Terms of Investment

More than one-in-seven units in the American rental housing market have substantial quality issues, according to the Government Accountability Office. These range from cracked walls and the presence of rodents to a lack of essential components such as heating equipment or hot and cold running water. Of those rental units lacking essential components, nearly 80 percent are rented by lower-income households.

Climate change is compounding these trends, making it even harder to find a safe place to live. About 40 percent of the country’s 44 million rental housing units are located in areas facing immediate risk from climate change, expecting at least moderate costs thanks to the changing environment. Meanwhile, residential energy use is responsible for roughly one fifth of greenhouse gas emissions nationally.

Now two years old, the federal Inflation Reduction Act (IRA) sets the stage for billions of federal dollars to flow toward home energy upgrades through home energy rebates, grants, and tax credits. Most of the funds for residential properties—$9 billion over ten years—take the form of rebates that flow to the property owner of a building as a tax write-off or reimbursement once they have invested in specific types of energy efficiency, electrification, and/or clean energy improvements. These rebates are for households earning less than 150 percent of Area Median Income and are capped at $14,000 per unit, which likely will not cover the full cost of comprehensive upgrades in many jurisdictions. The IRA also includes more than $2 billion to accelerate residential decarbonization through national nonprofits as part of the Greenhouse Gas Reduction Fund program, which aims to catalyze further private investment in residential decarbonization. Additional programs allowing public entities to receive tax credits for clean energy projects also apply to some specific housing contexts. 

Notably, the IRA’s housing funds are limited to energy. When proposed in April 2021, the package that eventually became the Bipartisan Infrastructure Act originally included $213 billion to “produce, preserve, and retrofit more than two million affordable and sustainable places to live.” By November, after the infrastructure spending peeled off and the Build Back Better legislation passed the House of Representatives, there remained $170 billion for federal programs to expand construction, bring down rental costs, and provide holistic repairs (this legislation failed to pass the Senate). Today, as states prepare to disseminate $9 billion in public funds for insulation and decarbonization, there are few safeguards in place to prevent landlords from using publicly-funded repairs as an opportunity to displace long-term, low-income tenants.

The US rental market and the IRA

In the US rental market, the quality of housing is largely left in the hands of landlords. The trends in multifamily housing management show that owners increasingly contract these responsibilities out to management companies. From 2012 to 2021, the share of the country’s rental units in multifamily properties where landlords outsourced management rose from 12 to 20 percent, according to the US Department of Housing and Urban Development’s Rental Finance Housing Survey. In the six years from 2015 to 2021, the share of all rental units with outsourced management rose from 23.7 to 29.2 percent. The quality of rental-housing maintenance, moreover, has been in long-term decline. Between 2011 and 2021, according to the HUD’s American Housing Survey, the share of rental housing units with neither a manager nor owner living on sight has increased from 41 percent to 51 percent.

In a tight housing market where business firms own the vast majority of large apartment buildings, owners have the market power and incentive to keep rents high, defer maintenance, and reduce the habitability of rental housing. Improvements to habitability or clean energy upgrades that do take place are often conditional on raising costs for tenants, regardless of whether that requires replacing them with different people. Yet while improvements are often conditional on price increases, rising rents do not guarantee improvements. While the share of units with habitability issues has remained constant between 2001 and 2017, the share of renter households who pay more than 30 percent of their monthly income in rent rose from 42 to 48 percent in the same period. In 2022, that fraction rose to above half of all renters—an all time high.

The IRA is designed to pull in further public and private dollars into the decarbonization industry—including home renovations and retrofits. Though the funds it appropriates for homes pale in comparison to the need for general repairs—Harvard’s JCHS estimates the costs for home repairs alone in the nation’s rental housing stock at $51.5 billion—these green energy dollars nevertheless have the possibility of drawing forth real spending where many other kinds of tax write-offs elicit only paper commitments.

In the US, housing policy distinctively subsidizes homeownership. Most notably in the form of the Mortgage Interest Tax Deduction, federal policy benefits owners much more than tenants. Climate policy is no different. In public or cooperative housing models, the government or cooperative serves as the landlord or property manager, and therefore has more direct influence over the fate of property conditions. In much of the private market, by contrast—which is where the vast majority of tenants find housing—the federal government sees its role as less direct. Tenants in many multifamily properties have no direct method of contracting for services; many do not know who owns the real estate. The IRA’s focus on incentives and credits for landlords maintains this property relationship.

