Energy Efficient Buildings are Less Likely to Default on Mortgages

by | Oct 24, 2017

A new study says energy efficient buildings are less likely to default on mortgages when compared to commercial buildings with higher energy consumption.

The findings, released by Lawrence Berkeley National Laboratory, are based on mortgage default rates and energy performance in six major cities from 2000 to 2012.

According to

While the energy expenses for a building are typically up to 30 percent of its operating cost, energy intensity and cost have not historically been included in the building appraisal or pro forma. As a result, mortgage underwriters have not generally included this information in the underwriting process. With building energy data and benchmarking data becoming more and more available (25 of the largest U.S. cities and California all now require energy disclosure), it will be easier for appraisers and underwriters to include these data in their evaluation process.

The implications of such findings are wide ranging. It could impact mortgage interest rates or energy disclosure requirements regarding new loans.

Energy efficiency and disclosure among commercial buildings has been on the upswing in recent years, especially since the formation of Property Assessed Clean Energy (PACE). PACE offers property owners long-term loans for energy upgrades at fixed interest rates that owners can repay through their property tax bills. The program is currently financing as much as $450 million in projects in the US.

In September, PACE became available in Illinois for commercial buildings. And just this month, California Governor Jerry Brown recently signed two bills into law that aim to establish a consumer protection, underwriting, and regulatory framework for Property Assessed Clean Energy (PACE) loans.

The signing comes after a year of discussions and negotiations among low-income consumer advocates, environmental and clean-energy groups, the banking industry, and private sector PACE program administrators.

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