A guest post from Craig Severance at Energy Economy Online discussing Ed Mazria’s Architecture 2030 concept for job creation and economic stimulus through a massive energy efficiency investment in America’s buildings through a mortgage subsidy program. Quite simply, this is perhaps the most valuable W5 strategy (win economically (stimulus, competitiveness, etc), win on energy, win on jobs, win on social equity, win on environmental/global warming) that we could pursue. Put the building industry and the millions unemployed at work making America’s buildings more energy efficient and increasing distributed energy production. And, doing so in a way that likely would end up paying for itself. I’ve written often on Architecture 2030 and welcome a chance to share Craig’s perspective.
Message to Washington: You’re not getting it – we’re still out of work. WInd farms and energy efficient public buildings are important, but what about the housing industry? The recession started with the housing industry — and can end if we bring back construction — so lets focus on the real problem.
That’s the heart of the message to Congress and the Obama administration from a group of architects and builders who are promoting a plan to end the recession by revitalizing America’s housing industry.
Architecture 2030, founded by renowned architect Edward Mazria, is advancing a “One Year 4.5 Million Jobs Investment Plan” to help Americans build new energy efficient homes and renovate our existing homes to make them more energy efficient.
Private Construction Key to Economy. Mazria says the private building sector is “the key to reviving the U.S. economy”, as building construction alone accounts for approximately 10% of U.S. GDP.
The construction industry creates demand in every sector of the economy, from wholesale to retail, distribution, manufacturing and construction to professional services, banking and development. Products used include steel, lumber, rubber, glass, insulation, caulking, appliances, heating and cooling equipment, windows, metal, tile, fabrics and paint. Many of these supporting industries employ large numbers of American workers (as opposed to relying upon imports), so when construction goes down, the impact is felt all across America.
Building Sector Reeling. Architecture 2030 notes “in March 2009, construction of residential buildings was down 48% from March 2008 and a staggering 66% down from March 2007, with no end in sight.”
According to the U.S. Bureau. of Labor Statistics, over 1.7 million construction workers are still out of a job. Mazria notes construction unemployment rates are running at an alarming 20% — more than double overall U.S. unemployment. These were well paying jobs, as the average salary for a residential construction worker is around $35,000, Many more job losses have also occurred in all the supporting industries to the construction industry.
Stimulus Bill Missed the Boat. Except for a temporary tax credit for first time homebuyers, the massive $787 Billion Stimulus Bill passed in February did little to help the housing industry.
Following the time-old principle “if you have a hammer, every problem looks like a nail”, Congress used the hammer it had — government programs and taxes — to try to shape the economy.
The outcome was a large dose of tax cuts and government spending. Some of the tax cuts provided a needed boost to related industries such as solar hot water heating. For homes, there was a very modest new $1,500 tax credit for home energy saving measures,
Most of the construction related funding, however, ended up going to government and utility projects. The construction industry was essentially left to bid on government projects such as making public buildings more energy efficient, and weatherizing low-income households.
While making public buildings more energy efficient is a worthy goal and will save taxpayer dollars on utility bills, Mazria argues a much more powerful economic stimulus can be achieved by aiding the private building sector.
Private Building Sector Critical to Energy Savings. Architecture 2030 argues that investing in energy efficiency in the building sector is crucial, because buildings account for roughly half of all U.S. energy consumption. Driving hybrid cars and buying more “green” products won’t get us there. We must make our buildings far more energy efficient if we are ever to address the climate crisis.
Source: Architecture 2030
Since only 7% of buildings are owned by governments, the private building sector must be the main focus of increasing building energy efficiency. The group argues that by investing in energy efficiency in the private housing sector, the economy can be revived while also achieving significant reductions in overall energy use.
The Power of “14X”. Spending a dollar of public funds on a public infrastructure project gets you just that — a dollar spent. No one comes to the table and offers to match the public dollars with a large chunk of private funds.
However, Architecture 2030’s “14X” Plan proposes using public stimulus dollars to leverage private investment dollars equal to many times the amount of public incentives.
Tax credits, such as the 30% Solar Tax Credit, use this Multiplier Principal to leverage private investments equal to many times the amount of the tax credit. For instance, a 30% tax credit stimulates a total investment of over three times the amount of the Tax Credit.
The Architecture 2030 Plan goes even farther by proposing the use of perhaps the most powerful “Multiplier” tool of all — a mortgage interest buydown. A small amount used this way can leverage a very large pool of private lender funding to buy new homes and fund remodels.
Interest Rate Buydowns for Energy Efficient Homes. The Architecture 2030 Plan is very simple — energy efficiency incentive grants to “buy down the interest rate” on home mortgages used to buy new energy efficient homes or to remodel your existing home to meet energy efficiency standards.
Mazria proposes a full 1% “interest rate buydown” for a new home that uses 50% less energy than current energy standards, or a home energy remodel that would lower energy use of an existing home to 30% less than current energy standards.
Thus, if your mortgage interest rate would otherwise be 5.75%, the Architecture 2030 Plan would provide an “interest buydown” to lower the mortgage interest rate a full percentage point, to just 4.75%.