The fact that about one in three housing units are occupied by tenants raises questions about the effects such climate tax incentives will have on owners of rental property. The Biden Administration has emphasized the importance of channeling these funds to “disadvantaged communities,” maintaining that about 40 percent of funds should go toward low-income households, 10 percent of which should go toward multi-family households. However, the facts of ownership leave open a stubborn question: will landlord spending on climate retrofits—a condition for receiving public funds—alter existing financial terms between tenants and landlords?

One of the key challenges is that clean energy investments in private housing run up against the “split incentive” problem. Rebates exist for landlords to install clean energy sources. But if landlords themselves don’t live in the property or pay the utility bills, there is equal incentive to do nothing, since the credits require landlords to undertake investments and commit managerial overhead. The fact that the IRA’s clean energy rebate amounts often will not cover the full cost of the upgrade adds to this, leaving landlords with fewer incentives to dip into their revenue to cover the remainder of the upgrade.

The underlying condition of disinvestment and depreciation in the American rental housing market layers on new challenges to decarbonization. While in some cases, IRA funds can include core repairs like window and door replacements to improve insulation, the IRA does little to provide resources for the estimated $51.5 billion in underlying repair needs in the rental housing stock. Strapping a heat pump to a building filled with mold will not deliver the material health and climate improvements that tenants need to live safely. In states like New York, clean energy dollars cannot flow to buildings unless they are already up to code.

Health improvements and clean energy investments must occur side by side, and it will be up to local and state governments to braid IRA funding with local regulations and public dollars to achieve more holistic home repairs. 

But the real challenge for this prospect is multifamily housing, where conflict between landlords and tenants is increasingly organized into the business model. According to the AHS, the share of all rental units that exist in properties with five units or more increased from 27 percent in 2011 to 38 percent in 2021. Tenant requests for repairs in such contexts are often met with retaliation from landlords. Even if a tenant wants to see clean energy upgrades and is motivated to ask their landlords to take advantage of IRA rebates, knowing who your landlord is can be a challenge where “customer relations” are handled by third-party, web-based services and owners are insulated not only from liability but from the possibility of communicating with their tenants.

Terms of investment

The conflicts over tenancy and landlord obligations for habitable housing point to a second set of risks for renters. When habitability or clean energy improvements do take place, they are often accompanied by rent hikes or no-fault eviction notices—terminating a lease and detaining possession of a property through no fault of the tenant—to increase the revenue a landlord can make from any given unit.

A patchwork of limited federal, state, and local tenant protections already leave tenants vulnerable to rent hikes and displacement regardless of whether owners make commitments offset by IRA credits. For private market rental housing in the US, there are no federal rent regulations or eviction protection policies. The federal government has long chosen to punt the question of tenant protections to state and local governments. Local governments have themselves put straightjackets on municipal authorities: about thirty states preempt local jurisdictions from adopting rent controls, and only seven states have “good cause” eviction protections to ensure renters are not evicted for no reason.

This status quo renders the prospect of widespread landlord spending on green upgrades into an obvious opportunity to raise rents, potentially causing more harm to the low-income renters that these investments are aimed at supporting. New solar panels or triple-pane windows increase the value of the property and attract higher-paying tenants. As with any business investment, such costs require higher revenues if profit margins are to be sustained. As researchers at Strategic Actions for a Just Economy have documented, such property upgrades can lead to “renovictions”—when a tenant is evicted following renovations—that are highly disruptive to tenants’ lives. In most places, tenants are not covered by any anti-rent gouging or rent control protections, making this chain of events legal and common.

In an effort to limit this issue, the Department of Energy did condition IRA home rebate funding on a small set of tenant protections. Landlords who receive rebate funds for energy upgrades in low-income housing cannot evict tenants or increase rents as a result of the upgrades for two years following the rebate. This guidance serves as an acknowledgement from the federal government that tenant protections are needed, and goes beyond what many other federal programs have offered in regards to tenant safeguards. The protections, however, expire two years after upgrades take place. This short two-year window comes with almost no enforcement requirements or funding, leaving organized tenants and tenant advocates afraid that little will be done to keep tenants housed. Unless states build upon these rules and create strong enforcement plans, these tenant protections will likely be too limited to challenge the status quo of derisking landlords’ investments without tenant safeguards in place.

