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Balancing Benefits: How Energy Efficiency Upgrades Can Benefit Both Landlords and Renters

Often when folks talk about energy efficiency upgrades the focus is on individual homeowners. For owner-occupied homes, generally the homeowner is the decision maker, the funder and the beneficiary of energy efficiency of home upgrades. 

Benefits like improved comfort at home, protection against fluctuating energy costs, and utility or government programs that reduce upfront costs are all benefits a homeowner can experience almost immediately. Other benefits like savings that offset the projects entirely and improvements that keep their home competitive when it comes time to sell may have longer payoff timelines, but are still benefits that accrue directly to the homeowner. In today's market, typical homeowners are staying in their home for 12 years, which means even some of those longer term benefits can be felt long before they begin to think about selling their home.

Rental properties, on the other hand, have what is often referred to as split incentives. This split describes the fact that the owner of the property (landlord) and the resident (renter) are generally responsible for different aspects of costs and experience upgrade benefits differently. For example, landlords are generally responsible for selecting, installing and maintaining the heating and cooling equipment in the home, but renters are generally responsible for daily usage decisions and for paying the monthly utility bills.

The latest Economic Well-Being report from the Federal Reserve released this month brings to light some of the energy burden renters feel when it comes to monthly costs, including those utility bills. Renters are more likely than homeowners to be unable to pay all their bills on a monthly basis according to the report. In particular, of the 27% of renters not able to pay all monthly bills, utility bills were the most common expense that they let lapse. In general, renters tend to be sensitive to monthly costs, such as with 24% of renters who cited an increase in rent as the main reason they chose to move in 2023.

Landlords on the other hand are already in the practice of considering equipment upgrades throughout the natural life cycle of a furnace or an HVAC. Adding an energy efficiency lens to those upgrade choices creates opportunities for landlords to distinguish their rental property from others on the market and at the same time offer benefits to renters that can alleviate some of their monthly strain - for example, lower expected monthly utility bills and more reliable cooling compared to similar homes in the area

Analyzing individual homes and the impact potential of various upgrades allows landlords to identify instances where upgrades can benefit both landlords and renters.


Sources: This article includes information sourced from The Federal Reserve System's Economic Well-Being of U.S. Households in 2023 report, published in May 2024, and ConsumerAffairs. “What is the average length of home ownership? [2024]


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