[Federal Register Volume 89, Number 82 (Friday, April 26, 2024)]
[Notices]
[Pages 33112-33182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08793]



[[Page 33111]]

Vol. 89

Friday,

No. 82

April 26, 2024

Part VII





Department of Housing and Urban Development





Department of Agriculture





-----------------------------------------------------------------------





Final Determination: Adoption of Energy Efficiency Standards for New 
Construction of HUD- and USDA-Financed Housing; Notice

  Federal Register / Vol. 89 , No. 82 / Friday, April 26, 2024 / 
Notices  

[[Page 33112]]


-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

DEPARTMENT OF AGRICULTURE

[Docket No. FR-6271-N-03]
RIN 2506-AC55


Final Determination: Adoption of Energy Efficiency Standards for 
New Construction of HUD- and USDA-Financed Housing

AGENCY: Department of Housing and Urban Development and Department of 
Agriculture.

ACTION: Notice of final determination.

-----------------------------------------------------------------------

SUMMARY: The Energy Independence and Security Act of 2007 (EISA) 
establishes procedures for the U.S. Department of Housing and Urban 
Development (HUD) and the U.S. Department of Agriculture (USDA) to 
consider adopting periodic revisions to the International Energy 
Conservation Code (IECC) and to ANSI/ASHRAE/IES Standard 90.1: Energy 
Standard for Buildings, Except Low-Rise Residential Buildings (ASHRAE 
90.1), subject to a determination by the agencies that the revised 
codes do not negatively affect the availability or affordability of new 
construction of single and multifamily housing covered by EISA, and a 
determination by the Secretary of Energy that the revised codes ``would 
improve energy efficiency.'' At the time of developing the preliminary 
determination, the most recent editions of the codes for which DOE had 
issued efficiency determinations were ASHRAE 90.1-2019, and the 2021 
IECC. This notice follows the notice of preliminary determination 
published on May 18, 2023, and announces the final determination of HUD 
and USDA as required under section 481(d)(1) of EISA. After 
consideration of public comments, HUD and USDA determine that the 2021 
IECC and ASHRAE 90.1-2019 will not negatively affect the affordability 
and availability of housing covered by EISA.

DATES: 
    Effective Date of this Determination: May 28, 2024.
    Compliance Date: Compliance is required according to the 
implementation schedule described in Section VI of this notice; 
compliance dates vary according to program type.

FOR FURTHER INFORMATION CONTACT: 
    HUD: Michael Freedberg, Office of Environment and Energy, 
Department of Housing and Urban Development, 451 7th Street SW, Room 
10180, Washington, DC 20410; telephone number 202-402-4366 (this is not 
a toll-free number). HUD welcomes and is prepared to receive calls from 
individuals who are deaf or hard of hearing, as well as individuals 
with speech or communication disabilities. To learn more about how to 
make an accessible telephone call, please visit: https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.
    USDA: Meghan Walsh, Rural Housing Service, Department of 
Agriculture, 1400 Independence Avenue SW, Room 6900-S, Washington, DC 
20250; telephone number 202-205-9590 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Table of Contents

    I. Background
    A. Statutory Requirements
    B. Energy Codes Overview
    C. Covered HUD and USDA Programs
    D. Current Above-Code Standards or Incentives
    E. Current Housing Market Affordability Trends
    F. Changes From the Preliminary Determination to the Final 
Determination
    1. Adjusted Economic Factors
    2. Adjusted Cash Flow and Financing Factors
    3. Updated State Code Adoption
    4. Alternative Compliance Pathways
    5. Implementation and Compliance Timelines
    6. Inflation Reduction Act Tax Credits and Rebates
II. Public Comments
    A. Higher First Costs
    1. General Support
    2. Cumulative Costs
    3. Proposals for Financing and Tax Credits
    4. Proposals for Technical Assistance
    5. Concerns Regarding an ``Appraisal Gap''
    6. Delegation of Legislative Power
    7. Lower Availability of Affordable Homes for Home Buyers
    8. Affordability and Availability Impacts in Rural Communities
    9. Limited Cost Effectiveness of Individual Code Measures
    10. Understated Impact on Low-Rise Multifamily
    B. State and Local Adoption of Energy Codes
    1. Alignment With State and Local Codes
    2. Adoption of Earlier Code Versions
    3. State and Local Code Amendments
    C. Cost Benefit Analysis
    1. Construction Cost Estimates
    2. Builder vs. Consumer Costs
    3. Reliance on Simple Payback vs. Life Cycle Cost Savings
    4. Current Financing and Economic Factors
    5. Timeframe of Analysis
    D. Ventilation, Manually Operated Fans
    E. Air-Sealing Requirements and Fire Codes
    F. Builder Familiarization With New Codes
    1. Implementation Timeline
    2. Need for Training and Technical Assistance
    3. Enforcement and Compliance
    G. COVID-Related Supply Chain Challenges
    H. Green Building Standards and Alternative Compliance Paths
    1. Alternative Compliance Pathways
    2. Promoting Unvented Attic Spaces
    3. Alignment With Existing State or Local Codes
    4. Alternative Prescriptive and Performance Compliance Pathways
    I. Additional Comments
    1. VA Enhanced Loan Underwriting Methods
    2. Incorrect Montana Data
    3. Inclusion of Greenhouse Gas Emissions
    4. Covered Housing vs. Existing Housing Stock
    5. Impact on Increased Sprawl
III. Final Determination--2021 IECC
    A. Overview
    1. Current HUD-USDA Standard and Subsequent Revisions
    2. 2021 IECC Overview
    3. Current State Adoption of the 2021 IECC
    4. Estimated Impacts
    B. 2021 IECC Affordability Analysis
    1. Cost Benefit Analysis and Results
    2. Limitations of Cost Saving Models
    3. Estimated Costs and Savings
    4. Analysis of Adopted State Energy Codes for Residential 
Buildings
    5. Incremental or Added Costs
    6. Annual Cost Savings
    7. Simple Payback
    8. Total Life Cycle Cost Savings
    9. Consumer Cash Flows
    10. Low-rise Multifamily Buildings
    11. Additional Analysis--6.5% mortgage interest
    12. Cash Flows for Single Family and Low-Rise Multifamily
    13. Appraisals of Energy Efficiency Improvements
    14. State-Level Results
    15. Total Costs and Benefits
    C. Final Affordability Determination--2021 IECC
IV. Final Determination--ASHRAE 90.1-2019
    A. Overview
    1. Current HUD-USDA Standard and Subsequent Revisions
    2. ASHRAE 90.1-2019 Overview
    3. Current State Adoption of ASHRAE 90.1-2019
    4. Analysis of Adopted State Energy Codes for Commercial 
Buildings
    5. Impacted Multifamily Housing
    B. ASHRAE 90.1-2019 Affordability Analysis
    1. Cost Benefit Analysis
    2. Building Prototypes
    3. ASHRAE 90.1-2019 Incremental Costs
    4. State-Level Results
    5. Total Life Cycle Cost Savings
    C. Final Affordability Determination--ASHRAE 90.1-2019
V. Impact on Availability of Housing
    A. 2021 IECC--Single Family
    1. Builder Impacts
    2. Single Family Market Impacts
    3. Evidence From Prior Code Adoption
    4. Variability in Building Practices in Relation to Energy Codes
    B. ASHRAE 90.1-2019 Rental Housing
VI. Implementation