Toward new horizons for green investments and tenant power

Across the country, tenants are building the power and organizations to chart a new path forward for multifamily housing. At the most grassroots level, tenant organizers are taking conditions and clean energy demands into their own hands. The Los Angeles Tenants Union (LATU) launched “repair and deduct” campaigns, where tenants make their own repairs and deduct the costs from the rent. The LATU has also forced landlords into signing contracts outlining specific repairs that will be completed, using rent strikes as a tactic to bring the landlord to the table. In Kansas City, KC Tenants successfully organized tenants to confront a negligent landlord over repairing the heat at a property that was home to primarily Burmese refugees and Mexican immigrants. Beyond the objective of winning much-needed improvements, these actions advance the project of building political power for tenants. Tenant organizing creates formidable social and electoral blocs in localities to contest the status quo, whether through pressure campaigns on landlords or on public authorities.

In the legislative arena, campaigns aimed at regulating the private market and creating a more fair tenant-landlord relationship are also gaining steam. Such state and local campaigns are essential policies to guardrail IRA implementation. There has been a resurgence in campaigns for rent regulations, with serious campaigns in at least fifteen states just this last year alone. Good cause eviction protections are also gaining momentum. This year, Colorado, which is slated to receive over $140 million in IRA home rebate funding, passed a good cause eviction bill through the legislature, and several more states are considering this legislation in real time.

Such state and local campaigns also begin to assemble the political materials for national coalitions incorporating the tenant interest. The tenant-led Tenant Union Federation is one such initiative pushing for the Federal Housing Finance Agency to condition federally-backed loans on a set of tenant protections and rent regulations, which could cover up to one in four rental apartments in the country. These important campaigns would provide urgent protections to keep people housed, and could enable green investments to flow to renters without displacement.

These efforts will help safeguard tenants from displacement and build tenant power. For many of these tenant organizing projects, the north star guides even further, all the way to green social housing. Permanently affordable, resident-controlled housing that exists outside of the speculative market can provide climate resilience and drive decarbonization. Social housing efforts currently underway are not focused solely on new housing construction, which only accounts for 3.5 million units in the last twelve years, but also on a commitment to improving the current living conditions of millions of working-class tenants. Labor unions were key players in building the social housing of the late twentieth century, and unions representing teachers, healthcare workers, and trades sectors are joining with tenant advocates to make a renewed push for social housing in the face of high costs and limited supply. In New York, for example, the Carpenter’s Union and the United Federation of Teachers have joined the fight for green social housing. In Los Angeles, UNITE-HERE, UTLA, and the LA/OC Building Trades Council joined together to win a new tax on high-dollar real estate sales raising $900 billion a year for the city’s housing department, including funds for rehabilitation.

By focusing on the tenant and climate crises under one policy proposal, new political alliances can help realize a just transition for workers and tenants.

This year, the Connecticut Tenants Union organized and won the first collectively bargained lease in the state, a victory against Ocean Management, one of New Haven’s largest landlords. The lease mandates routine maintenance and prohibits costs from being passed to tenants through rent hikes. Now, tenants at this seventy-unit building are trying to buy their property and turn their community into a democratically governed cooperative. They want community space, permanently affordable units for families with kids, and solar panels on the roofs. They want to generate enough clean electricity to feed it back to their surrounding community, including to the school next door.

It is precisely because home upgrade efforts can increase the value of a property, which in turn allow the owners to increase the rents they can charge, that conflict is inherent in this area of climate change mitigation policy. Continued disinvestment is the cost for continued occupancy; displacement the condition for investment. There are few laws to limit this pattern. Climate policies that aim to reach frontline communities must contend with this, and ensure its approach fosters—rather than harms—tenant stability. Without supplementary reforms to address the imbalanced power dynamic and misaligned incentives between landlords and tenants, the IRA will fall short of enabling climate resilience for tenants. The path toward decarbonizing the US rental housing stock lies in the prioritization of tenants as protagonists in the just transition and a stronger commitment in policy and implementation to decarbonization without displacement.