Definitions
Low-to-Moderate Income (LMI) Residents & Communities: Low-to-Moderate Income Communities are those composed of residents at 80% of the area median income (AMI) or below. This definition is commonly used in both housing and energy program circles to target eligibility for federal- and state-funded programs.
Geographically, an LMI area is defined by the U.S. Department of the Treasury as a census tract with a poverty rate of at least 20 percent. For or a household, LMI is characterized by an income of up to 80 percent of the AMI. Through a definition employed under the Greenhouse Gas Reduction Fund, EPA has promulgated a consolidated definition for LMI households and geographies under a new acronym, LIDAC – a Low Income/Disadvantaged Communities. These terms are often utilized interchangeably, though they all have slightly different meanings. This report primarily relies on the term LIDAC throughout.
Low Income/Disadvantaged Communities (LIDAC): A community that meets at least one of the following characteristics: Identified as disadvantaged by the Climate and Economic Justice Screening Tool (CEJST); Any census block group that is at or above the 90th percentile for any of EJScreen’s Supplemental Indexes when compared to the nation or state; and/or any geographic area within Tribal lands as included in the EJ Screen.
Subsidized Affordable Housing: The report focuses primarily on existing and new construction deed-restricted multifamily rental properties that provide long-term affordability through regulated, below-market rents, including programs financed with Low-income Housing Tax Credits and public subsidies.
Unsubsidized Affordable Housing: This report also discusses what is commonly referred to as market rate affordable housing or “Naturally Occurring” Affordable Housing (NOAH). Rents in these properties are relatively low compared to other market rate rents for the applicable region. These properties are typically Class B and C rental buildings or complexes, often constructed between 1940 and 1990. In-place rents are at levels technically affordable to LMI households but are generally not subject to enforceable affordability covenants. Exemptions to this may include local rent control laws. In addition, some public funding programs may include short-term affordability requirements.
Decarbonization: The critical goals of decarbonization are to reduce greenhouse gas emissions while simultaneously addressing housing cost burdens and improving housing quality. Decarbonization stemmed from more traditional concepts such as energy efficiency and resiliency. The fundamental characteristics of decarbonization include:
Reducing energy load with high performance envelopes and improving indoor air quality through indoor air movement;
Installing highly efficient, all electric equipment and appliances such as heating and cooling equipment, domestic hot water heaters, stoves, and clothes dryers; and
Utilizing demand controls, on-site renewables, and energy storage to manage electric energy consumption.
Why prioritize decarbonizing affordable housing?
According to the California Energy Commission's 2021 Building Decarbonization Assessment, all buildings need to be all-electric to achieve California's 2045 carbon neutrality goals.
Decarbonization of affordable housing is thus a critical step toward reaching California’s carbon neutrality goals and addressing both environmental and social challenges faced by vulnerable communities.
Low and Moderate Income (LMI) households and Black, Indigenous, People of Color (BIPOC) are the most impacted by the simultaneous effects of the climate and housing crises and are the primary populations in subsidized and unsubsidized affordable multifamily dwellings.
Low-income households, particularly Black households, also face the greatest energy burden in the country. Data from UC Berkeley shows that Black renters pay
$273 more for energy each year than their white peers, and Black homeowners annually pay $408 more for energy than white homeowners.
Why a multisector roadmap?
More multisector coordination will develop solutions that work across energy and housing, will achieve more predictable outcomes, and will scale impact for LIDACs and climate goals.
Our Research: The Team surfaced more than 60 programs designed to reduce carbon emissions and equitably transition affordable housing energy use from fossil fuels. There are state and regional programs, all with their own strengths and weaknesses, geographic criteria, and timelines. The funding comes from disparate sources with different requirements, timelines, metrics of success, policy priorities, and regulatory requirements.
Findings: Of those 60 programs, there are 11 key sources that are most used and well-resourced. Our research also identified 17 entities that provide most of the funding programs for the development and preservation of affordable housing and the implementation of energy efficiency and sustainability components in affordable housing.
This adds significant complexity to the industry making it difficult to navigate, less efficient to manage, and limits scaling opportunities and overall progress to meet the state’s climate goals. Much more coordination is needed to maximize limited resources.
