The Split Incentive Issue: Solving the barriers of energy efficiency improvements for rental units

Solving the barriers of energy efficiency improvements for rental units has been a common issue between landlords and tenants, and it’s called the ‘split incentive barrier’.  Basically, landlords who do not pay for the utility bills for his/her property are not motivated to take on energy efficiency projects for their property because there is no monetary benefit to the landlord. On the flip side, tenants aren’t typically going to pay for capital improvements to a property they do not own. And many landlords won’t approve such a project anyway. However, with many city centers around the state being populated by aging rental housing, and municipal leaders’ desires to build more sustainable communities, the split-incentive issue is an important challenge to overcome. Breaking through this barrier is vital to addressing the energy efficiency needs of local communities.

Empower Dissects the Problem; Introduces a Solution

Empower has been actively developing a program for landlords that own single-family rental units. We launched our offering in Athens, Ohio, and the community is realizing a more robust ‘green’ rental market thanks to our efforts. Over the last year, the team at Empower has worked with several local landlords, community groups, and other stakeholders in the Athens area to develop a streamlined and convenient rental energy efficiency package that is appealing to landlords and tenants alike.
The program began in January, and it focuses on making improvements to the building envelope (single family rental home) of rental properties while assisting landlords with marketing and promotion of their improvements. By increasing the attic insulation, sealing air leaks, replacing incandescent with LED bulbs, and installing WiFi enabled smart thermostats, tenants enjoy more comfort and energy savings while the landlords gain control and make needed capital improvements. Landlords can also be assured tenants are more financially secure, and that their rental units enjoy a market advantage. Empower Gas and Electric certifies their installation of measures to meeting the U.S. Department of Energy Home Performance with Energy Star approach, and educates incoming and prospective tenants on the benefits of ‘green rental housing.’ So far, nearly $100,000 dollars worth of energy efficiency upgrades have been implemented within the rental housing market, all of which have been landlord/owner financed.

Expanding Our Energy Efficiency Package for Rental Properties Across Ohio

We have since started expanding our rental property package to landlords in the other cities where Empower operates, including Cincinnati, Cleveland and Columbus. Our team is also exploring on-bill repayment, allowing  landlords to make improvements with little to no up-front capital investment. Tenants then pay for the measures over time with their utility savings. Most importantly, the tenant’s overall living expenses are less as result of the landlord implementing our energy efficiency package, whether the package is paid for by the landlord or whether its passed on to the tenant. That’s because the overall energy savings is typically greater than spreading the package cost across monthly. The on-bill pilot is set to conclude within the month and be available to landlords in Cincinnati, Cleveland, and beyond by the summer.
Do you own rental properties? Contact us today to start the process of making your rental unit more appealing to tenants.