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April 9, 2020

Water and Energy Efficiency: The Neighborhood Average

By: Eddie Wilcut, Water and Energy Efficiency Practice Leader

Imagine working hard to do the right thing in terms of being energy conscious when it comes to your own home. Then, at the end of the month, you receive a higher than warranted electric bill, one that is based on your neighborhood average. You have absolutely no control over the daily habits and actions of your neighbors. And, you certainly do not have the ability to determine which appliances they buy or how they maintain their home. Does this scenario sound unfair and far-fetched? Well, if you are an owner or manager of a low-income housing tax credit (LIHTC) property, this very thing may be happening to you right now – impacting both your net operating income and the value of your property.

For LIHTC or “affordable” housing properties, the actual rent charged to a tenant is made up of two components, the utility allowance and the net rent. For every city, there is a max rent established by unit type. The net rent that can be charged to a tenant is typically calculated by subtracting the utility allowance from the published max rent.

The utility allowance is an estimate of what a tenant pays each month for utilities including electricity, natural gas, water and sewer. Most affordable housing properties use a utility allowance developed and published by their local housing authority. This published allowance is an average estimate based on existing housing stock in the area, in other words “the neighborhood average”.

Now, let’s do some math. Let’s say that the max rent for a two-bedroom unit is $1,000 per month and the published utility allowance is $300 per month. In this scenario, the net rent that can be charged by the property is $700. But what if this property is a brand new, highly energy and water efficient property where the tenant is actually paying only $225 per month for all utilities? What happens to that unspent $75 per month?  Well, that $75 is basically lost revenue. If this were a 200-unit property, lost revenue in this scenario could be as much as $180,000 per year.

So, what is the alternative to using the “neighborhood average”? The answer is simple. “If you are not happy with your current utility allowance, make your own!” According to Federal law, owners or managers of affordable housing properties can enlist the services of an independent third party to develop an energy consumption model (ECM) that is specific to the property. This model considers the unique features of a given property and allows the property to take advantage of existing efficiencies and potential upgrades that result in lower utility allowances. By developing an ECM, you can increase net operating income, increase the value of your property, recover costs associated with energy efficient upgrades and establish a system that, in the long run, is both fair and equitable for your tenants.

After all, you worked hard to build your property, shouldn’t your property work just as hard for you?

Eddie Wilcut, Plummer’s Water and Energy Efficiency Practice Leader, has 6 years of experience conducting energy consumption modeling for Low Income Housing Tax Credit (LIHTC) properties and HUD regulated properties. Eddie also has 22 years of experience in Program Development, Project Management, Program Management, Contract Administration, Scheduling, Facility Assessment, Programming, Cost Estimating, Energy and Water Conservation and Sustainability. To date, the Plummer team has successfully provided energy consumption models for more than 200 properties across 28 states.

The Plummer team includes a group of highly skilled project managers, engineers and energy modelers. The significant expertise, experience and knowledge base of the team acquired by successfully conducting utility allowance modeling for a large number of properties across the United States will help them quickly determine the best and most cost-effective platform and methods required to achieve the best and most reliable results. A proven and collaborative process involving the modeling team and the developer will result in identification of the most important elements that will lead to decision making that will ultimately provide the greatest and most cost-effective results for both the tenants and the owner.

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