Green Mandates Can Add Value For High-End Apartments But Make Affordable Housing Harder To Build

While cities like Boston and Cambridge are moving full steam ahead with emissions reduction mandates and green building codes, these policies are having a wide variety of impacts on developers building multifamily housing.

On one side, market-rate developers can pass cost burdens on to tenants and attract more private investments due to their buildings' green energy performance. But for affordable housing developers, the mandates add pressure to an already-tense market.

Real estate executives at Bisnow's Boston Multifamily Conference, held Tuesday at the Westin Boston Seaport District, said that although these mandates are a crucial part to help cities meet their climate goals, they put extra strain on housing development when the region is already facing a shortage.

“We can agree on two things: Environmental sustainability is a good thing, and affordable housing is important and necessary for society to function,” Peebles Corp. Development Executive Donahue Peebles III said. “When you pair those two things together, what you get is: Good policy plus good policy is sometimes bad policy squared.”

Peebles said that although it is important to meet city and state climate goals, the more pressing matter is bringing more housing into the metro area, as the housing crisis continues to worsen.

“There is certainly a hierarchy of needs, and I certainly think housing comes first, and ultimately we are solving for a more sustainable planet,” Peebles said. “I think that is important, but I also want to make sure there are not tents in public parks.”

Boston's BERDO 2.0 will require owners of buildings with an area of at least 35K SF to report their carbon footprints and set emissions caps starting in 2025. These caps will be lowered every five years until buildings will be required to become fully carbon-neutral in 2050. The law has been one developers in the city have grappled with as the deadline comes closer. 

On Monday, Cambridge officials voted to approve the city’s Building Energy Use Disclosure Ordinance, but they removed residential buildings from the policy, the Boston Business Journal reported. In a previous version of the legislation, larger multifamily buildings were included, but by a 5-4 vote, city council members approved the removal of apartment complexes from the ordinance.

Leggat McCall Properties Senior Vice President Adelaide Grady, whose company is partnering on the Bunker Hill Housing redevelopment, said the company is required to cover the energy costs of the affordable housing units, but in market-rate buildings, the energy costs are passed on to the tenants. 

“It’s not just the cost of the systems and the capital cost; it’s the shifting of the burden of the energy bills to the landlord, and the landlord is not able to incentivize or recapture that cost through rent," Grady said. 

The Bunker Hill Housing redevelopment, a public-private partnership between Leggat McCall and the Boston Housing Authority, is a 15-building project that will replace 102 decrepit deeply affordable units with 2,699 units, including 1,010 deeply affordable replacement units.

The firm committed the project to operate at 100% Passive House standard, an element that the firm knew was necessary but came with its own challenges, especially from community members who wanted to implement more expensive designs.

“We were able to push back and say, 'Look, these buildings are going to be Passive House,'” Grady said. “They can still be beautiful, they will be beautiful, but they don’t necessarily have the opportunity to have all the articulation that the [Boston Civic Design Commission] is going to want to see.”

HFA | LaFreniere Architects principal John LaFreniere said that construction costs for market-rate housing used to be much higher than for affordable projects, but that has changed.

"There's very little difference in cost between affordable housing and market-rate housing," LaFreniere said. "It used to be public housing was bare-bones, but it's all the same now."

A study from the Home Builders & Remodelers Association of Massachusetts found that the state's new net-zero building code, which 17 cities and towns have adopted, would increase construction costs by 3.8% for single-family homes and by 2.4% for apartment and condo buildings, the BBJ reported. 

For affordable housing developers, these costs, on top of all the other requirements in place for development, put pressure on their bottom lines. 

“The burden to achieve those ancillary policies' objectives for environmental sustainability, local employment, [minority- and women-owned business enterprises] utilization, that should fall on the market-rate developer that is developing for profit and using private sources of capital," Peebles said. "But the government is insisting that the dollars it uses are less efficient, and to me, I think this is an adverse outcome.”

For those in the market-rate space, maximizing a building's energy-efficiency has many benefits as more parties become interested in meeting local and state climate goals.

“On the new construction side, it drives a ton of value," Procopio Cos. Senior Vice President Bryan Vitale said. “With all of the ESG requirements out there, this stuff really matters. It matters to us as an owner. We want to design systems that are as efficient as possible.”  

Drew Colbert, vice president at WinnCos., said that energy-efficiency isn't only a long-term cost-saving avenue for owners but also for market-rate renters that end up having to pay utilities.

"Tenants that are paying for all of their utilities, and while they’re seeing their monthly rent cost, a building that is very efficient with efficient systems and great insulation also has a much lower utility cost," Colbert said  "This also adds value as you look to retain tenants.”

Private investors have also begun to show more interest in buildings that are in line with the latest environmental policies, creating more prospective buyers for owners of efficient buildings that look to sell. 

“We’ve seen more and more investors focused on ESG as ESG guidelines have matured and are starting to take shape a little bit more," Parity Managing Director James Hannah said. "It’s not good enough just to say, 'You know, it’s LEED certified' or 'We are planning on doing this.' It is increasingly data-focused.'”