CHALLENGES UNIQUE TO THIS TYPOLOGY

WE MUST SOLVE FOR…

INTERVENTIONS RECOMMENDED TO RESOLVE THIS CHALLENGE

DESIRED OUTCOMES

PARTNERSHIPS NECESSARY TO ACHIEVE THESE OUTCOMES

RENT INCREASES + TENANT DISPLACEMENT

Decarb upgrades add cost which can lead to permanently displacing tenants and loss of affordability

• Without placement of affordability protections, owners may pass on the cost of upgrades to tenants, and increase rents, which hastens displacement + harm

• Owners are typically resistant to voluntarily accepting affordability covenants in exchange for decarb capital

• There is wide variation of protections for tenants and rent increases, from local or state rental control, and some areas are without any protection. Tenants in each of these settings require different protections with real enforcement mechanisms.

• Establish a multisector statewide commission to develop strategies to scale decarbonization that targets public funds, tenant protections, and new affordability covenants.

• Explore incentives to prevent rent increases, such as fixed utility rates, tax abatement, and lower mortgage rates.

• Create decarbonization programs that focus on landlord concerns. Focus on income verification, not site conditions.

Near-term: Pilot programs to market test incentives that place new affordability covenants or tenant protections and outcomes for tenants and owners.

Long-term: Decarbonization funding programs that effectively incentivize owners and maintain affordability.

Collaboration between foundations, state and local agencies, people with lived experience, landlord and affordable housing associations, trusted community organizations, TA providers, and other institutions to support the statewide commission.

Engagement with owners and residents in unsubsidized properties.

Housing departments for tenant protection enforcements

PHYSICAL NEEDS

Housing stock is older with site and other constraints

Existing building systems and envelope:

• Need major capital upgrades to accommodate full electrification

• Many of these properties have experienced deferred maintenance for serious habitability issues like mold, pests, etc.

CA State Tenant Protection Act allows for eviction for "substantial remodel" like the major capital improvements necessary for electrification.

Comprehensive capital programs that provide both energy and capital upgrades:

• Funding for both decarbonization retrofits and Major Capital Improvements (MCI’s)

• The state should ensure that MCIs due to electrification retrofits do not substantiate cause for tenant eviction

• Engineering and design technical assistance to determine plan for decarbonization

Statewide pipeline of unsubsidized affordable housing undergoing full decarbonization

Technical assistance providers and owners or buyers of unsubsidized affordable housing.

FINANCE STRUCTURE

Varied owner types, size of properties, and access to existing programs (isn't scalable to meet housing stock need)

Varied owner types result in owners of smaller properties unable to access existing programs

• Owners resisting accepting affordability covenants that many programs require.

Restricted rent income prevents the ability to take on debt.

• Owners can’t take on more debt.

• Public and private entities do not seek small and disaggregated properties

Market-tested products to preserve affordability through:

• Creation of below market subordinate loans

• Public subsidies with low or zero cost debt that can function as “gap” funding or forgivable, grant-like loans

• Remove capital gains taxes if property is sold to public agencies that then create affordability covenants

Provide targeted technical assistance from trusted providers

• CDFIs and Housing Agencies to fund community providers to do outreach Explore a guarantee of state money for local match provided for affordable housing decarbonization programs

Market-tested programs that successfully incentivize all owner types and include financial restructuring, decarb retrofits, and preservation of affordability simultaneously.

• Housing and energy agencies form partnerships to develop and deploy subsidy program(s) with low or zero cost debt

• Private sector investments administered by mission-aligned CDFIs

• Outreach provided through state and local government and housing agencies, trusted community-based organizations, established landlord and affordable housing associations, TA providers and housing networks, banks and CDFIs.