[[Page 33113]]

VII. Environmental Impact
List of Tables
    Table 1. Distribution of State Adoption of IECC and ASHRAE 90.1 
Equivalent Standards
    Table 2. Covered HUD and USDA Programs (New Construction)
    Table 3. Current Energy Standards and Incentives for HUD and 
USDA Programs (New Construction)
    Table 4. Incremental First Cost of Energy Star Version 3.2 
(Above 2021 IECC) in Select Cities
    Table 5. Maximum Energy Rating Index--2021 IECC
    Table 6. Appraised Values Relative to Sales Price--FHA Insured 
New Homes 2020-23
    Table 7. ICC Economic Factors for 2024 IECC Analysis
    Table 8. Revised Economic Parameters for Final Determination
    Table 9. National Costs and Benefits--2021 IECC vs. 2009 IECC 
(Single Family)
    Table 10. Incremental Energy Savings Associated with Each IECC 
Version--2006 to 2021
    Table 11. Current State Adoption of the IECC
    Table 12. Estimated Number of Units Impacted Annually by 2021 
IECC
    Table 13. National Costs and Benefits--2021 IECC vs. 2009 IECC 
(Single Family)
    Table 14. National Costs and Benefits--2021 vs. 2009 IECC (Low-
Rise Multifamily)
    Table 15. National Costs and Benefits--2021 vs. 2018 IECC
    Table 16. National Costs and Benefits--2021 vs. 2009 IECC 
(Single Family) 6.5% interest, 3.5% downpayment
    Table 17. Cash Flow for Single Family--2021 IECC vs. 2009 IECC
    Table 18. Cash Flow for Low-Rise Multifamily--2021 IECC vs. 2009 
IECC
    Table 19. State by State Costs and Benefits 2021 IECC vs. 2009 
or 2018 IECC (Single Family)
    Table 20. Aggregate Estimated Costs and Savings for 2021 IECC 
(Single Family and Low-Rise Multifamily)
    Table 21. Incremental ASHRAE 90.1-2019 Construction Costs ($/sf 
and %/sf)
    Table 22. Incremental ASHRAE 90.1 Construction Costs ($/
Prototype 32-Unit Building)
    Table 23. Current Adoption of ASHRAE 90.1 Multifamily Mid- and 
High-Rise Buildings
    Table 24. High-Rise Multifamily Units Potentially Impacted by 
ASHRAE 90.1-2019
    Table 25. Mid-Rise Apartment Building Prototype Characteristics
    Table 26. ASHRAE 90.1-2019 Added Costs and Savings--National
    Table 27. ASHRAE 90.1-2019 Added Costs and Savings--States
    Table 28. Total Life Cycle Savings--States
    Table 29. Incremental Costs and Energy Savings Resulting from 
Adoption of ASHRAE 90.1-2019
    Table 30. Type of Financing of New Single Family Homes
    Table 31. FHA-Insured Single Family Forward Loans, 2021
    Table 32. Compliance Dates for the New Construction Standards in 
this Notice
List of Figures:
    Figure 1. IECC Adoption Map (Residential)
    Figure 2. Economic Parameters for Consumer Cash Flows
    Figure 3. ASHRAE 90.1 Adoption Map Mid-Rise and High-Rise 
Multifamily

I. Background

A. Statutory Requirements

    Section 481 of the Energy Independence and Security Act of 2007 
(``EISA,'' Pub. L. 110-140) amended section 109 of the Cranston-
Gonzalez National Affordable Housing Act of 1990 (Cranston-Gonzalez) 
(42 U.S.C. 12709), which establishes procedures for setting minimum 
energy standards for the following three categories of housing financed 
or assisted by HUD and USDA:
     New construction of public and assisted housing and single 
family and multifamily residential housing (other than manufactured 
homes) subject to mortgages insured under the National Housing Act; \1\
---------------------------------------------------------------------------

    \1\ This subsection of EISA refers to HUD programs. See Table 2 
for specific HUD programs covered by the Act.
---------------------------------------------------------------------------

     New construction of single family housing (other than 
manufactured homes) subject to mortgages insured, guaranteed, or made 
by the Secretary of Agriculture under title V of the Housing Act of 
1949; \2\ and,
---------------------------------------------------------------------------

    \2\ See Table 2 for specific USDA programs covered by the Act.
---------------------------------------------------------------------------

     Rehabilitation and new construction of public and assisted 
housing funded by HOPE VI revitalization grants under section 24 of the 
United States Housing Act of 1937 (42 U.S.C. 1437v).
    In addition to these EISA-specified categories, two HUD programs 
apply EISA to new construction projects through their program statutes 
and regulations: the HOME Investment Partnerships Program (HOME) and 
the Housing Trust Fund. Sections 215(a)(1)(F) and (b)(4) of Cranston-
Gonzalez (42 U.S.C. 12745(a)(1)(F) and (b)(4)) make new construction of 
rental housing and homeownership housing assisted under the HOME 
program subject to section 109 of Cranston-Gonzalez (42 U.S.C. 12709) 
and, therefore, to section 481 of EISA. Although the energy standards 
at 24 CFR 92.251(a)(2)(ii) are reserved in the July 2013 HOME final 
program rule, the statutory requirements of section 109 of Cranston-
Gonzalez (42 U.S.C. 12709) continue to apply to all newly constructed 
housing funded by the HOME program.
    For the Housing Trust Fund, program regulations at 24 CFR 
93.301(a)(2)(ii), Property Standards, require compliance with the 
minimum standards required under Cranston Gonzalez section 109 (42 
U.S.C. 12709).
    EISA references two standards: the International Energy 
Conservation Code (IECC) and ANSI/ASHRAE/IES Standard 90.1.\3\ The IECC 
standard applies to single family homes and multifamily low-rise 
buildings (up to 3 stories), while the ASHRAE 90.1 standard applies to 
multifamily residential buildings with 4 or more stories.\4\ For both 
agencies, applicability is limited to newly constructed housing and 
does not include the purchase or repair of existing housing.\5\
---------------------------------------------------------------------------

    \3\ ANSI--American National Standards Institute; ASHRAE--
American Society of Heating, Refrigerating, and Air-Conditioning 
Engineers; IES--Illuminating Electrical Society.
    \4\ Note the IECC addresses both residential and commercial 
buildings. ASHRAE 90.1 covers commercial buildings only, including 
multifamily buildings four or more stories above grade. IECC Section 
C 401.2 adopts, by reference, ASHRAE 90.1; i.e. compliance with 
ASHRAE 90.1 qualifies as compliance with the IECC for commercial 
buildings.
    \5\ The statute covers rehabilitation as well as new 
construction of housing assisted by HOPE VI revitalization grants; 
however, as noted below, the HOPE VI program is no longer funded.
---------------------------------------------------------------------------

