Photo by Cloris Ying on Unsplash
The state of Massachusetts lets municipal governments choose how strictly they regulate energy efficiency in buildings. Fifty-two of the state’s municipalities use the base building code, whereas 299, including Boston, have opted into the stricter “stretch” energy code. In addition to these two, the state recently rolled out an even stricter “specialized” stretch code in the interest of getting to net-zero carbon emissions faster. Cities could opt in to the specialized code as of last December; several municipalities have already opted in, and Boston may do so soon. The new code is technically the Municipal Opt-In Specialized Stretch Energy Code, and I considered referring to it hereinafter as MOISSEC, which is cute because it sounds like a wine, but I ended up deciding that the least confusing option is to follow official documents in referring to the new option as the specialized code, and refer to what is existing law in most of the state as the stretch code.
Given that Massachusetts has some of the most expensive housing in the country, it’s reasonable to worry about the impact of any housing regulations on affordability, even when they serve an important objective. Massachusetts had the third highest cost of new housing of all states in 2021, and has unusually low housing supply, even among expensive coastal states. Research from the Boston Foundation details the extent of the problem: Greater Boston has lower vacancy rates than even Los Angeles or New York, homes spend less time on the market in Boston, and Boston is not on track to meet its housing production goals, though construction has increased somewhat in recent years.
A new report released Tuesday by the MIT Center for Real Estate, the Home Builders and Remodelers Association of Massachusetts (HBRAMA), and Wentworth Institute of Technology (WIT) projects the impact of Massachusetts’ new specialized building code on housing costs in the state. Unsurprisingly, it turns out that the new requirements raise costs. But the authors have recommendations for how to make those price increases easier to bear, most notably liberalizing land use.
In the first stage of the analysis, WIT researchers Payam Bakhshi, John Cribbs and Afshin Pourmokhtarian model the added cost of building a home that complies with the specialized code. There are three pathways to compliance, based on a mixture of electrification, the Home Energy Rating System (HERS) standards for energy efficiency, and Passive House efficiency certification. Bakhshi, Cribbs and Pourmokhtarian assess each of the pathways for single-family homes and small multifamily homes, comparing each to a baseline scenario of compliance with HERS 55, which is the median requirement in the current stretch code. Using model designs for a single-family home and a small 2-4 family building, they interview developers and contractors to estimate the cost of the design and equipment choices that would assure compliance, combining hard and soft costs. For a single-family home, construction to the specialized standards costs between $10,000 and $23,500 more than construction to the current stretch standards, depending on which compliance pathway the developer follows; for small multifamily, the specialized standards would add between $34,000 and $105,000 for the whole structure.
To estimate the cost increase facing builders of larger multifamily buildings, the authors build on research done in Boston on buildings built to Passive House standards, one of the standards incorporated into the specialized code; their calculations support Passive House Institute US’s estimate of a 2-4% cost premium for compliance. This is comparable to their projections for single-family homes: given NAHB’s estimated construction cost of $608,827 for a newly built single-family home in Massachusetts in 2022, the figures in this report would amount to between a 1.6% and a 3.8% premium of compliance for single-family homes.
Bakhshi et al., joined by Justin Steil, Zhengzhen Tan, and Siqi Zheng from MIT, then estimate how much of these costs are passed on to families as opposed to eaten by the construction industry. With data on the issue scarce, they use a sensitivity analysis to look at a range of scenarios. As the authors point out, however, it’s fair to predict that the bulk of the additional costs in most towns will fall on the consumer, because both the supply elasticity and the demand elasticity of housing are low in Massachusetts, with its constrained housing supply and concentration of high-paying jobs.
Based on those numbers, the researchers use Census and NAHB data to calculate the number of Massachusetts households who could buy a newly built home under the current stretch code but not one built to the specialized code (or who would be cost-burdened in doing so). Depending on the compliance pathway, they estimate that between 15,000 and 33,000 households fall into this category – between half a percent and one and a half percent of Massachusetts households.
