When it comes to affordability in cities, don’t forget about utility bills
A Sidewalk Talk Q&A on energy cost burdens with researchers Constantine E. Kontokosta and Vincent J. Reina.
The challenge of affordability in cities typically focuses on housing and transportation costs, but utilities can also play a significant role. That’s especially true for lower-income households, which often struggle to pay a utility bill while providing other basic needs. The pursuit of more energy-efficient buildings shouldn’t come at the expense of affordability, nor should it undermine environmental justice.
A clearer picture of the role utilities play in urban affordability comes from a study recently published in the Journal of the American Planning Association. Analyzing data from five U.S. cities that passed new energy benchmarking laws (New York, Boston, Cambridge, Seattle, and Washington, D.C.), the researchers found significant economic and racial disparities around utility cost burden. Lower-income households paid more of their annual income in energy costs than higher-income households, and even within a given income band, households in minority neighborhoods faced greater burdens than those in white neighborhoods.
“Cities really need to be paying attention to this,” says study co-author Constantine E. Kontokosta of NYU. “They don’t have the data and resources to do it. We tried to develop an approach to measuring energy cost burdens, but a lot more needs to be done to be able to design policy around these kinds of issues.”
Kontokosta and co-author Vincent J. Reina of the University of Pennsylvania spoke to Sidewalk Talk about the need for better data on energy burdens, affordable energy innovations, and local policies designed around environmental justice.
In the conversation around affordability in cities, utilities don’t come up that often. Why is that?
Reina: People assume that utility costs are often a small share of the overall budget item. What people often don’t realize is that energy cost burden estimates can reflect someone’s direct outlays on any given month, when the total costs go beyond that. Low-income individuals particularly might have outstanding utility bills that they’re paying a minimum amount on, which means burden levels can often be hidden by ways we currently capture those data.
A second piece is that people often assume utilities are a function of choice as opposed to constraints. One finding in our work is that for low-income households, utility costs and cost burdens are not a function of choice but rather one of constraints. At some point, you can’t actually minimize the amount of heat you consume without just consuming no heat.
Your paper notes that we don’t really have very granular data — at the household level, maybe even at the building level — on energy cost burdens. What’s preventing that insight, and why is it so important?
Kontokosta: As Vincent pointed out, a lot of these costs are hidden, and a lot of the usage dynamics and consumption patterns are hidden because the data simply aren’t available. The challenge has been predominantly that the data, especially the tenant-level data, has been held by the utility companies. Those utility companies, for a variety of reasons, have been reluctant to share. There is a privacy constraint, and in many cases, utilities face non-trivial infrastructure limitations. They’re just not set up to deal with processing and disseminating and analyzing this type of information on any kind of reasonable timeframe.
I think this idea about transparency and dissemination of information is fundamental to how we could think about improving the efficiency of our built environment. As soon as these new energy benchmarking laws were passed, new streams of energy use data were made available. So what we tried to do was account for this limitation and by getting creative with some of the data sets that we could access and some of these new, more granular data sets that could speak more closely to this question of tenant usage and tenant costs.
You did find evidence of economic and racial disparities across these cost burdens. What are some of the factors behind those results?
Reina: When I think about our findings, I think of questions of access and investment. We have subscribed to this model where housing degrades over time and becomes lower cost and therefore more affordable. So as a result, most of our housing that is at a lower price point is housing that often needs some form of investment. This means you wind up with a scenario where a low-income household generally is more likely to live in an older and least efficient unit that is much more in need of investment.
Those issues become exacerbated when we look at the well-documented history of racial discrimination that has limited, and often prohibited, households of color from accessing whole segments of the housing market, and also disproportionally funneled investments into majority white neighborhoods. So what you see is the cost burdens disproportionately fall on low-income households generally, but then also specifically on communities of color because of those issues of access and investment that compound over time.
Kontokosta: The factors driving those consumption profiles are very, very different, as Vincent pointed out, where on the lower-income scale, it’s largely a function of housing quality, and on the upper-income scale, it’s largely a function of usage behaviors.
I think what was most surprising was looking at this variation across minority communities, holding these energy efficiency characteristics constant. That was particularly troubling. Right now people are very concerned about performance-based energy policies, but we really need to be thinking about equity-based energy policies, where we’re not just looking purely at the energy efficiency characteristics of a property, but what is the net effect on the people who live and work in that building. What are the actual burdens that are being placed on these individuals, and what is the disparate impact that we can observe?
You also studied some of the different technologies that you could reduce energy burdens for households. Can you discuss some of those?
Kontokosta: Most of the things that we were looking at in terms of energy conservation measures were derived from Local 87, which is New York City’s energy audit law. So we had access to individual building audit reports to give us some sense of what auditors were recommending and what the savings might be. Those reports tend to skew toward the lower-cost, easier measures. So we really weren’t looking at the big ticket, high cost upgrades — such as fuel switching and envelope improvements and other deep retrofit measures.
But what we found is more simple measures that could be done, such as operational improvements to existing systems, building management systems, upgrading lighting fixtures, and doing air sealing around old windows. Relatively simple things that could have a non-trivial impact on cost burdens, but that aren’t in large measure being done.
You found that building management systems showed the “most cost-effective” opportunity, saving $118 per unit. Something we’re exploring at Sidewalk is the potential to create low-cost energy management systems that an older building could deploy, even if it doesn’t have much extra capital for investments. Can you talk about the promise of these systems, and maybe why they’re not being deployed widely?
