Energy efficient homes should come with better mortgages

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Imagine you are hunting for a home this spring. You’re stuck between two properties with identical price tags and similar features.

However, the energy bill for House A is $2,000 a year, while the energy bill for House B is $5,000. That’s a difference of $30,000 over a decade and nearly $100,000 over the life of a typical mortgage. Which would you choose? House A, pretty likely.

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Unfortunately, in today’s mortgage world, the savings you would enjoy on your monthly energy bill in the more efficient home would have absolutely zero effect on the amount of loan you’ll be able to get from your lender.

Lenders carefully scrutinize real estate taxes and homeowner’s insurance in determining how much they can lend. But they don’t pay attention to energy costs, even though these costs are often bigger than taxes and insurance, especially in the intense cold and heat of recent years.

We have a simple suggestion: let’s include energy information in the calculation of mortgage terms. Buying an energy efficient home? Get a better mortgage!

This is exactly what a bipartisan bill introduced by Sens. Michael Bennet (D-Colo.) and Johnny Isakson (R-Ga.), a former real estate agent, would do. The Sensible Accounting to Value Energy (SAVE) Act would require a lender to take the projected energy savings of an efficient home into account when presented with a qualified energy report.

Under federal law, homebuyers find out whether termites are chewing up the beams in an attic during the purchase process. So why not ensure that they also discover whether there’s an inefficient furnace devouring cash in the basement — and help find the low-cost financing to replace it? This might also encourage the seller to replace the furnace in the first place, not just gussy up the kitchen.

In addition to support from the environmental community, the SAVE Act enjoys the backing of key business organizations, including the U.S. Chamber of Commerce, the National Association of Home Builders and the National Association of Realtors. The bill was incorporated into broader bipartisan energy-efficiency legislation, backed by Sens. Jeanne Shaheen (D-N.H.) and Rob Portman (R-Ohio), that recently saw Senate floor action. That bill failed to garner enough support to proceed to a final vote because of controversy around unrelated amendments. But the noncontroversial Shaheen-Portman bill, which can help cut both consumer energy bills and harmful emissions, will be back. And there is a related energy-efficiency bill that the full House adopted in March.

The good news is that it doesn’t take an act of Congress to get started on the energy information front. Eleven cities, including New York, Boston and Chicago, and two states, California and Washington, have already adopted building-information laws requiring public disclosure of the energy performance of commercial buildings. Deutsche Bank reports that $1 trillion worth of energy could be saved in U.S. buildings over the next 10 years. But little of this nearly $300 billion investment opportunity is being realized. This is a big loss for the economy — and the climate — when you consider that buildings use roughly 40 percent of all energy consumed in the United States.

It’s too early to tell how much these approaches will cut energy use overall, but the signs are promising. Of course better information won’t, by itself, fully capture the nation’s vast building-efficiency potential. But making sure that consumers and businesses know how much money they can save through energy-efficiency improvements is an important step.

Reicher is executive director of Stanford University’s Steyer-Taylor Center for Energy Policy and Finance. He was assistant secretary of Energy in the Clinton administration and a member of President Obama’s transition team. Peterman, an energy consultant, was a doctoral fellow at the center.