Housing developers predict new costs associated with the opt-in stretch energy code will make projects even more difficult to finance. The Archdiocese of Boston’s Planning Office of Urban Affairs is preparing to begin permitting for a 217-unit affordable project in Roxbury’s Nubian Square. Image courtesy of The Architectural Team
Homebuilders say the latest energy efficiency standards being adopted in many Massachusetts communities will wipe out recent progress the state has made toward spurring housing production.
Citing research about additional costs to reduce the use of greenhouse gas-generating building systems under the opt-in stretch energy code, the Home Builders & Remodelers Association wants a fresh look at zoning, permitting and financing for housing in Massachusetts to provide pro-development incentives.
“We’re not backfilling demand now,” said Jeff Rhuda, business development manager at Beverly-based developer Symes Assoc., at a policy briefing sponsored by the association last week. “Even with 7 percent interest rates, you’re still seeing 30 or 40 people at open houses. Houses are getting bid up and over asking price.”
The group’s wish list includes several strategies sought by pro-housing groups, such as smaller minimum lot sizes, taller building heights, expansion of by-right multifamily zoning and providing density bonuses for energy-efficient multifamily buildings.
“This is something that would cost the state nothing, but would reduce the cost of housing,” said Justin Steil, an associate professor of law and urban planning at Massachusetts Institute of Technology, which co-authored a report with Wentworth Institute of Technology about the costs of decarbonizing housing.
Members warned that the new energy code requirements weaning buildings off fossil fuels – which are being adopted on a community-by-community basis – will sidetrack some projects and drive up the prices of homes that get completed.
The new opt-in stretch code requires tighter building envelopes and solar arrays when feasible, while requiring builders to meet higher Home Energy Rating System (HERS) ratings.
The changes have been adopted by 18 communities including Boston, Cambridge and Somerville, and are expected to be adopted in another 20 communities this year, according to the climate group ZeroCarbon MA.
A recent study commissioned by the home builders group predicts costs for single-family homes would rise nearly $23,000 to comply with the new regulations. The additional costs would intensify the affordability crisis in Massachusetts, where average single-family home prices hit $589,000 in May, according to data compiled by The Warren Group, publisher of Banker & Tradesman.
By-Right Zoning Heads Off Lawsuits
The 2021 legislation that requires MBTA communities to enact multifamily zoning near transit stations is a step in the right direction, developers said. But further expanding by-right zoning for multifamily properties is important to nonprofit developers, who have to weigh the threat of lawsuits from neighbors opposed to affordable housing, said Alisa Magnotta, CEO of the Hyannis-based Housing Assistance Corporation of Cape Cod. Projects that require special permits or variances are vulnerable to legal challenges.
“Abutters are serious and they are well-funded and organized,” Magnotta said. “Having by-right zoning enables a developer to eliminate that [litigation risk] right off the bat. And it gives the town an understanding of what can be built and where.”
Michael Travaline, director of land acquisition at home builder Pulte Group, said inflation related to material and labor costs since 2019 already has translated into increased costs ranging up to $70,000 for single-family homes and $50,000 for townhouses.
“It’s making projects infeasible or passing those costs on to our customers,” Travaline said.
Multifamily projects are expected to cost 2.4 percent more to build, according to the study.
Affordable Projects Face New Hurdle
Nonprofits that specialize in affordable housing are asking state leaders to cushion the financial blow of the new regulations.
Like homeowners, developers are eligible to apply for rebates to offset project costs through the existing Mass Save program, which is run by the Massachusetts Clean Energy Center.
Nonprofit developers predicted delays obtaining financing for affordable housing projects, often a multi-year process because of the need to apply and receive state-designated low-income tax credits. Due to the lower rents at income-restricted housing projects, nonprofit developers rely heavily on public subsidies and tax credits to fill financing gaps.
Boston-based nonprofit Planning Office of Urban Affairs counts on Mass Save incentives to reduce project costs, in what is typically a long and complex road to financing projects, POUA President William Grogan said.
But because Mass Save provides rebates, rather than upfront payments, lenders are reluctant to factor the savings into their calculations, Grogan said.
“The incentives are out there,” he said. “I wish there were a better way to cover those upfront, such as a loan that the state could make available so you could reliably count on them.”
Steve Adams
POUA and J. Garland Enterprises are preparing to begin permitting this summer on a 217-unit affordable housing development on the city-owned Crescent parcel in Roxbury’s Nubian Square, which would be subject to the new enhanced energy code adopted by Boston this spring.
In June, Gov. Maura Healey announced the creation of a statewide climate bank to pay for building sustainability projects, starting with affordable housing. Details on the qualification guidelines and applications have not been announced, but the state is committing $50 million in seed money and anticipating an infusion of federal funding through the Inflation Reduction Act.
The Healey administration also pushed back against some of the home builders’ interpretation of financial burdens associated with the new energy code.
An analysis by the state Department of Energy Resources estimated that a builders’ costs for a 2,100-square-foot single-family home built under the new stretch code would be nearly $29,000 below the base building code. The analysis included assumptions of federal tax credits up to $5,000 and the Mass Save program’s $15,000 rebate for all-electric homes.
“When these new construction incentives are included, the builder saves costs for an all-electric home and the homeowner benefits both financially and in terms of health and comfort,” the report states.