That topline number isn’t as dire as it first seems, since most Massachusetts households are not in the market for a new home, and most who are won’t buy a newly built one. So it’s an oversimplification to say the state has put housing out of reach for thousands of families in the name of sustainability. The number of households affected also depends on how many cities actually opt in to the specialized code, though the stretch code is also due to be updated for a stricter HERS standard in 2024, meaning some of the cost implications will soon apply to most of the state whether or not their towns have signed up for the specialized code. And if the new regulations chill new construction, it will mean missing buildings from tomorrow’s stock of housing, putting further upward pressure on prices.
Dampening construction will also undercut the potential benefit for the climate: there are no energy efficiency gains from houses that don’t get built. The opportunity cost of foregoing new construction in Massachusetts is particularly high: with Massachusetts having the second-oldest housing stock of any state, new construction built to either the stretch code or the specialized code will be more energy efficient than much of what’s there. And Massachusetts has low per-capita carbon emissions, so if the new rules end up displacing construction to higher-emissions states, they may end up being counterproductive.
Of course, while new housing is more expensive, energy-efficient housing saves the resident money on their utility bill. Unfortunately, the authors find that those savings are a drop in the bucket compared to the cost of installation, at least for those households likely to purchase a newly built home. They project that a household living in a single-family home built since 2010 and compliant with HERS 55 would save $48/month on their utility bill by switching to a home built to the stricter HERS 42 standard, meaning they would recoup the cost of building to the stricter standards in 42 years. (The researchers argue that tenants and homeowners in recently built buildings are a better comparison group than the population as a whole, since people likely to buy a newly built home are wealthier, but given the age of Massachusetts’s housing stock it would be useful to see the possible savings for people currently living in older buildings.)
Utility bills weigh more heavily on lower-income households not just in the way that every expense weighs more heavily on lower-income households, but also because lower-income households are more likely to live in older homes. If raising energy efficiency standards makes newly built homes even more of a luxury than they are, that will widen the gap between rich and poor households’ utility burden. Retrofits of existing buildings are outside the scope of the MIT/WIT/HBRAMA report, but for equity reasons as well as climate ones the state of Massachusetts should be finding ways to electrify and insulate the existing building stock.
The findings in the MIT/WIT/HBRAMA report underscore how little the US housing sector can afford unnecessary regulation. It makes sense for Massachusetts taxpayers to sign up for extra costs in the name of reducing greenhouse gas emissions – indeed, it’s the right thing to do, given rich countries’ outsize contribution to global warming. However, policymakers need to be honest with themselves about tradeoffs, and make the adjustments necessary to hold housing costs (at least) harmless.
Bakhshi et al. provide a series of recommendations for how to do that, starting with the obvious: repeal onerous land use and zoning regulations and streamline byzantine permitting processes for housing. Given that Boston’s zoning is so complex as to call to mind Borges’ Library of Babel – containing not only every zoning regulation in existence but every one that could theoretically exist – there’s work to be done.
The MIT/WIT/HBRAMA report also shines a light on the difficulty of navigating Massachusetts’s network of incentives for energy-efficient construction. Interviewees were uncertain whether programs like Mass Save will be sustained over time, and smaller developers said accessing single programs sometimes requires multiple applications. This is a problem the state seems to be aware of: the Massachusetts Commission on Clean Heat has proposed coordinating the state’s sustainable buildings incentives in a Building Decarbonization Clearinghouse. The report also recommends new state tax credits for energy saving technology and increased training opportunities for professionals in the field, including within the construction industry as well as in real estate.
While it’s disheartening to think that two goals as important as fighting climate change and improving housing affordability are in tension, this report emphasizes just how much the tension is of the ‘we tried nothing, and we’re all out of ideas’ variety. Massachusetts, like much of the rest of the US, has made a choice about its values over the decades. Its laws and planning processes make clear that it values large-lot single-family homes for the favored few, and parking as a human right, over affordability or sustainability. It’s only in that context that the latter two are in conflict: if the state reconsiders its commitment to mandating a certain built form, its housing stock could be both more affordable and more sustainable.
