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Saturday, December 08, 2018

Incentivizing Energy Efficiency in Rental Properties

The question of how much something costs is often less important than the question of how payment occurs.  For example, sales tax is often complained about because it feels like a surprise at the register.  In response to increased minimum wages, some restaurants are adding a "minimum wage surcharge" on the bill "to highlight the consequences".

By putting these expenses where the customers see them, the goal is to make the customers feel like they're paying for something extra or unnecessary on top of the cost of the item they intended to purchase, which business owners hope will cause those customers to blame the government and lobby for taxes and the minimum wage to be reduced.  Businesses understand very well how to play this game.

We have done essentially nothing to reduce energy use in the past decade that global warming has been a clear danger.  One of the easiest ways to save energy is through simple heat loss management such as adding insulation, weatherstripping, and energy efficient doors and windows.  Energy Star estimates annual energy savings for a properly-insulated house in Wisconsin at 14%.

However, the homes where the greatest savings could be had in La Crosse are often the ones that are least likely to be properly insulated: rentals.  One-time large family homes which have been converted into rentals are often cold and drafty.

Part of the reason for this is the way that energy costs are paid: the tenant pays 100% of the energy bill, but the landlord would be the one who pays for energy efficiency improvements.  There is no incentive for a landlord to invest thousands of dollars in energy efficiency because they will see no return.

As is sometimes the case when a market failure occurs, government intervention may be a necessary option. In this case, shifting energy costs to landlords might be an effective way to compel them to install energy-saving upgrades.  However, shifting the entire energy bill to landlords would disincentivize tenants from saving energy, and landlords would complain that they have to foot the entire bill for tenants' irresponsible behavior.

Therefore I propose, through the passing of a new law if necessary, that landlords be required to pay half of the energy bill for their rental properties. 

It can safely be assumed that they would then raise rent by the average monthly energy bill; however, transferring the monthly cost to landlords still would change the incentive structure and finally give landlords a clear economic reason to install necessary energy efficiency improvements.

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