Kontokosta: I think there’s a lot of promise with building management systems. Obviously from a perspective of operational efficiencies and being able to automate some of these decisions, but also from a data gathering perspective, I think this kind of infrastructure is critical. If you think about the ability to process energy use data, not just on a monthly or annual basis, but we’ll start getting into hourly data and more real time measures. Beyond the usefulness for building operations, there’s a broader policy context where that data can become very, very useful.
I think one challenge, in terms of why we’re not seeing more of this uptake in building management systems, has been the market is just flooded with different technologies. For a building owner, as somebody who might own a 20-unit building with subsidized apartments in it, that landlord is not going to necessarily be the most technology-savvy person. To have to go through the effort of figuring out which technology works, deal with all these technology providers, deal with the process of actually installing the systems and figuring out how they work — these are very real and practical challenges that exist beyond just the larger cost issues.
Reina: There’s a challenge of general perception. There is often a lot of focus on the bigger things, when a lot of smaller things can actually be done to improve energy cost burdens and the overall quality of life for the residents who live in those properties. The second thing that Constantine hit on is the impact. Really being able to quantify and understand what will this small change actually do, and what does that actually translate to in dollars and cents and rates of return.
Both of those connect to challenges around financing and accessing capital and credit to make investments in multi-family properties, particularly smaller multi-family properties, which is largely where a lot of our lower cost housing in the U.S. is located. An owner may only need to access small levels of capital to make some of these improvements. That means that even access to small pools of credit to make these kinds of improvements that might have a return, is something that is often lacking in many markets and definitely at a national level.
In terms of policies to get these types of interventions in place, do you think it has to be a requirement, or are there other types of incentives that could be pursued?
Reina: I think there’s definitely carrots and sticks involved in all of this stuff. One thing we highlight is that there is a distinct opportunity with this benchmarking data for cities to be a lot more strategic and targeted with their initiatives. It’s one thing to create a program. It’s another thing to target 100 properties and say, “Hey, owner, we know your property consumption levels and have this program that can benefit you and your tenants. Are you interested in it?” I think there’s a lot of opportunity for more of that kind of targeted action.
There’s also a lot of opportunity to think creatively about the use of government funds. In Philadelphia, they recently created a small landlord loan guarantee program, targeted towards small landlords to support their need to make investments in their properties. That was a credit security that says, “Ok, lender, we’ll secure the loans you make for these kinds of improvements.”
Beyond that, there is a moral and justice imperative for the cities to be more proactive in acknowledging that certain owners won’t engage, and that there are certain properties where particularly the lowest-income households are in very poor housing quality and have no control at all over their energy consumption levels. And when you think of that, that’s where the carrot and stick helps, because I think a lot of times owners might say, “Well, you want me to make these investments, how am I going to do it?” It really does help when you have a product that allows you to says, “Okay, well, here’s how you can do it.” This means you need to make sure that those mandates are very clear and active, but on top of that, ensuring that there’s the actual mechanisms that owners can pursue to do those things.
Kontokosta: I think uncertainty is such a big piece of this, and that’s largely driven by the fact that good data don’t exist on the returns to these types of investments. I’ve got a new paper out with several colleagues that actually looks at the rate of return on adopted energy conservation measures in New York City buildings, and finds the return on these investments is actually quite large. And the issue is purely that people are still discounting the investment characteristics of these energy efficiency upgrades, because they don’t have a good database to pull from. They don’t have a hundred or a thousand other examples to say, “If you install building management systems, you will save X per square foot in your building.”
So part of the challenge is overcoming this uncertainty with better information and better data that’s more widely available and transparent.
How do you do this in a way that ensures a building owners or landlords don’t just pass on the costs to tenants?
Reina: Yeah. A lot of programs employ some form of restriction on what you can do with rents thereafter. I think the key here is we could acknowledge that owners can get a rate of return. We can keep them from passing costs on to tenants. These things aren’t all mutually exclusive. There is clearly a tension between them, but it’s important to acknowledge that with really informed decision making, you can actually achieve multiple goals and it might not be maximizing profit or completely upgrading a unit to its most efficient form, but ideally it provides more predictability about expenses and the ability for a household to actually make consumption-based decisions as opposed to just constraint-based decisions.
That’s all to say is, I think there’s a lot of room for municipalities to acknowledge that they do have a fair amount of leverage, particularly when they have these kind of data at their disposal, to be a little more strong-handed with how they design programs and ensure that costs just aren’t passed on to the residents and the property, while also designing programs that owners actually do engage in and find some benefit from.
Are there cities that you think are kind of providing the best model of how to go about reducing energy burden?
Kontokosta: I know that there’s a lot of cities that are concerned about this. Seattle and Boston, among others in the U.S. I’m not sure I could point to any specific city or city policy where they’re really tackling this head on. Of course New York has been and continues to be a leader in this space. And I think they’ve done a very good job of building the kind of foundations of putting themselves in a position to design these types of policies if they choose to. I think having the benchmarking reporting law [Local Law 84], Local Law 97, these are all the policy pieces that help build the foundation to be more structured in terms of how they approach these types of energy justice problems.
Reina: Increasingly we’re seeing this shift in how we think about the connection between housing affordability and a larger bundle of goods that are essential to the well-being of individuals and the environment. And I’m hopeful that, as Constantine said, with those pieces in place, we’re going to start to see innovative efforts that are more actively framing housing investments in the context of energy consumption, including the larger implications of that connection and what that means for environmental justice.
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