How it Works. Mazria says it now costs typically 3% to 5% of the loan amount to achieve a full 1% interest rate buydown. (This will vary almost daily, so the examples here present the overall concept.)
As an example, if a loan amount was $250,000 and it cost 4% of the loan amount to lower the interest rate by 1%, an energy efficiency incentive grant of $10,000 would be needed to achieve the interest rate buydown.
On this size loan, reducing the interest rate from 5.75% down to only 4.75% would reduce monthly principal & interest (P&I) payments from about $1458/mo down to only about $1305/mo — saving the homeowner roughly $153/month on their mortgage payment.
A “Wow!” Program, Not a Token Program. Similar energy efficiency mortgage incentive programs are now offered in many states, but are usually quite weak.
For instance, a Colorado pilot project offers at best a 1% of loan amount subsidy for qualifying energy efficient homes. This would only be $2,500 in the $250,000 loan example above (“only enough to buy down interest about 1/4%”, says Mazria). In fact, this small of an incentive would typically be eaten up with closing costs, providing the homeowner little incentive to undertake a new project.
The incentive has to be big enough to make the average family sit up and take notice and say “Wow! — We should do that!” When you reach that point, you have a real stimulus program.
Multiplier Effect for a New Home. The power of the Multiplier is most dramatic with a new home. If a $10,000 energy incentive grant can leverage the construction and sale of a $260,000 new energy-efficient home (i.e. a $250,000 loan), then a Multiplier of 26X the amount of the grant will have occurred. The entire amount of a new home is new economic activity. The jobs created in building, selling and financing that new home would create a whirlwind of economic activity far greater than the small amount of public incentive funds invested.
Another impact of the program may be getting past a reluctant buyers’ market. The public knows more energy efficient homes are on the horizon, so why buy a new home now when they aren’t building them right yet? (For instance, the House Energy & Climate bill contains new energy building standards, see here.) The Architecture 2030 Plan would bring a new stock of more energy efficient homes on the market right now.
Multiplier Effect for a Remodel. The Architecture 2030 Plan proposes that for any energy remodel, the amount of the homeowner’s investment in the remodel must be at least twice the amount of the interest rate buydown grant.
Mazria notes that in today’s economy, homeowners simply aren’t remodeling their homes, and the remodeling industry is severely depressed. Even when interest rates fell recently and many Americans refinanced their mortgages, most simply used the funds to pay down credit cards. .
To receive a full 1% interest rate reduction, a homeowner would have to do the energy work needed to qualify for the incentive. Even though they increased the mortgage amount to cover the extra work, however, their overall mortgage payment could actually be lower after the energy makeover work was done. This is because the interest rate is lowered on their entire mortgage, not just the energy remodeling amount,
Thus homeowners could do an energy makeover on their house, increase the home’s value, lower their utility bills — and pay a LOWER monthly mortgage payment than BEFORE they started.
This kind of deal should produce the “Wow! – We should do that!” effect and greatly stimulate the home energy remodeling market.
In addition to the required energy work, Mazria expects most homeowners will also choose to do other remodeling work on their homes. With these energy refinancings, they will already be dealing with a remodeling project — not just paying off credit cards — so it is likely many will choose to do other work at the same time.
Pilot “14X” Projects – Using Stimulus Bill Funds. Architecture 2030 is now working with several communities nationwide to use Energy Efficiency and Conservation Block Grants funded by the Stimulus Bill, to fund pilot “14X” projects in their communities. Some communities exploring this include Des Moines, North Little Rock, and a group of cities in the Atlanta metropolitan area.
The EECBG funds are “Block Grants” where local communities have great leeway to decide their use. For many localities, it makes sense to leverage these funds for a far greater economic impact by using the “14X” concept, rather than simply spending the funds on an infrastructure project.
“One Year 4.5 Million Jobs Investment Plan”. Architecture 2030 is getting attention in Washington with its innovative and thoughtful Plan.
Since it was not funded by the Stimulus Package, implementing these ideas would require another round of funding. However, it would use a relatively small amount of public funds to leverage a very large amount of new economic activity. The group calculates the total tax revenues raised from the new activity would more than pay for the initial investment of tax funds. In other words, the Plan can actually decrease the Federal Deficit instead of adding to it.
The group says $30 Billion devoted to its energy efficiency mortgage interest buydowns could restart the housing industry. They calculate that only 2.3% of the housing stock would need to participate in the program to create 4.5 million jobs.
It would also be a new, energy efficient housing industry. Over $11 Billion per year in reduced energy costs and mortgage payments would significantly reduce risk of mortgage failures and increase disposable household income.
Finally a “Housing Bill”? Earlier this year, while the Stimulus Bill was being debated, there was talk of “another” bill soon to come — for the housing industry.
The housing industry is still waiting. The cries come from every corner of the nation : We’re still out of work.
Could the Architecture 2030 Plan be the long-awaited “Housing Bill” to revive the American construction industry?