VHFA: efficiency upgrades raise upfront costs for very low‑income housing; more targeted incentives needed

Mia Watson, social programs manager at the Vermont Housing Finance Agency (VHFA), told the Natural Resources & Energy Committee on Feb. 7 that efficiency and electrification measures are increasing upfront development costs for subsidized affordable housing and that current energy incentives cover a small share of those costs.

Watson said Vermont faces a housing supply crisis and rising project costs: developers’ average project costs have risen roughly 40% over five years. VHFA underwrites projects that must “pencil out” over a 30‑year operating horizon using restricted rents and limited subsidy resources. She said many low‑income rental units are deeply income‑targeted: median household income for Low‑Income Housing Tax Credit (LIHTC) units in VHFA’s most recent data is about $16,800.

Watson presented VHFA estimates for energy‑related hard costs. She said building components that raise performance—insulation, air sealing and similar measures—were estimated in prior analysis to account for about 16% of hard costs; updated for 2024 LIHTC hard‑costs, VHFA estimated roughly $62,000 per apartment attributable to efficiency‑related hard costs. By contrast, Watson said the average energy‑efficiency incentives coming through Efficiency Vermont typically average roughly $3,700 per unit. She said that gap means most efficiency investments either raise the amount of subsidy needed or increase debt‑service pressure on projects.

Watson described specific tradeoffs developers and property managers face. Weatherization and tight building envelopes are generally cost‑effective and commonly adopted; they also reduce operating costs and improve tenant comfort. Heat pumps and other electrification measures reduce greenhouse‑gas emissions but can raise capital and maintenance costs, and in multifamily settings present operational challenges—tenant access to equipment, filter maintenance and in‑unit repairs. Watson said developers and managers report heat‑pump maintenance can increase operating complexity compared with a single central boiler.

VHFA currently incentivizes high performance in its competitive allocation plan (QAP): projects score higher if located near downtowns or transit, if they remediate contaminated sites and if they pursue advanced certifications such as Passive House or net‑zero. Watson noted an emerging policy question: by 2030 the state expects widespread electrification and higher code requirements, which could make today’s high‑performance incentives less distinguishing. She urged the committee and state agencies to prioritize incentives that are income‑targeted and accessible to the very low‑income residents VHFA serves.

Watson said non‑energy co‑benefits—tenant health, reduced housing instability, lower transportation demand when housing locates near services—are important but often do not flow to the building owner’s operating budget, which is where developers must see savings. She recommended leveraging federal funding to avoid pushing the full upfront cost on developers and to target energy subsidies and technical assistance to projects serving the lowest‑income tenants.