    Sections 109(c) and (d) of Cranston-Gonzalez, as amended by EISA, 
establish procedures for updating HUD and USDA energy standards 
following periodic revisions to the IECC and ASHRAE 90.1 codes, 
typically every three years. Specifically, section 109(d) of Cranston-
Gonzalez (42 U.S.C. 12709) provides that revisions to the IECC or 
ASHRAE 90.1 codes will apply to the three categories of housing 
financed or assisted by HUD or USDA described above if: (1) the 
agencies ``make a determination that the revised codes do not 
negatively affect the availability or affordability'' of such housing, 
and (2) the Secretary of Energy has made a determination under section 
304 of the Energy Conservation and Production Act (42 U.S.C. 6833) that 
the revised codes would improve energy efficiency (42 U.S.C. 12709(d)). 
On July 28, 2021, the Department of Energy (DOE) published final 
determinations that the 2021 IECC and ASHRAE 90.1-2019 standards would 
improve energy efficiency (86 FR 40529 and 86 FR 40543).
    Through this notice, HUD and USDA issue their final determination 
that the 2021 IECC and ASHRAE 90.1-2019 energy codes will not 
negatively impact the affordability or availability of housing covered 
by EISA.
    Note that manufactured housing is not covered in this notice: the 
relevant

[[Page 33114]]

section of the EISA statute specifically excludes manufactured housing; 
DOE has issued a separate final rule under EISA section 413 that 
establishes energy conservation standards for manufactured housing (42 
U.S.C. 17071).\6\ Those standards are also based on the 2021 edition of 
the IECC adapted for the unique features of manufactured housing, as 
well as feedback received during interagency consultation with HUD and 
extensive public comments from stakeholders.
---------------------------------------------------------------------------

    \6\ 87 FR 32728 (May 31, 2022); 10 CFR part 460.
---------------------------------------------------------------------------

B. Energy Codes Overview

    There are two primary benefits of adopting energy-saving building 
codes: a private benefit for residents--either homeowners or renters--
in the form of lower energy costs, and the external social value of 
reducing the emission of greenhouse gases (GHGs). Additional benefits 
include improved health and resilience against extreme hot or cold 
weather events. The affordability analysis contained in this notice 
focuses exclusively on the first of these benefits: the direct costs 
and savings to the consumer, both in the short and long term, for both 
renters and homebuyers. The affordability analysis recognizes the 
unique nature of the energy efficiency investment: while there is a 
one-time incremental cost, the benefits in terms of energy and utility 
cost savings to the consumer persist over time, for as long as the 
property exists. This is especially important for low- and moderate-
income renters and homeowners, who share a disproportionate energy cost 
burden, spending a significantly higher share of their incomes on 
energy than other households. The accompanying Regulatory Impact 
Analysis (RIA) also addresses a second benefit, the external cost 
savings in the ``social cost of carbon,'' but these are larger societal 
benefits that may result from lowering energy use in the HUD- and USDA- 
financed housing and are not directly reflected in the cost of buying, 
owning, or renting a home, and therefore are not included in the 
affordability analysis.
    As discussed in more detail below, states or localities typically 
adopt the IECC and ASHRAE 90.1 standards on a voluntary basis one or 
more years after their publication. As of December 2023, only a small 
number of states (five) have adopted the 2021 IECC or its equivalent 
(California, Washington, Connecticut, New Jersey, and Vermont), another 
five states have adopted the 2021 IECC with weakening amendments 
(Florida, Louisiana, Montana, Maryland, and Oregon), while another 
twenty or more states are actively considering and are likely to adopt 
some version of this code in the near future.
    Adoption of ASHRAE 90.1-2019 for multifamily buildings has been 
more advanced, with ten states and the District of Columbia (DC) having 
adopted this standard as of December 2023. Another two states (Florida 
and Louisiana) have adopted the 2019 standards with weakening 
amendments.
    DOE has determined that the 2021 IECC represents an approximately 
40 percent improvement in energy efficiency for residential and 
commercial buildings compared to the 2006 edition and 34.3 percent 
compared to the 2009 edition.\7\ The 2021 IECC also for the first time 
includes a Zero Energy Appendix. The Appendix is an optional add-on to 
the 2021 IECC that--if adopted by a state or local jurisdiction--will 
result in residential buildings having net zero energy consumption over 
the course of a year.
---------------------------------------------------------------------------

    \7\ Lucas R.G., Z.T. Taylor, V.V. Mendon, and S. Goel. 2012. 
National Energy and Cost Savings for New Single- and Multifamily 
Homes: A Comparison of the 2006, 2009, and 2012 Editions of the 
IECC. Richland, WA: Pacific Northwest National Laboratory.
---------------------------------------------------------------------------

    DOE has also determined that the 2019 edition of ASHRAE 90.1 
represents a 2.65 percent efficiency improvement over the 2016 edition, 
and approximately 33 percent over the 2007 edition. As explained in 
DOE's State Portal, DOE assesses state energy code adoption based on a 
quantitative analysis of energy savings impacts within the state.\8\ 
This approach analyzes the energy use of a state base code along with 
accompanying state amendments through DOE's energy modeling framework 
to determine an overall ``state energy index.'' The state index is then 
compared to the index of the last six national model energy codes to 
characterize each state at a specific code equivalency. The current 
state adoption of the IECC- and ASHRAE 90.1-equivalent standards is as 
follows:
---------------------------------------------------------------------------

    \8\ DOE State Portal, https://www.energycodes.gov/state-portal.
    [GRAPHIC] [TIFF OMITTED] TN26AP24.091
    

[[Page 33115]]



C. Covered HUD and USDA Programs

    Table 2 lists the specific HUD and USDA programs covered by EISA, 
with certain exclusions noted, as discussed below. Apart from the HOPE 
VI program, where rehabilitation is referenced, only new construction 
of housing financed or assisted under these programs is covered by 
EISA.
[GRAPHIC] [TIFF OMITTED] TN26AP24.092


[[Page 33116]]


[GRAPHIC] [TIFF OMITTED] TN26AP24.093

    Several exclusions are worth noting, i.e., programs which, while 
classified as public or assisted housing, or may be specified in the 
statute, are no longer funded or do not fund new construction:
     HOPE VI. While EISA references the ``rehabilitation and 
new construction of public and assisted housing funded by HOPE VI 
revitalization grants,'' funding for HOPE VI revitalization grants was 
discontinued in fiscal year (FY) 2011; the program is therefore not 
covered by this notice.
     Project Based Rental Assistance (PBRA). HUD is no longer 
authorized to provide funding for new construction of units assisted 
under the Section 8 PBRA program, except under the Rental Assistance 
Demonstration (RAD). Apart from RAD, current authorization and funding 
that Congress provides for the PBRA program is for the limited purpose 
of renewing expiring Section 8 rental-assistance contracts. 
Accordingly, this notice does not apply to the current Section 8 PBRA 
program except through RAD, as referenced in Table 2. If in the future 
Congress were to appropriate funds for new PBRA assisted units, such 
developments would be covered by this determination.
    In addition, other HUD programs that provide financing for new 
construction are not covered because they do not constitute ``assisted 
housing'' as specified in EISA and/or are not authorized under statutes 
specifically referenced in EISA, as follows:
    (1) Indian Housing. With the exception of Section 248 FHA-insured 
mortgages, Indian housing programs are excluded because they do not 
constitute assisted housing and are not authorized under the National 
Housing Act (12 U.S.C. 1701 et seq.) as specified in EISA. For example, 
the Section 184 guaranteed loan program is authorized under Section 184 
of the Housing and Community Development Act of 1992 (42 U.S.C. 1715z-
13a).
    (2) Community Development Block Grants. Housing financed with 
Community Development Block Grant (CDBG) funds is excluded since CDBG, 
which is authorized by the Housing and

[[Page 33117]]

Community Development Act of 1974 (42 U.S.C. 5301 et seq.), is neither 
an assisted housing program nor a National Housing Act mortgage 
insurance program.
    (3) USDA Multifamily Housing and assisted housing financed by USDA 
Community Facilities loans and grants. These programs are excluded 
because they are not authorized under the National Housing Act (12 
U.S.C. 1701 et seq.) as specified by EISA.