CAPACITY & AWARNESS

Owner types vary and require deep technical assistance to integrate decarb retrofits into existing properties

Capacity challenges to implement decarbonization

• At the development and operational levels

• Ability to ensure maximum performance and efficiency

Increased public awareness

• Targeted education, and outreach for owners and contractors Integration of free Technical Assistance

• For owners/developers when accessing decarb funding programs

• Covers both financial and ongoing operations of equipment

Implementation and operational proficiency by property owners and their partners, including property and asset management, and general contractors

Collaboration between technical assistance providers (including consultants, designers, and engineering professionals), trade associations, and funding program administrators

CHALLENGES UNIQUE TO THIS TYPOLOGY

WE MUST SOLVE FOR…

INTERVENTIONS RECOMMENDED TO RESOLVE THIS CHALLENGE

DESIRED OUTCOMES

PARTNERSHIPS NECESSARY TO ACHIEVE THESE OUTCOMES

RESOURCE ALLOCATION

Preservation funding and energy resources for existing affordable housing is extremely limited and is not currently prioritized.

Housing resources for affordable housing preservation are limited in CA, regardless of decarbonization goals. This includes:

• Re-syndications of Low-Income Housing Tax Credit properties due to bond caps.

• Limited gap financing, like public soft subsidy for preservation.

Energy resources for existing properties are limited and do not cover capital upgrades.

• Create capital subsidy programs directed at preservation and decarbonization

• Leverage California’s new and existing housing programs for preservation to include energy (HCD Foreclosure Intervention Housing Preservation Program and the preservation notice law)

• Leverage CA’s existing energy incentive programs to include decarbonization funding used for existing multifamily buildings

• Leverage CA’s existing energy regulations to include decarbonization of existing buildings

• Initial focus on deep investments to model the suite of decarbonization investments that can deliver multiple benefits; over time this will allow for more effective scaling in the industry.

• Increases to the pipeline of existing regulated housing undergoing full decarbonization and preservation

• Financial interventions at the local levels to help simultaneously address decarb and preservation

Use private sector resources to lower the cost of capital, offering lower interest rates for properties that decarbonize.

PHYSICAL NEEDS

Housing stock is older with site and other constraints

Existing building systems and envelope:

• Need major capital upgrades to accommodate full electrification

• Prioritize comprehensive capital programs that provide funding for both decarbonization retrofits, associated major capital improvements (MCIs), and technical assistance.

• Update existing energy resources to include repairs and replacement upgrades.

• SOMAH incentive for solar to include roof repairs and replacement, etc.

• Engineering and design TA to assess site and building to determine plan for decarbonization.

Statewide pipeline of existing regulated affordable housing undergoing full decarbonization with newly placed / renewed affordability covenants.

Deep relationships between Technical Assistance providers and owners or buyers of regulated affordable housing.

FINANCE STRUCTURE

Regulated properties have complicated financial stacks, investor partnerships, and intricate regulations.

Existing regulated affordable properties usually have five or more funding sources that each require approval to accept new decarb dollars. Many financing programs for affordable housing have varying requirements for accepting additional debt for decarbonization upgrades:

• Section 8 and LIHTC programs have different regulations that affect the ability to invest in decarb

• State regulators do not want properties to assume more debt

• Offer below-market products that focus on major capital events like a refinance or re-syndication.

• Create grants, first position loans, below market subordinate loans or equity investment products that can act as bridge or mezzanine financing to fund decarbonization retrofits.

• Ensure compatible terms that can be used with existing regulated structures.

• Energy agencies/Utilities to design and implement rehab programs in collaboration with housing agencies for existing buildings and include capital upgrades.

Pilot funding program of projects undergoing decarbonization retrofits between recapitalization cycles.

Private or public sector investment products administered by housing agencies and mission-aligned CDFIs

• Partnerships can include Local Housing Finance Agencies, CCAs, and Regional Energy Networks (RENs)

• Example: Equitable Building Decarbonization Program includes energy and housing agencies through CEC program

CAPACITY

Owners require deep technical assistance to integrate decarb retrofits into existing properties.

Capacity challenges are at the development and operational levels of decarbonization implementation. Technical assistance must be freely available to ensure newly introduced features maximize performance and efficiency.

• Provide technical assistance that covers both financial and operational implementation.

• Ensure it is integrated into decarbonization funding programs for owners and developers. This will address capacity challenges to ensure newly introduced features maximize performance and efficiency.

Implementation and operational proficiency of decarbonization retrofits by property owners and their partners (property and asset management).

Collaboration between administrators, contractors, and technical assistance providers, such as: consultants, designers, and engineering professionals.

