The affordability of housing is at the top of everyone’s mind — more so now than ever. Since COVID, the costs of building a home have skyrocketed, and those costs get passed on to homebuyers. As a result, home prices have risen drastically.
A February 2024 analysis from Zillow shows that in 2020 the annual salary needed to afford an average-priced home was $59,000. That number has since shot up by 80%! Bankrate recently published a study saying that it takes $110,871 per year to afford a median-priced home today. (It puts the median at $402,343.)
Of course, a big part of the increase is higher material prices. But another important factor is increasingly stringent building and energy codes.
One recent example: On April 26, 2024, The US Department of Housing and Urban Development (HUD) published its final energy standards determination in the Federal Register. With this Notice, HUD and the US Department of Agriculture (USDA) adopted the 2021 IECC and ASHRAE 90.1-2019 as the minimum energy efficiency standards for covered programs. Anyone who wants a HUD-backed mortgage needs a home built to these standards.
HUD estimates that this federal mandate on residential construction will add at least $7,229 to the cost of building a new single-family home. However, NAHB cites studies that show that building to the 2021 IECC can add up to $31,000 in additional new home costs.
Yes, the energy efficiency of homes built today is better than ever. But is adding $31,000 in cost going to save that much money for the homebuyer with a three, five, or seven-year payback on energy bills? Not likely. Depending on several factors, the average homebuyer moves every five to 10 years, and the payoff needs to come through reduced energy bills in that timeframe or through a higher sales price when they move. However, the NAHB estimates it will take over 90 years to recoup the investment.
That $31,000 of additional costs just added over $200 per month to the average mortgage payment. One argument in support of these costs has been that most homebuyers finance their homes and that with the energy bill savings they are coming out ahead. But that’s not what most studies are finding.
Adding $200 a month to a home payment for many borrowers would put a home out of reach. Why would HUD add such a requirement to the financing of single-family homes they themselves finance when there is an affordability crisis?
HUD also administers the Manufactured Home Construction and Safety Standards. However, they haven’t added the energy requirement to that code. It’s important to recognize that affordability is a crisis for the entire home market, at all levels.
Let’s not let energy policy drive the reason out of the issue. Energy efficiency is important, but it’s a financial equation for homebuyers and they still need the ability to qualify for the mortgage.
A home is the biggest wealth generator for most Americans. If making a home more energy efficient has a payoff, homebuyers will be enticed to do it. But most appraisers are not tuned into adding additional value for energy efficiency, and don’t calculate whether the investment will pay for itself in the above-mentioned five to 10-year timeframe. Without that payback, it makes no sense for the homebuyer to pay the additional cost.
Using the 2024 IECC in place of the 2021 IECC would make more sense. It is prescriptive in nature, allowing builders and developers to determine better and more cost-effective ways to increase energy efficiency. HUD needs to provide all homebuyers with the same opportunities to afford the type of home they want to live in, not dictate nonsensical, unequally applied energy code requirements that will rob even more Americans of the opportunity to own their own home.
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