D. Current Above-Code Standards or Incentives

    Some HUD and USDA competitive grant programs covered by EISA (as 
well as other programs) already require grantees to comply with energy 
efficiency standards or green building requirements with energy 
performance requirements that exceed state or locally adopted IECC and 
ASHRAE 90.1 standards, while other programs provide incentives to do 
so. A list of current programs that require or incentivize a green 
building standard is shown in Table 3. This standard is typically 
Energy Star Certified New Homes for single family properties, Energy 
Star for Multifamily New Construction, or a green building standard 
recognized by HUD that includes a minimum energy efficiency 
requirement. Nothing in EISA or this notice precludes HUD or USDA 
competitive programs from requiring these higher standards or raising 
them further, nor from providing incentives for above-code energy 
requirements.
    Table 3 includes a listing of current HUD and USDA programs with 
either requirements or incentives for funding recipients to build to 
standards above the current 2009 IECC and/or ASHRAE 90.1-2007 standards 
(see ``Exceeds Current Energy Standard'' column). Contingent on the 
energy standard selected, and the minimum energy efficiency 
requirements established for each standard, projects built to the 
energy or green building standards listed in Table 3 may also meet or 
exceed the 2021 IECC and ASHRAE 90.1-2019 standards discussed in this 
notice (see ``Meets or Exceeds Proposed Standards'' column). These 
green building or energy performance standards typically have multiple 
certification levels with varying energy baseline requirements (gold, 
green, platinum etc.); these baseline requirements are updated over 
time at some point after publication of newer editions of the energy 
codes. HUD and USDA intend to seek certifications from the standard-
setting bodies as to which of these programs, or which certification 
levels, meet the 2021 IECC or ASHRAE 90.1-2019 standards referenced in 
this notice.

[[Page 33118]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.094


[[Page 33119]]


[GRAPHIC] [TIFF OMITTED] TN26AP24.095


[[Page 33120]]


[GRAPHIC] [TIFF OMITTED] TN26AP24.096

E. Current Housing Market Affordability Trends
---------------------------------------------------------------------------

    \9\ Table 3 includes HUD and USDA programs supporting new 
construction with energy code requirements. Does not include other 
HUD or USDA programs that may have appliance or product standards or 
requirements only, e.g., Energy Star appliances or WaterSense 
products.
    \10\ Pursuant to discussion of alternative compliance paths, 
Section VI, Implementation, some green building standards will meet 
or exceed the 2021 IECC/ASHRAE 90.1-2019, others may not, HUD and 
USDA will publish a list of those green building certifications that 
meet or exceed these codes.
---------------------------------------------------------------------------

    HUD and USDA recognize the current affordable housing shortage 
across the United States, caused by high mortgage interest rates, 
increased construction costs driven in part by COVID-related supply 
chain shortages, and an inadequate supply of new housing sufficient to 
meet demand due to a range of regulatory barriers such as local land 
use laws and zoning regulations that may limit the production of 
affordable housing.\11\ (Land use regulations that mandate home sizes 
and volumetric massing are particularly relevant to energy-efficiency 
because some local zoning policies restrict homes of smaller sizes, 
which inherently have the potential to be more affordable and better 
performing homes.) The publication of this notice occurs at a time when 
housing prices for both new and existing homes have risen significantly 
over the past three years, increases in mortgage interest rates have 
reached their highest levels in more than two decades, and it has 
become increasingly difficult for low-moderate income households to 
afford a home purchase. The National Association of Realtors' annual 
survey of homebuyers and home sellers reports that median homebuyer 
income increased to $107,000 in 2023, an increase of 22 percent from 
$88,000 in 2022.\12\ Median home sales prices increased to $417,700 in 
the fourth quarter of 2023, a decrease of 14 percent over the prior 
year but a significant increase since the fourth quarter of 2020, when 
the median home sales price was $358,700.\13\ These trends are mirrored 
in the FHA-insured market. In 2023, the median price for all FHA-
insured purchases, including existing homes, was $290,000, and new 
construction was approximately $330,000--a nearly $100,000 cost 
increase in the three-year period since 2020,\14\ although still well 
below the median home sales price for all new homes of $414,600.\15\
---------------------------------------------------------------------------

    \11\ White House Housing Supply Action Plan, President Biden 
Announces New Actions to Ease the Burden of Housing Costs, May 16, 
2022. www.whitehouse.gov/briefing-room/statements-releases/2022/05/16/president-biden-announces-new-actions-to-ease-the-burden-of-housing-costs/.
    \12\ National Assn of Realtors, 2023 Profile of Home Buyers and 
Sellers, November 2023. www.nar.realtor/newsroom/nar-finds-typical-
home-buyers-annual-household-income-climbed-to-record-high-of-
107000.
    \13\ St. Louis Fed, FRED Economic Data, St. Louis Fed, Median 
Sales Prices of Houses Sold for the United States, Q4 2023. https://fred.stlouisfed.org/series/MSPUS
    \14\ Internal FHA data on median home price for all FHA-insured 
purchases.
    \15\ St. Louis Fed, FRED Economic Data, Median Sales Price for 
New Houses Sold in the United States, October 2023, https://fred.stlouisfed.org/series/MSPNHSUS.
---------------------------------------------------------------------------

    The shortage of affordable housing is driven by larger trends in 
the housing and mortgage markets. In light of these larger trends, it 
is important to note that a key finding of this notice is that given 
the relatively modest incremental costs of building to the new 
standards, the adoption of the proposed codes in this final 
determination will have a limited impact on overall affordability for 
low- or moderate-income buyers. Also, energy efficiency is one of the 
few features of a home that contributes to affordability, in that 
significant cost savings are projected to be realized from this 
investment. These savings persist over time. Investments in energy 
efficiency will also ensure that the next generation of Federally-
financed new housing is built to a high-performance standard that 
realizes lower energy bills, improved comfort, and healthier living 
conditions for residents. These benefits are long-lasting and will be 
passed on to future owners.