Invest in affordable housing and local partnership to create more equitable energy funding
Ensuring the money flows into affordable homes, whether subsidized or unsubsidized, must define how we approach a new era of climate and housing investment.
Our research indicates that achieving better racial equity impacts and outcomes in energy programs results from:
Flowing money through state-run affordable housing programs to ensure LIDACs benefit
Governance and administrative structures that establish underwriting to mission-aligned regional partners that have local relationships and trusted community partners that can effectively target the hardest to reach communities
Multisector collaboration is necessary to achieve more predictable outcomes
Stakeholders noted a tension between the various sector needs to achieve their own policy priorities while also working on the decarbonization of affordable housing. Despite this, stakeholders acknowledged the need for stronger collaboration as a steppingstone towards more effective program design. California state agencies have continued making progress in their cross-agency collaboration, as exemplified by Executive Order N-2-24 Section 2(d).
The complexity of both energy and housing sectors requires a comprehensively financial support for a team that can navigate both industries and the implications of specific program elements to reach successful implementation for LIDAC communities.
Industry Opportunities in CA
Climate Goals are More Aggressive
CA is the only state with a comprehensive carbon neutrality plan, with a goal of reaching net zero carbon emissions by 2045, one of the most ambitious examples of climate legislation in the world.
Building Code is More Aggressive
Title 24, the section of the CA Building Code that regulates building energy efficiency standards in both new construction and existing buildings, is generally sufficient for developers to meet common green building certification program standards.
Robust LIDAC Administrative Infrastructure
The state boasts a multitude of policies, programs, and organizations committed to the intersection of climate, equity, and housing. Notable among these are the state’s Greenhouse Gas Reduction Fund, the Strategic Growth Council, and the CA Energy Commission.
Inflation Reduction Act and Bipartisan Infrastructure Law
The IRA and BIL present a new set of funding opportunities. IRA provides $369 billion for investments in climate resilience, energy security programs and efficiency improvements, with many funding programs boosting incentives for LIDACs (see Appendix: Federal Resources – Inflation Reduction Act).
California is well-known for its aggressive and comprehensive climate legislation that far outpaces other states. A series of landmark policies implemented in the past two decades has seen California become a leader in limiting greenhouse gas emissions and transitioning to more sustainable means of energy production.
With the California State Legislature setting even more stringent interim goals of 90% zero-carbon electricity sales, the state offers an incredible opportunity to implement a variety of energy efficiency programs to affordable housing.
Industry Issues in CA
In 2023, our team conducted an analysis of California’s climate goals alongside the funding currently available to upgrade and build affordable housing to meet state climate goals. The result was a financial gap analysis detailing the additional resources required to fill the funding gap.
The annual funding gap to decarbonize California’s affordable housing stock is $2.2 billion per year, or a total of $48 billion through 2045.1
Funding to decarbonize affordable housing will have to come from somewhere, but there is no one-size- fits-all strategy.
Increased Harm to Tenants
Most program regulations do not include protections to prevent tenants from receiving rent increases, so costs can be transferred to low-income tenants causing further harm in LIDACs.
Grid Upgrades + Capacity Gaps Across the Industry
The overall grid upgrade needs are significant. Securing investments and funding, and implementing retrofit features is a new, complicated, time-consuming process that requires training, technical support, and specialization across the spectrum of impacted parties, from the public sector to housing practitioners to investors to general contractors.
Return on Investment (ROI)
Affordable multifamily requires dedicated funding with specialized terms due to their complex financing structures and restrictions on rental incomes, making ROI more challenging.
Mismatch Between Finance Structuring
Energy money is mostly deployed through incentives and rebate structures that don’t work with subsidized affordable housing capital stacks or provide enough incentive for an already stressed housing sector to increase uptake of the programs. For unsubsidized properties, programs must incentivize investment and protect tenants from rent increases or displacement.
1. Reference: Gap Analysis – Driving Energy Efficiency and Renewable Energy Funds into Low- and Moderate-Income (LMI) Communities in California