Should Energy Costs Be Displayed in Rental Listings?

It’s no secret that energy costs have been soaring. That goes for the money we spend at the pump, and the money we spend to heat and cool our homes. Homeowners can do things to increase efficiency, but renters typically get whatever comes with the unit and without knowing the cost for utilities before they move in. One group hopes to change that scenario with research that shows how energy labels in rental listings can be a win-win for both tenants and landlords. Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review. https://podcasts.apple.com/us/podcast/real-estate-news-real-estate-investing-podcast/id1079952715 Researchers with the “American Council for an Energy-Efficient Economy” conducted a survey recently to find out how energy labels would impact a rental applicant’s preferences. They enlisted the help of about 2500 people in different parts of the country who used a fake listing website to search for rentals. Survey on Tenant Preferences They were split into seven groups. Six of the groups were able to search through listings with energy cost information that was displayed in different formats. The seventh group was a control group and looked at listings without energy labels. Researchers say that participants given information about the cost of utilities were 21% more likely to choose energy efficient units. But the results also varied according to the visual presentation of that information. They say that groups who received the information within a “context” were more likely to respond favorably to the energy cost rating. For example, listings that displayed estimated costs with a minimum and maximum range of typical costs for the area were better at attracting users than the ones with just a figure for estimated costs. There was also a difference among various sub-groups of tenants depending on what part of the country they were in and their ages. Sub-groups that preferred higher energy efficiency lived in the hottest and coolest climates, which makes sense given the need for more heating and cooling. Age seemed to impact the results with people younger than 45 being a little more interested in the energy efficient units. One curious result was that apartment renters were more interested in energy efficiency than people renting single-family homes. These sub-groups were also willing to pay more in rent, typically within the 1 to 2% range. Energy Labels Good for Tenants & Landlords Researchers feel the information is important for landlords who’d like to attract higher-quality tenants. And if energy efficient units command higher rents while reducing what tenants pay for utilities, that’s a win-win for tenants and landlords, and, of course, another “win” for the environment. Researchers suggest that landlords may want to prioritize energy upgrades when they are drawing up their list of improvements, and that local regulators may want to consider policies that require this kind of information in rental listings Currently, there are no requirements anywhere in the country for the display of this information. But there’s growing concern about energy use and summer power outages. We’re already seeing headlines about how dire the situation might be this summer. Energy Emergencies Expected This Summer Forecasters are expecting a hotter-than-normal summer and regulators are warning about potential energy emergencies when people crank up their air conditioners and large appliances. Just last week, power grid regulator NERC, which stands for North American Electric Reliability Corporation, warned that large portions of the country will be at risk of power outages in the coming months. The Upper Midwest faces the highest risk of an energy emergency. It lost about 2% of its power generating capacity because of recently retired power plants. A key transmission line is also being repaired. There’s also an elevated risk across the entire Western half of the U.S. thanks to high temperatures, drought, and wildfires. While extreme heat results in more use of electricity, it also increases the risk of mechanical failures at power plants. Drought reduces output at hydroelectric power plants. Wildfires can destroy major power lines, and smoke reduces power generation at solar facilities. So there are several issues at play across the West. NERC’s John Moura told CBS MoneyWatch: “We’ve been doing (grid assessments) for close to 30 years. This is probably one of the grimmest pictures we’ve painted in a while.” He says: “As extreme weather continues to plague us, we’ve really noticed that extreme weather doesn’t really mean rare weather. (We’re seeing) the extreme happening more often.” What this all means is that property owners of all shapes and sizes will be asked to reduce their energy consumption. When you own rental property, it might be easy to overlook the energy needs of the tenants, but there’s a growing trend for energy efficiency, and tenants will probably be paying more and more attention, as will local regulators. We’ll have a link to the full report in the show notes at newsforinvestors.com. Also, please remember to hit the subscribe button, and leave a review! You can also join our real estate investor network for free at newsforinvestors.com. That gives you access to the Investor Portal where you’ll find information on rental markets and sample property pro-formas. You can also connect with our experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. Thanks for listening. I'm Kathy Fettke. Links: 1 -https://www.aceee.org/sites/default/files/pdfs/b2204.pdf 2 -https://www.bloomberg.com/news/articles/2022-05-18/vast-swath-of-us-is-at-risk-of-summer-blackouts-regulator-warns