F. Changes From the Preliminary Determination to the Final 
Determination

    In response to the public comments received, HUD and USDA are 
adopting several changes in this final determination to incorporate 
public feedback on the preliminary determination, and address questions 
and concerns expressed by commenters.
1. Adjusted Economic Factors
    In response to several comments about the economic factors used in 
the affordability analysis, HUD and USDA have updated several economic 
and cash flow factors to account for changes in the economy as well as 
the building industry since the original analysis was conducted by 
Pacific Northwest National Laboratory (PNNL) for DOE using 2020--2021 
cost data and economic factors. These revisions address the distortions 
in the current housing market caused by COVID-19 and global supply 
chain issues, which significantly increased the cost of construction 
materials and energy, as well as significant increases in mortgage 
interest rates during this period.
    Construction cost increase. A supply chain cost increase factor has 
been applied to the incremental cost of adopting the new code to 
account for the increase in residential construction costs for 2020-23. 
The 37 percent increase utilizes Bureau of Labor Statistics' Producer 
Price Index for inputs to residential construction less energy, as 
reported by the National Association of Home Builders (NAHB).\16\
---------------------------------------------------------------------------

    \16\ David Logen, Building Materials Prices Fall for Second 
Month Straight, June 15, 2023. https://eyeonhousing.org/2023/06/wbuilding-materials-prices-fall-wfor-second-month-straight/.
---------------------------------------------------------------------------

    Energy price increase (2020-22). An energy price increase factor 
was developed by averaging prices for electricity, natural gas, and 
heating oil for 2020 through 2022. The three-year averages were used to 
find the rate of increase of energy prices for each source over this 
period. These rates were averaged based on the residential energy mix 
for 2022. Data for calculating the energy price increase factor was 
sourced from the U.S. Energy Information 
Administration.17 18 19
---------------------------------------------------------------------------

    \17\ U.S. Energy Information Administration, Natural Gas Prices. 
https://www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PRS_DMcf_a.htm.
    \18\ U.S. Energy Information Administration, Petroleum & Other 
Liquids. https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M_EPD2F_PRS_NUS_DPG&f=M.
    \19\ U.S. Energy Information Administration, Electricity Data 
Browser. Average retail price of Electricity, Annual

---------------------------------------------------------------------------

[[Page 33121]]

    Energy price escalator. A new fuel price escalator of 1.9 percent 
is based on the estimated 30-year trends in the Energy Information 
Administration's (EIA) 2023 Annual Energy Outlook. This escalator 
applies to estimates of future energy price increases, over the 
baseline established under the Energy Price Increase described above. 
This escalator was developed from the growth rate for nominal fuel 
prices (natural gas, heating oil, and electricity) based on the share 
of energy mix for 2022, which was the most recently available annual 
data at the time.
    Mortgage interest rate. An updated nominal mortgage interest rate 
of 5.3 percent has been adopted, reflecting approximate two-year 
Freddie Mac average rates (February 2022-2024).\20\ While Freddie Mac 
interest rates reached a twenty-year high of 7.79 percent for a 30-year 
fixed rate mortgage, as of November 2023, a moderating trend has begun 
that is projected to continue, and HUD has accordingly adopted an 
interest rate that is aligned with the rate currently established by 
DOE of 5 percent, that reflects the average of the recent 2022-24 two 
year period rather than rely on a specific rate from a specific point 
in time that may or may not continue at the same level in the future. 
In addition, a 6.5 percent example has also been provided (Table 16) to 
reflect mortgage rates of between 6 and 7 percent forecast for the next 
year, as well as a 3.5 percent downpayment rate that reflects the 
minimum FHA downpayment requirement.\21\
---------------------------------------------------------------------------

    \20\ The nominal interest rate used here aligns with a 3 percent 
real interest rate with a 2.24 percent inflation factor.
    \21\ Economic, Housing and Mortgage Market Outlook--December 
2023--Freddie Mac, https://ww.freddiemac.com/research/wforecast/20231220-us-economy-wexpanded-in-2023.
---------------------------------------------------------------------------

    Discount rate. A 5.3 percent discount rate (equivalent to a 3 
percent discount rate with a 2.24 percent inflation rate) has been 
adopted to match the mortgage interest rate. The discount rate reflects 
the time value of money. Following established DOE methodology, the 
discount rate has been set equal to the mortgage interest rate in 
nominal terms. The mortgage payment is an investment available to 
consumers who purchase homes using financing, which makes the mortgage 
interest rate a reasonable estimate for a consumer's alternative 
investment rate.
2. Adjusted Cash Flow and Financing Factors
    In addition to an updated mortgage interest rate, several 
adjustments have been made to reflect typical financing factors 
utilized by FHA and USDA borrowers, as well as likely differences 
between the house type assumed by PNNL in their original calculations.
    Down payment. The down payment contribution for home purchases has 
been revised to better reflect the typical HUD and USDA borrower. The 
down payment requirement for FHA borrowers is a minimum of 3.5 percent, 
distinct from a typical 20 percent down payment requirement for 
conventional financing without private mortgage insurance (PMI), or the 
12 percent down payment rate used by DOE-PNNL and utilized by HUD and 
USDA in the preliminary determination. The downpayment rate has been 
updated to 5 percent in the Final Determination.
    Mortgage Insurance. The preliminary determination was silent on 
mortgage insurance requirements, which have now been included in the 
Final Determination's affordability analysis: FHA's 1.75 percent 
upfront mortgage insurance premium (MIP) and 0.55 percent annual MIP 
that took effect in March, 2023.
    Adjustment for Home Size. Cost and savings factors have been 
applied to the affordability analysis to better reflect the typical 
home FHA or USDA-sized home. These factors revise the analysis to 
better reflect the smaller home size of a typical FHA or USDA property 
(2,000 square feet (sf)) compared to a conventionally financed house 
modeled by PNNL (2,376 sf). While this is a 14 percent ``smaller 
house'', lower cost and savings factors have been used to approximate 
the reduced cost and associated savings that are anticipated from the 
smaller-house size (5 percent and 3 percent respectively).
    Note that the revised analysis largely indicates that the proposed 
standards, while better reflecting the status of the post-COVID housing 
market conditions, do not change the affordability determination. The 
relevant tables (Tables 13-20) have been updated with the revised 
affordability analysis.
    3. Updated State Code Adoption: Since publishing the preliminary 
determination, multiple states have adopted new building code 
requirements, including the codes referenced in this notice, i.e. 2021 
IECC and ASHRAE 90.1-2019. HUD and USDA have accordingly updated the 
relevant tables in the Final Determination (Tables 11 and 23) to 
reflect the new landscape of energy code adoption at the state level, 
following the latest DOE determinations as of December 2023.
    4. Alternative Compliance Pathways: HUD and USDA encourage the use 
of codes and standards that exceed the 2021 IECC and ASHRAE 90.1-2019. 
HUD and USDA are adding that future versions of the IECC and ASHRAE 
90.1 codes, including the 2024 IECC, will be deemed to meet the code 
requirements of this notice subject to a positive efficiency 
determination by DOE. Additional information has been added to reflect 
the compliance paths for certain energy efficiency and green building 
standards, including EPA's Energy Star for New Construction and DOE's 
Zero Energy Ready Homes (ZERH) standards.
    5. Implementation and Compliance Timelines. HUD and USDA have 
adjusted compliance timetables to better enable the industry to adapt 
to these code requirements, including an extended compliance period for 
persistent poverty rural areas where capacity to adopt above-code 
standards may be challenging.
    6. Inflation Reduction Act (IRA) Tax Credits and Rebates. This 
notice addresses the availability of tax credits that are now available 
for builders to support the cost of building to Energy Star for New 
Construction and ZERH homes. Both Energy Star (Versions 3.2 single 
family and 1.2 multifamily) and ZERH specify the 2021 IECC as the 
minimum standard to qualify for these certifications. In addition, the 
notice references Home Energy and Appliance Rebates that when 
implemented by the states will provide an additional source of 
financing for increasing the energy efficiency of new homes. Note, 
however, that these tax credits and rebates are not factored into the 
cost benefit analysis in this determination.