CHALLENGES UNIQUE TO THIS TYPOLOGY

WE MUST SOLVE FOR…

INTERVENTIONS RECOMMENDED TO RESOLVE THIS CHALLENGE

DESIRED OUTCOMES

PARTNERSHIPS NECESSARY TO ACHIEVE THESE OUTCOMES

RESOURCE ALLOCATION

Current housing programs don’t receive or provide enough support to fund the full cost of decarbonization.

Title 24 (the section of CA building code that regulates sustainability) effectively incentivizes developers to construct all-electric buildings, though many developers don't choose to take the incentives because:

• Projects are already hitting basis ceilings due to the high cost of construction, or

• They don't want to over-commit to exceeding Title 24 because it adds additional costs.

Rural and disaster-vulnerable prone areas of the state face common funding gaps:

Infrastructure investments: gaps for fire resilience, utility/sewer connectivity, flood mitigation, as well as electrification.

• Tax Credits: they are often not as competitive for tax credits.

• Enhance existing funding programs to further encourage all-electric construction.

• Require projects to commit to all-electric construction as a threshold for qualifying for HCD SuperNOFA (as the AHSC program does).

• Provide additional financial incentives for projects committing to all-electric construction.

• Use climate or energy resources to add a “subsidy boost” for fully-electric projects

• Add an increment to LIHTC for decarbonized projects, like the high-cost area boost

• Increase the amount of funds to cover soft costs and to provide meaningful amounts per unit to elicit behavior change (such as $7,500-$25,000+ per unit)

• Authorize programs for the long term to ensure predictability

All new construction projects utilizing state funding will feature all electric construction

Uptake of energy scopes and decarbonization due to meaningful benefits to both developers and tenants through ample resource allocations to soft costs, technical assistance, and robust funds per unit.

• Housing, energy, climate agencies

• State energy agencies to partner with a state housing finance agency that is well established in managing the largest programs for affordable housing new construction.

• A portion of energy funds can blend and layer into existing affordable housing programs.

• Provide energy/climate resources as a financial incentive or “subsidy boost” to support all-electric components in new construction.

• Capital flows through housing agencies, CDFIs to underwrite, and community partners to do the outreach. This helps ensure resources flow into the communities in the right way vs. only to more resourced developers.

FINANCE STRUCTURE

There are too many small energy programs that are not reasonable for meaningful developer uptake.

Existing programs are small, hard to access, and do not yield a worthy return on investment for developers to access them.

Programs require specialized expertise and staff time, often for limited resources and returns. This results in relatively low uptake.

• Housing, climate and energy agencies in collaboration should examine ways of improving uptake of existing clean energy programs in low-income and historically disinvested communities by consolidating funding programs and providing comprehensive technical assistance.

• Leveraging the power of Community Choice Aggregators (CCAs) and Regional Energy Networks (RENs) to holistically address the energy needs within local jurisdictions. This could result in meaningful, concentrated clean energy investment in communities that have historically been ignored

• Energy and housing agencies streamline funds to maximize potential in limited priority programs where energy funds are as a construction source.

• Energy and housing dollars are integrated enough to push innovation and help developers achieve deep energy and electrification goals.

• Increased uptake of clean energy programs

• More investments from clean energy programs impacting LIDACs

• Innovative funding tools leverage corporate or philanthropic sector investment by entities seeking to meet mandated sustainability and housing affordability pledges.

• Housing, climate and energy agencies, coordinating with local housing agencies to coordinate state and local programs.

• Energy, housing, and climate agencies collaborate with philanthropy to establish these partnership models.

• Energy Stakeholders and Housing Agencies and Community Development Lenders

CAPACITY

All-electric high- performance buildings require additional time and knowledge.

Increased soft costs (time and education) for operators and tenants to learn how to use the new equipment and manage the associated risks with high performance buildings.

• Integration of free TA for developers when accessing decarb funding programs

• TA to cover both financial and operational implementation

Implementation and operational proficiency of decarb features by property owners and their partners, including property and asset management

Collaboration between developers/owners, TA providers (including consultants, designers and engineering professionals) and funding program administrators