Energy Codes and Housing Affordability

A Delicate Balancing Act

In the fall season, cities across the country are preparing to update their building codes, using the 2021 International Code Council’s (ICC) model building codes. ICC oversees the development of building codes that regulate how buildings are constructed, including the International Energy Conservation Code (IECC). Most municipalities take advantage of the benefit of including state and regional amendment recommendations.
Texas builders, however, have two choices in how they comply with heightened energy codes. In September 2021, Texas House Bill 3215, codified in Chapter 388 of Texas Building Energy Performance Standards, was implemented into law. Under the ANSI/RESNET 301-2019 Standard, the law sets the Home Energy Rating System (HERS) Index as a standalone compliance pathway separate from the current ICC/IRC versions of the Energy Rating Index (ERI) pathway. Homes using this pathway must also meet the 2018 IECC building envelope provisions. Flexibility offered by this approach is intended to allow for more innovation and better empower builders to cope with supply chain challenges. The HERS Index compliance pathway in Texas will remain in effect for 10 years before it is required to be reviewed again by the state.
Meanwhile, development of the 2024 national model energy code is already well underway. More than 200 code-change proposals were submitted in the fall of 2021. Significant proposals under consideration include requirements for:

  • whole-home electrification or ensuring the home is electrification-ready
  • on-site solar panels
  • homes to be solar-ready and energy-storage-ready
  • electric vehicle charging capability or readiness
  • grid-interactive equipment for demand response
  • increasing the stringency of insulation, windows, and building and duct tightness
  • energy-recovery ventilators (ERVs)
  • eliminating the batt insulation option at rim joists
  • third-party inspections for energy code compliance (instead of inspection by building inspectors)
  • air handlers to be located in conditioned space
  • much higher ASHRAE 62.2 ventilation rates
  • increased building tightness
  • further reducing overall flexibility (for example, removing air tightness trade-offs)
  • imposing a penalty on houses larger than 5,000 square feet
  • realigning energy efficiency measures to prioritize more cost-effective strategies
  • improving flexibility and increasing choices for achieving compliance when using performance design

One of the key roles of the National Association of Home Builders (NAHB), including members of the Texas Association of Builders (TAB) and our local builders associations, is to be engaged in the code-writing process as the voice of the industry. While forward-progress is championed by all, many of the provisions presented in every round of code hearings stand to significantly affect home design and construction costs and limit a builder’s flexibility to optimize building performance.
While watch-dogging the next round of energy code changes due out for 2024, NAHB members have been on the forefront in rebuking the Senate’s proposed Inflation Reduction Act of 2022. The bill would fund $1 billion in grants for paying state and local governments to adopt more stringent energy code regulations. Most of the funds would incentivize the adoption of energy regulations for residential and commercial buildings that meet the zero energy provisions in the 2021 edition of the International Energy Conservation Code (IECC). The bill does include some positive provisions for housing, such as extending many existing energy tax incentives, and the allocation of $4.3 billion for the HOMES Rebate Program (an energy-efficient retrofit program). Changes to Section 45L new energy efficient home tax credit, however, would effectively render the $2,000 tax credit on homes meeting specific energy savings above the baseline IECC, null and void for most builders, says NAHB.
NAHB members have already successfully defeated a measure in the Inflation Reduction Act bill that would have extended the 3.8% Net Investment Income Tax (NIIT) to active investors. The NIIT applies to capital gains and rental income, among other investment streams. It is now fighting another provision on carried interest which affects existing real estate partnership agreements and the treatment of Section 1231 gains.
With government regulations and impact fees adding roughly 24% to the cost of a typical new home, creating a regulatory environment favorable to new construction by reducing burdensome federal regulations while utilizing aggressive federal incentives to help improve local zoning, impact fee and permitting process reforms is paramount, says NAHB.

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