II. Public Comments

    HUD and USDA published a notice on May 18, 2023, announcing the 
preliminary determination that the 2021 IECC and ASHRAE 90.1-2019 do 
not negatively affect the availability or affordability of houses 
covered by EISA and seeking public comment (88 FR 31773). The public 
comment period was extended to, and closed on, August 7, 2023. HUD 
received and reviewed 120 public comments from a wide range of 
stakeholders, including one state (Montana); the two code bodies 
represented in this notice (the International Code Council and ASHRAE); 
multiple national associations representing mortgage lenders, home 
builders, environmental and energy efficiency advocates;

[[Page 33122]]

consumers; state energy offices; insulation and other building product 
trade associations; as well as individuals and other interested 
parties. The majority of the comments expressed support for HUD and 
USDA's preliminary determination. Of these supportive comments, most 
expressed support for HUD and USDA's methodology and conclusions and 
urged HUD and USDA to rapidly adopt the more recent IECC or ASHRAE 90.1 
codes that have been promulgated since the publication of the 2009 IECC 
and ASHRAE 90.1-2007. In addition, several commenters suggested that 
HUD and USDA allow alternative compliance pathways for these standards 
through equivalent or higher state standards or one or more green 
building standards.
    Other commenters highlighted the importance of energy standards in 
reducing greenhouse gas emissions and increasing the climate resilience 
of HUD and USDA-supported housing. This will help the country meet 
national climate goals. Many commenters noted that more efficient homes 
will reduce stress on the power grid during peak times.
    Several commenters suggested that the preliminary determination 
will help to improve the health and comfort of those living in HUD and 
USDA-assisted housing in addition to saving on healthcare costs. Many 
commenters stated that the byproducts of burned methane gas contribute 
to premature mortality and increase the risk of health complications 
and respiratory diseases, and that updated energy codes will address 
health inequities.
    In addition to the many supportive comments, several commenters 
expressed concerns or opposition to one or more features of the 
preliminary determination. The concerns raised were in four primary 
areas: the need to update the economic factors used in the preliminary 
determination to reflect current market conditions, including interest 
rates, inflation, and energy prices; the first cost estimates used by 
HUD and PNNL and larger concerns regarding the availability test; an 
``appraisal gap'' in valuing the additional cost likely to be incurred 
when adopting these standards; and the proposed timetable for 
implementing the standards after a final determination is published.
    In the preliminary determination, HUD and USDA sought public 
comment on all aspects of the determination but were especially 
interested in responses to eight questions posed in the preliminary 
determination. This section addresses responses to those questions 
first, then addresses public comments on additional aspects of the 
determination.

A. Impact of Higher First Costs Associated With Adopting the 2021 IECC 
on Availability of Covered Housing to Otherwise-Qualified Buyers or 
Renters

    HUD and USDA requested comments on whether the higher first costs 
associated with adopting the 2021 IECC over the current 2009 IECC 
standard for USDA- or HUD-assisted housing, or relative to the most 
recent 2018 IECC, may lower homebuyer options, despite the significant 
life-cycle cost savings over the life of the mortgage described in this 
notice. In other words, whether adoption of the 2021 IECC may limit the 
availability of such housing to otherwise-qualified buyers or renters.
1. General Support for Preliminary Determination
    The large majority of comments supported the findings of the 
preliminary determination. These comments generally agreed with HUD and 
USDA's methodology in arriving at the determination that the 2021 IECC 
and ASHRAE 90.1-2019 would, on balance, not negatively impact the 
affordability and availability of the housing covered by the 
determination. For the purpose of this notice, ``affordability'' is 
assumed to be a measure of consumer demand (whether a home built to the 
updated energy code is affordable to potential homebuyers or renters), 
while ``availability'' of housing is a measure of builder supply 
whether builders will make such housing available to consumers at the 
higher code level, i.e., whether the higher cost per unit will impact 
whether that unit is likely to be built or not.
    Several commenters agreed with the preliminary determination's 
finding indicating that the higher first costs associated with adopting 
the 2021 IECC over the current 2009 IECC would not lower homebuyer 
options or generally limit the availability of housing to otherwise-
qualified buyers or renters. Many commenters agreed with the 
preliminary determination's analysis that the housing stock in question 
will remain available. One commenter noted that ``[n]othing in the 
model codes would prevent builders from building homes that receive 
federal support. The codes are based on widely available, commercial 
technologies and provide multiple pathways for complying.'' One 
commenter cited that these energy codes have already been adopted by 
many states and therefore will not affect availability. Several 
commenters emphasized that building housing to the 2021 IECC standard 
is essential and can be done while maintaining or improving 
affordability for consumers. Two commenters suggested that reduced 
energy bills would offset any additional first costs incurred from the 
new code requirements.
    HUD-USDA Response: HUD and USDA appreciate the support expressed by 
these commenters for the analysis included in the preliminary 
determination. These comments indicate confidence in HUD's and USDA's 
use of DOE and PNNL cost-benefit analysis of the subject codes. HUD and 
USDA conducted thorough affordability and availability analyses to 
assess the impact of adopting the 2021 IECC, ultimately finding that 
these codes will not negatively impact the affordability or 
availability of the covered housing.
2. Cumulative Costs Over 2009 IECC
    One commenter noted that the significance of the costs is due to 
the baseline code being the 2009 IECC instead of the multiple, 
intermediary energy code updates. One commenter stated that HUD and 
USDA may overestimate the number of homes that will be impacted by the 
proposed standards as additional states and cities are likely to adopt 
either of the codes addressed in this notice in the near future (at 
which point they will come into compliance with the code requirements).
    HUD-USDA Response: The commenter's observation that these costs are 
higher because they are based on the 2009 edition of the IECC rather 
than a more recent edition is accurate in that these costs represent 
the cumulative cost of amendments to several editions of the code since 
the 2009 edition; the 2012, 2015, and 2018 editions, as well as the 
current 2021 edition.
    Adoption by states of the 2021 IECC is an iterative process: while 
five states have already adopted a code that meets or exceeds the 2021 
IECC, others have adopted an energy code more recent than the 2009 
IECC, and a significant number of states are actively considering 
adoption of the 2021 standard or have already done so with amendments.
    Where states have adopted more recent editions (e.g., the 2018 
edition), the incremental cost to meet the requirements of the 2021 
standard is significantly lower, as shown in Table 19 in the final 
determination. Note, however, that the cumulative costs represented by 
the 2009-2021 figures also yield significant cumulative savings: 34 
percent in improved energy

