Caitlin Walter

Energy efficiency matters to residential real estate stakeholders for any number of reasons. However, three reasons stand out.

First, energy can be a significant contributor to the overall cost of housing, especially for low- and moderate-income households. Second, for housing providers, energy performance—or lack thereof—can influence a property’s value. And third, as climate change and pollution challenge the world, political and social pressures to reduce carbon emissions are mounting.

On this last point, real estate is fundamental to reducing carbon emissions. According to the most recent data from the U.S. Energy Information Administration, residential and commercial buildings accounted for 40 percent of the nation’s energy consumption as of 2015. More than half of that amount was consumed by residential buildings of all types (owner- and renter-occupied, single-family and multifamily).

With residential buildings contributing to such a large part of the carbon footprint, understanding how energy consumption in apartments stacks up against other residential categories calls for stepped-up attention. Better knowledge would help property owners and managers invest more effectively in energy efficiency.

Unpacking the metrics

While apartments represent a significant portion of occupied housing stock—almost 16 percent as of 2015—measuring energy consumption in the apartment sector involves some thorny issues.

There are two main metrics: (1) energy consumption per household; and (2) energy usage per square foot. They yield very different results. For example, on a per-household basis, energy consumption (as measured in British Thermal Units, or BTUs) is greatest in owner-occupied single-family houses. But on a per-square-foot basis, multifamily rental units (defined as apartments in buildings with two or more units) consume the most energy, although larger housing units may appear more energy efficient. This is because some energy consumption doesn’t increase (or increase much) with unit size.

For example, both a 2,000-square-foot house and an 800-square-foot apartment are likely to have only one refrigerator and one stove. While their total energy consumption should be similar, then, the larger home will show a smaller energy usage per square foot because it’s spread over a larger footprint.

But heating and air conditioning alter the equation even more. Because larger housing units have more space to heat and cool, their total energy consumption is greater than their smaller counterparts. The upshot is that the trend toward building ever-larger homes could have the perverse effect of reducing the energy use per square foot while simultaneously increasing both energy use per household and overall energy use.

Data dive

Source: NMHC tabulations of 2009 Residential Energy Consumption Survey

To deal with these complex, closely connected issues, NMHC research staff took a deep dive into energy consumption. Using data from the Energy Information Agency’s Residential Energy Consumption Survey (RECS), we conducted a multivariate regression analysis in order to unpack the question of whether energy use is greater in single-family homes or multifamily rental units when all other factors are considered.

Here’s what our results suggest:

• Apartments use less energy. When we controlled for unit size, location, age, number of persons in the household and any other factors that could affect consumption, we found that units in larger multifamily buildings—regardless of whether they were owned or rented—consumed less energy than single-family units. The main reason is likely that shared walls in multifamily structures reduce exposure to the elements and, therefore, demand for energy.
• Renters aren’t necessarily energy hogs. It is widely argued that renters consume more energy than homeowners because renters have no economic incentive to conserve energy. However, the analysis shows that it is not the act of renting, but whether the household pays for its own utilities, that affects energy consumption. Households that pay for their own utilities, no matter whether they rent or own, consume less energy than households whose energy costs are included in their housing payments. This phenomenon can be masked when renters that pay for utilities are lumped together with those that don’t.
• Submetering works. The fact that residents billed separately for at least one utility appear to use less energy suggests that retrofitting apartments with submeters could contribute meaningfully to reducing energy consumption. However, because the cost of new green technology lands squarely on the shoulders of property owners but the direct benefits don’t, property owners need better incentives in order for the investments to make economic sense.

While getting a handle on energy consumption has its challenges, it’s clear that the residents of tomorrow are keenly interested in how energy contributes to housing costs—and might be willing to invest in order to reap the benefits.

For example, data from the 2015 NMHC/Kingsley Associates Resident Preferences Survey found that residents who placed a value on sustainability and green certifications were willing to pay an extra $31 per month in rent. Similarly, those who placed a value on sustainability and green initiatives reported that they would be willing to pay an extra $33 per month.

As these findings show, residents’ views of energy-efficient products, programs and initiatives demand continuing research. We expect the results of the 2017 NMHC/Kingsley resident survey, due in October, to shed further light on a crucial issue.

Caitlin Walter is the director of research for the National Multifamily Housing Council in Washington, D.C. She can be reached at cwalter@nmhc.org.

Note: This article is based on Walter’s paper, “Energy Efficiency in Multifamily Rental Homes: An Analysis of Residential Energy Consumption Data,” which was originally published in the Journal of Sustainable Real Estate in 2016.

Also appearing in the April 2017 issue of MHN.