs, existing barriers to these programs, and incentives that could improve program participation.

To most property owners, the 4d enrollment process was intimidating. Even with the free energy audits and sharply reduced property taxes, many were worried about locking themselves into a long-term government-set rental limit, especially as inflation rates remain high and property management becomes more expensive. Simply, owners did not want to give up agency to run their businesses. For solar programs, many felt the technology was still "too new" for their investments, especially with the current variability in the housing market.

TerraLuna offered the city recommendations for how to proceed, including addressing common misconceptions around the 4d program. Still, most property owners stated that they may never feel comfortable enrolling in 4d, to which they responded with a recommendation for a separate program offering forgivable loans for property improvements, including energy efficiency. 

With all the research and recommendations the City of St. Louis Park plans to launch new incentive programs as early as 2023.