[[Page 33123]]

efficiency over this period, compared to just 8.3 percent over the most 
recent 2018 edition.
3. Proposals for Financing and Tax Credits
    While generally supportive of the preliminary determination's 
findings, several commenters recommended measures that HUD and USDA 
could take to mitigate first cost impacts. Commenters suggested HUD and 
USDA provide programs and advance policy that allow for reduced 
downpayments, changes in amortization schedules, changes in 
underwriting standards, downpayment assistance, tax credits, and other 
forms of financing assistance. One commenter stated that tax credits 
and incentives further enable compliance and serve to reduce upfront 
costs to builders. Commenters also recommended that HUD and USDA 
identify programs and resources, at the state or federal levels, that 
will address first cost barriers and make information on accessing 
these resources available for low-income consumers. One commenter 
recommended HUD and USDA identify alternative solutions to advance 
energy efficiency measures that avoid the first cost impacts.
    HUD-USDA Response: HUD and USDA appreciate these financing 
proposals, both with possible HUD-USDA financing incentives, as well as 
action that HUD-USDA could take to maximize the use of new IRA or BIL 
tax credits, rebates, or other financing that will become available.
    Proposals from commenters for ``reduced downpayments or other forms 
of flexible financing'' including for example, ``changes in 
amortization schedules,'' while potentially longer-term options for HUD 
and USDA consideration, are beyond the scope of this notice. However, 
regarding comments recommending ``tax credits and other funding 
mechanisms that could reduce the impact of added first costs,'' there 
are now significant new resources available through the Inflation 
Reduction Act (IRA) which provide unprecedented financial support for 
building energy efficient housing. HUD has already taken, and will 
continue to take, steps to train and educate builders and developers on 
how these may be used in conjunction with HUD financing.
    The IRA makes available significant tax credits for builders that 
can potentially offset some of the incremental costs associated with 
building to the 2021 IECC. Though not considered in the preliminary 
determination's affordability analysis, energy efficient new homes the 
section 45L tax credit (45L) encourage builders to consider building 
and certifying to the Energy Star New Homes (up to $2,500 credit) or 
DOE's Zero Energy Ready Home (up to $5,000 credit) standards. Energy 
Star Version 3.2 is estimated to yield additional savings of at least 
10 percent over the 2021 IECC, while the ZERH standard is designed to 
exceed the 2021 IECC by at least 15-20 percent depending on whether 
multifamily or single family. Note that the 2021 IECC is a minimum 
baseline requirement for both Energy Star Version 3.2, and DOE's ZERH 
Version 2 standard, currently in effect. Energy Star Version 3.1 
currently qualifies (through December 31, 2024) for the IRA tax credit 
in those states that have not yet adopted the 2021 IECC.\22\
---------------------------------------------------------------------------

    \22\ Energy Star Version 3.1 is modeled to perform at 10 percent 
above the 2018 IECC but it does not include a thermal backstop 
provision required under the 2021 IECC standard.
---------------------------------------------------------------------------

    HUD and USDA recognize that qualifying for these tax credits will 
require builders to build to a higher overall energy efficiency 
standard than the 2021 IECC, and that while this will entail additional 
costs, these costs will be offset--in some cases entirely--when taking 
advantage of available tax credits. While DOE does not have estimates 
of the added cost of building to the ZERH standard, EPA provides cost 
estimates of the incremental costs that would typically be required 
over the 2021 IECC to build to the new Energy Star Version 3.2 
standard. Table 4 provides estimates of these additional costs; the 
additional cost for building to Energy Star for New Homes ranges from 
$1,010 in Climate Zone 3 (Memphis) to $1,668 in Climate Zones 6, 7, and 
8 (Fairbanks) for all-electric homes; and $1,176 to $2,815 for mixed 
fuel homes (natural gas + electric). Note that for Energy Star Version 
3.2, estimated costs of $1,211--$1,463 in Climate Zones 1-3--where a 
significant share of housing likely to be impacted by this notice are 
located--are significantly lower than the $2,500 tax credit, thereby 
providing builders a significant incentive to build to this standard. 
These estimates demonstrate that building to Energy Star Version 3.2 in 
these Climate Zones will in fact lower builder outlays by between 
$1,000-$1,300 while achieving a higher energy efficiency standard than 
the 2021 IECC.\23\
---------------------------------------------------------------------------

    \23\ Cost estimates for Energy Star from U.S. EPA, National 
Version 3.2 Costs and Savings, https://www.energystar.gov/sites/default/files/asset/document/ENERGY%20STAR%20Version%203.2%20Cost%20%20Savings%20Summary.pdf.
[GRAPHIC] [TIFF OMITTED] TN26AP24.097


[[Page 33124]]


    Both the Energy Star for New Homes and ZERH tax credits are also 
available for multifamily new construction. A $500 per unit tax credit 
is available for homes certified to eligible ENERGY STAR Multifamily 
New Construction (MFNC) program requirements, with a larger tax credit 
($2,500 per unit) available when prevailing wage requirements are 
met.\24\ For ZERH homes, the tax credit is $1,000 per dwelling unit, 
unless the project meets prevailing wage requirements, in which case 
the 45L tax credit is $5,000 per dwelling unit.\25\
---------------------------------------------------------------------------

    \24\ EPA. https://www.energystar.gov/about/federal-tax-credits/ss-45l-tax-credits-home-builders.
---------------------------------------------------------------------------

    In addition to these tax credits for new construction, the IRA 
expanded the Section 179(d) commercial building tax credits for 
multifamily buildings. The new law increased the maximum deduction from 
$1.88 to $5 per square foot and cannot exceed the cost of the 
improvement. However, the taxpayer must meet a prevailing wage and 
apprenticeship requirement.\26\
---------------------------------------------------------------------------

    \26\ DOE, 179D Commercial Buildings Energy-Efficiency Tax 
Deduction Buildings, https://www.energy.gov/eere/buildings/179d-commercial-buildings-energy-efficiency-tax-deduction.
---------------------------------------------------------------------------

    In addition to the tax credits and deductions available through the 
IRA, there is another potential source of IRA funds that states may 
make available for new construction: Home Energy and Appliance Rebates 
that provide $4.5 billion in rebates for certain energy efficiency and 
electrification measures such as heat pumps, upgraded electrical 
service, or solar panels that may be leveraged to lower the first cost 
of construction for these measures. These funds will be administered by 
the states and are expected to become available in most states in 2024 
or 2025.\27\ Home Electrification and Appliance Rebates will also be 
available to (1) low- or moderate-income households; (2) individuals or 
entities that own a multifamily building with low- or moderate-income 
households comprising at least 50 percent of the residents; and (3) 
governmental, commercial, or nonprofit entities that are carrying out 
projects for low- or moderate-income households or multifamily building 
owners.\28\ Rebates can be used to offset the cost of the following 
items: ENERGY STAR-certified electric heat pump water heater; ENERGY 
STAR-certified electric heat pump for space heating and cooling; ENERGY 
STAR-certified electric heat pump clothes dryer; ENERGY STAR-certified 
electric stove, cooktop, range, or oven (note: Energy Star-certified 
ovens are pending); electric load service center (i.e., electrical 
panel); electric wiring; insulation, air sealing, and mechanical 
ventilation. For low-moderate income households, the rebates may be 
used for as much as 100 percent of the cost of installation.
---------------------------------------------------------------------------

