The Inflation Reduction Act: Opportunities for Multifamily Property Owners and Managers

One of the most significant steps to fight climate change is also a boon for multifamily property owners and managers. Last month, Congress passed the Inflation Reduction Act (IRA), a sweeping package that includes $369 billion to reduce U.S. greenhouse gas emissions by 40 percent by 2030.

Much of the funding and regulations will move our country’s energy production to more environmentally friendly sources, including ramping up domestic production of wind turbines, solar panels and batteries, as well as providing tax credits to reduce carbon emissions.

For multifamily property owners, the bill offers a large chunk of funding and incentives for building upgrades—with $9 billion for consumer home energy rebate programs and 10 years of tax credits for clean and energy-efficient home improvements. Property owners will also benefit from workforce training programs for the jobs required to implement retrofits and a widened domestic supply chain.

What’s at Stake

The real estate industry is driving 40 percent of the world’s carbon dioxide emissions. In the U.S., homes, including multifamily properties, are responsible for 20 percent of the country’s greenhouse gases. Undertaking low-risk retrofits to electrify homes will contribute significantly toward the country’s goal of net zero emissions by 2050.

How Can the IRA Benefit Your Business?

A significant legislative effort, the IRA includes a dizzying number of funding opportunities for commercial real-estate investors and multifamily property owners to sort through.

Here are the top opportunities to leverage for your portfolio:

  1. Energy-efficiency Rebates

Multifamily property owners who want to retrofit their existing properties can access $4.3 billion via rebates for energy-efficiency purchases. Individual states will implement programming to help single-family and multifamily property owners electrify water heaters, HVAC systems and clothes dryers; purchase heat pumps; and upgrade service panels, windows and insulation.

Owners can also receive an additional 30 percent credit for implementing solar power and geothermal heating over the next 10 years.

  1. Extra Funding for Affordable Housing

The package aims to pursue environmental justice, designating $837.5 million for owners who invest in low-income communities. Funding is available for upgrades in affordable housing units, including energy storage, electrification, improved air quality, energy efficiency and water conservation.

Often owners can access the loans or grants for affordable housing updates in addition to the other energy-efficiency tax credits and rebates offered through the IRA.

Never a Better Time to Begin: Workforce Training and Supply Chain Improvements Accelerate Project Timelines

Despite increased enthusiasm for environmentally friendly upgrades, the shortage of skilled labor can result in costly delays. Compounding staffing challenges, persistent supply chain clogs might make owners wary about undertaking retrofits, even with the incentives offered by the IRA.

To solve these issues, legislators included several initiatives that will make green projects easier to complete:

  • Additionally, the Home Online Performance-Based Energy-Efficiency (HOPE) program will receive $200 million to provide home performance training to contractors’ employees, ensuring a pipeline of trained professionals. One policy estimates that the funding will eventually support 83,000 jobs.

Sustainability Is Good for Business

In recent years, environmental, social and governance (ESG) has become a must-have for real-estate portfolios. Customers and investors want sustainable assets, and tenants prefer living in energy-efficient units to reduce their utility costs. Owners who invest in climate-friendly buildings see higher rents and NOI. In fact, Barron’s 10 most sustainable REITs had an average dividend yield nearly 1 percent higher than their peers in the S&P 500.

With the IRA providing tax credits, rebates, grants and loans, as well as making investments in production and labor, there’s never been a better time to make deep retrofits to multifamily properties.

Understanding the complexities of the IRA and energy conservation can be challenging. Outsourcing to an expert in multifamily sustainability practices can deliver the results you want without bogging down your organization. When picking a sustainability expert, look for those with experience, proven reporting competencies and green financing knowledge.

With the introduction of the IRA, multifamily property owners have a tremendous opportunity to improve their communities and reduce their carbon footprint while enjoying higher rents and lower operating expenses.

About the Author

Richard Lamondin
Richard Lamondin is founder and CEO of EcoSystems, a water- and energy-conservation company helping multifamily and commercial building clients.

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