In theory, the Inflation Reduction Act could do a lot for renters.
People who rent their homes often deal with older buildings, leaky piping, and poor ventilation. The IRA’s attempt to get fossil fuels out of the home would benefit them significantly. But renters could be the last to see the benefits.
The new law passed last August authorizes $369 billion in investments for utilities, transmission lines, and greener manufacturing over the next decade, including $43 billion in tax breaks and rebates that bring down the cost of products like solar panels, electric appliances, and electric vehicles.
Those tax credits and rebates will be the most immediate effect the law has for most people. But these incentives go much further for homeowners than renters. Renters have less control over their energy consumption and over the permanent fixtures of their home, and they face a unique set of problems that the IRA wasn’t built to tackle.
“A lot of these incentives are geared to single-family homes,” said Mark Wolfe, executive director of the National Energy Assistance Directors Association, a group that focuses on policies that help low-income families.
Renters are a huge category, but still a minority in the US. Roughly 110 million people in the US live in a rental household, and rental homes and apartments make up about 36 percent of the nation’s housing. According to 2019 Census data, 58 percent of households headed by Black Americans rent, as do 52 percent of Hispanic- or Latino-led households. Younger people are also more likely to rent: Almost two-thirds of people under age 35 lived in rentals.
But the IRA doesn’t fully ignore the rental economy. Parts of the law can help multifamily residences and landlords make upgrades to energy efficiency, switch to more modern appliances, and create more comfortable homes — which means both the renter and the landlord have options.
The problems with forgetting renters
Even though renters have no financial stake in their building, they have plenty of reason to want energy-efficient, modern homes. “When you switch out your fossil fuel appliances, you’re making the home healthier, reducing pollution, as well as improving efficiency, which ultimately reduces energy consumption,” said Jamal Lewis, director of policy partnerships and equitable electrification at the advocacy group Rewiring America.
Besides energy bills, there can be other benefits to changes like swapping out a gas stove for induction or a gas furnace for an electric heat pump. Extreme heat, after all, impacts the effectiveness of medications and can worsen underlying illnesses, so a cooler, efficient home is a public health concern. It can also just make for a better quality of life. “Heat pumps offer more consistent temperature and manage humidity better,” Lewis said. “Some people are really motivated by the better regulation of air temperature, and other people are much more motivated by lower energy costs.”
The basic problem with the IRA’s setup is the different incentives that landlords and renters face when it comes to building upgrades. A renter wants a comfortable, healthy environment and may be stuck paying the energy bill for an inefficient home. But they have no investment in the building beyond the months or years they will be there.
The landlord, meanwhile, may want improvement that could increase the value of the property, but otherwise doesn’t have a strong reason to invest in invisible changes that would directly benefit their tenants. The split incentive is especially stark when it’s the renter who pays the electric bill.
For renters who have a choice about where to live, this split incentive can still work out in their favor. Higher-income renters have more options to choose a building with rooftop solar or electric heat pumps. Low-income renters are far more limited in what housing stock is affordable and available to them, and more likely to be forced to put up with worse quality and health hazards.
The IRA doesn’t impose bans or requirements for builders and manufacturers, and it depends on economic incentives (tax breaks and rebates) to persuade people and businesses to buy clean technologies. So whether it successfully helps renters live in fossil fuel-free homes depends on whether it can convince property owners that upgrades make business sense.
It can be a tough sell. Potential tenants can appreciate new windows or a fresh coat of paint, but insulation and heat pumps are mostly invisible.
“What we don’t know is how much incentive is needed for building owners who don’t pay energy bills to make these improvements,” Wolfe said. The hope is the IRA is a start.
There are ways renters can still benefit
The list of what renters can do is short, especially compared to what a landlord has power over. The nation’s housing supply is diverse, and the IRA sets income limits for who qualifies for tax credits and rebates, so some exceptions do apply.
The good news is the IRS says that tax credits could also apply to renters and multi-family residences, as long as they meet the income limits spelled out in the law.
