How Inflation Reduction Act Targets Energy Efficiency in Affordable Housing

On Aug. 16, President Biden signed into law the new Inflation Reduction Act (IRA), which includes significant investments to address climate change in affordable housing. The law provides billions of dollars in funding through direct spending and tax credits that can be used to preserve affordable housing, reduce energy costs, and increase community resilience.

For LIHTC sites, the IRA extends and increases the New Energy Efficient Home Credit Extension and clarifies that if the multifamily building is financed by the LIHTC program, this tax credit won’t reduce the eligible basis of the building. To qualify, a multifamily dwelling unit must meet the national and regional requirements of the most recent Energy Star Multifamily New Construction program.

The IRA also establishes a bonus credit for solar and wind facilities connected to low-income communities. The bonus credit is available to projects placed in service in low-income communities and/or facilities installed as part of a qualified low-income residential building. To be considered a qualifying low-income residential building, the financial benefits of the electricity produced must be allocated equitably among the occupants of each dwelling unit. The Department of the Treasury will develop procedures for allocating these tax credits, which won’t reduce the eligible basis of a building financed with LIHTCs.

The IRA includes $1 billion for HUD’s multifamily housing programs to improve energy or water efficiency, indoor air quality or sustainability; implement the use of low-emission technologies, materials, or processes, including zero-emission electricity generation, energy storage, or building electrification; address climate resilience; and for energy and water benchmarking.

A separate $4.3 billion program called the HOMES Rebate Program from the Department of Energy to be administered by state energy offices will provide rebates for the costs of energy efficiency retrofits that are modeled to achieve or have achieved verifiable minimum energy use reductions. Eligible recipients can include multifamily building owners and aggregators. Aggregators are entities that may receive rebates on behalf of homeowners and multifamily building owners who undertake whole-house energy efficiency retrofit projects that achieve modeled or measured reductions in energy usage.

The High-Efficiency Electric Home Rebate Program is another $4.5 billion program that will provide rebates for qualified home electrification projects to low- or moderate-income homeowners and multifamily building owners undertaking a qualified electrification project and entities carrying out qualified electrification projects on behalf of these homeowners and multifamily building owners.