Instead of a full home renovation to accommodate a new heat pump or a major purchase like a new stove, a renter is going to want something that can be plugged in, like a window unit heat pump or a ductless heat pump clothes dryer. A cheap option is an induction burner that can plug into a regular 120-volt outlet; these can be purchased for as little as $50.
Tax credits only matter for people with enough tax liability to benefit from the offset. Many renters don’t fall into this category. So the IRA’s rebates are generally more helpful to renters because they lower the cost of buying an appliance or a home upgrade.
The most relevant are the home electrification and appliance rebates and home efficiency rebates. The home electrification rebate particularly benefits low- and moderate-income individuals, by providing upfront discounts for heat pump water heaters and HVAC systems and electric stoves and cooktops. It will cover 100 percent of electrification project costs (up to $14,000) for low-income households and 50 percent of costs (up to $14,000) for moderate-income households. Importantly, these are point-of-sale discounts. The rebate is administered by states and will be rolled out later this year.
Manufacturers are likely to start coming out with many more of these renter-friendly models in the coming years. Canary Media describes a “sleek forthcoming model from Gradient [that] slides over the window frame, delivering electric heating and cooling without permanently altering the building (that product ships this spring, starting at $2,000).” This is portable, so if the renter moves, they just take it with them.
It’s not really on the renter to change their home
There’s much more that falls to the landlord, state, and federal regulators than to the renter. Since a renter’s tenure in a building can be anywhere from a few months to years, it’s not their responsibility to make physical improvements to the building.
But there is real need to improve these buildings. Wolfe notes that many older buildings don’t have adequate cooling and heating, a responsibility that should fall on the owner.
Many major upgrades require working with the landlord. For a proactive renter, Lewis recommended “approach[ing] the conversation with your landlord or property management company or property owner with curiosity, and be open to a conversation.” Show them the math on the specific upgrades that can save them money or be attractive to future tenants.
One of the rebates that appeal to landlords include the home owner managing energy savings (HOMES) rebates. A portion of the $4.3 billion for these rebates will be available for owners of multifamily properties to retrofit their units or buildings. A property might be eligible for $2,000 per unit if the project achieves 20 percent energy savings, and $4,000 per unit if it achieves 35 percent savings. The incentives are doubled for low- and moderate-income buildings.
Another option is the law’s $1 billion for the Department of Housing and Urban Development’s Green and Resilient Retrofit Program, which provides owners of Section 8 multifamily properties and HUD-assisted housing the direct funding to improve energy, water efficiency, air quality, and more. The other indirect way renters can benefit from IRA programs is through the low-income communities bonus credit, which provides tax credits for qualifying wind and solar based in low-income communities. The credit helps cover the costs of renewable projects that are installed in rental buildings, as long as half of the cost-saving benefits are passed along directly to low-income households.
It’s easier to bring new construction up to a higher bar than to retrofit older buildings. The IRA also incentivizes construction of energy-efficient households by offering owners of new multifamily units a base credit of at least $500 for units that participate in Energy Star’s program.
The funding doesn’t go far enough, though, Wolfe noted. Wolfe estimated the money is enough to help roughly 800,000 units, out of roughly 142 million units in the country (32 million of which are low-income homeowners and renters). “When you put it in that perspective, it’s quite daunting,” he said.
Policies that will do the most good need to come from cities, states, and the federal government, and put responsibility on the decision-maker — the landlord. States and cities have an important role to play here to design better policies and stronger building codes aimed at renters and affordable housing, and the IRA even provides $1 billion for local and state governments to adopt the latest in building codes (the program is called Assistance for Latest and Zero Building Energy Code Adoption).
But blue states have shown more initiative in programs that go beyond federal funding. New York City, for instance, has a $70 million initiative to bring 30,000 window-size heat pumps to aging public housing.
Ultimately, the IRA funding is a start. But the split incentives renters and landlords face make for a complicated set of challenges that tax credits and rebates alone may not fix. There’s still need for policies outside the IRA, like the Energy Department’s building performance standards, to raise the bar for the nation’s least efficient buildings.
“We need a long-term national commitment to retrofit the nation’s housing stock,” Wolfe said. “The IRA sets the stakes, but there will need to be more money, more training, and more resources.”