    \27\ A separate $4 billion for HOMES rebates is for existing 
homes only, and does not cover new construction.
    \28\ DOE, Home Energy Rebates: Frequently Asked Questions. 
https://www.energy.gov/scep/home-energy-rebates-frequently-asked-questions.
---------------------------------------------------------------------------

    In addition to these multiple new sources of funding for energy 
efficiency measures, there are also tax credits and financing sources 
for the addition of renewables through the IRA. Builders may be able to 
take advantage of certain EPA Greenhouse Gas Reduction Fund programs, 
especially the Solar for All initiative. Builders may also be able to 
utilize the Investment Tax Credit under Section 48 of the Internal 
Revenue Code focusing on investment in on-site renewable energy 
production through wind and solar, which has increased incentives for 
low-income communities, Tribal entities, and specifically for 
residential buildings.\29\
---------------------------------------------------------------------------

    \29\ The section 48 investment tax credit offers an up to 30 
percentage point credit (if prevailing wage and apprenticeship 
requirements are met) with an additional 10 percentage point credit 
for facilities in low-income and Tribal communities and additional 
20 percentage point tax credit available for facilities that serve 
federally-subsidized housing or provide economic benefits to low-
income households (information available at https://www.whitehouse.gov/cleanenergy/clean-energy-updates/2023/08/10/treasury-issues-final-rules-and-procedural-guidance-to-drive-clean-energy-investments-in-low-income-communities-across-the-country/).
---------------------------------------------------------------------------

    When using solar energy for housing, creating an energy efficient 
home is a critical first step towards optimizing energy performance. 
Energy efficiency in homes has a point at which better energy 
performance requires the addition of a source of renewable energy. As 
shown in 2021 IECC Zero Energy Appendix, (Table 5 below), the maximum 
ERI score of 43-47 for the 2021 IECC, provides a reasonable backstop 
for energy efficiency and adding renewable energy. Since minimum ERI 
scores or equivalent HERS ratings are required for Energy Star for 
Homes, ZERH, and Passive House, to the 2021 IECC provides a sound 
baseline for home energy efficiency performance before the addition of 
renewable energy sources to get to net zero energy.
[GRAPHIC] [TIFF OMITTED] TN26AP24.098

    HUD and USDA will work with DOE and states to maximize 
participation by HUD and USDA stakeholders in these programs. Steps 
that HUD has already taken to increase use of both the tax credits and 
rebates now available to support builders wishing to build more energy 
efficient housing include the new Climate Funding Navigator, which 
provides a user-friendly portal to all funding opportunities in the IRA 
and the Bipartisan Infrastructure Law (BIL),

[[Page 33125]]

as well as other programs administered by HUD and other Federal 
agencies.\30\
---------------------------------------------------------------------------

    \30\ https://www.hudexchange.info/programs/build-for-the-future/funding-navigator/.
---------------------------------------------------------------------------

4. Proposals for Technical Assistance
    One commenter recommended protecting homebuyers who may lose 
eligibility due to the proposed standards by providing technical 
assistance for state officials, builders, construction workers, and 
others; addressing differential rural impacts; making adjustments as 
needed to account for ASHRAE 90.1 standards; and expanding strong 
energy efficiency requirements to additional assisted housing programs.
    HUD-USDA Response: HUD and USDA appreciate the range of comments 
received that recommended training, technical assistance (TA), and 
information for builders and developers impacted by this determination. 
HUD and USDA intend to provide TA to support the implementation of the 
2021 IECC and ASHRAE 90.1-2019. The agencies recognize that there may 
be an ``information gap'' regarding the latest codes in places where 
prior codes have been adopted by states or local jurisdictions, and 
that in some locations there may be a learning curve for builders to 
become familiar with the requirements of the latest editions of the 
codes. HUD has allocated FY 2022 Community Compass TA funds for this 
purpose and expects to implement an extensive TA and training effort to 
ensure that stakeholders are both aware of the new requirements and 
knowledgeable about the specific updates that are included in the new 
codes.\31\ This may include both webcasts as well as printed and/or 
online resources that builders, developers, and appraisers can use to 
familiarize themselves with the new code requirements. Additional on-
call TA that responds to builder, consumer, lender, or developer 
questions may also be available. The specific topics that will be 
covered have not been identified at this point; however, the agencies 
will widely circulate any resources or webinars developed in support of 
the implementation of these new standards. HUD will also work with 
trade associations to promote these resources to their members, through 
targeted trainings or at regular association meetings, conferences, or 
training events. In addition, HUD and USDA will work with DOE and its 
state and local grantees to leverage $1.2 billion in IRA and BIL energy 
code TA funds: $330 million to adopt the latest building energy codes, 
$670 million to adopt building energy codes that meet or exceed the 
zero energy provisions in the 2021 IECC or other codes and standards 
with equivalent or greater energy savings, and $225 million to support 
code adoption and training.
---------------------------------------------------------------------------

    \31\ https://www.hud.gov/program_offices/comm_planning/cpdta.
---------------------------------------------------------------------------

5. Appraisal Gap in Valuing Energy Efficiency Improvements in Home 
Appraisals
    Four commenters raised concerns over challenges with the appraisal 
process that could impact the ability of FHA and USDA home buyers to 
afford the added cost of the IECC code. The commenters noted that the 
analysis included in the preliminary determination assumed construction 
and production costs would be passed on to homebuyers. Multiple 
commenters identified the issue of an appraisal gap for energy-
efficient homes. The gap arises from the limited ability of the 
traditional appraisal process to properly account for energy efficiency 
measures, such as those required by the 2021 IECC, into the valuation 
of the property. They pointed out that a home may appraise for a value 
that is less than the cost of materials and labor and that energy 
efficiency enhancements are often not accounted for in the appraisal. 
Several commenters stated that this results in development costs 
exceeding home values, making appraisal practices a major obstacle. One 
commenter suggested that HUD and USDA establish effective energy-
efficient mortgage programs in response.
    HUD-USDA Response: The appraisal gap issue discussed by the 
commenters is larger than just an energy codes issue, as it not only 
addresses broader issues of how the market values energy efficiency but 
also how the market values homes generally in underserved markets. HUD 
and USDA agree that the valuation of energy efficiency in appraisals 
could act (depending on location) as a market barrier to the adoption 
of energy-efficient codes. HUD and USDA reviewed these arguments in a 
section on ``market barriers'' in the Regulatory Impact Analysis (RIA) 
and provided empirical evidence in a section on capitalization of 
energy efficiency. From a broader regulatory perspective, there are at 
least three separate issues that could impact appraisals: (1) cost 
pass-through rates, which depend on the flexibility of buyers and 
sellers; (2) imperfect valuation by buyers and sellers due to limited 
information and thin markets; and (3) the role of experts, including 
appraisers, in valuing energy-efficient improvements.
     Pass-through rate: HUD assumed in much of the analysis 
that the pass-through rate of costs from builders to buyers was equal 
to one, i.e., builders pass on the full cost of construction to the 
buyer. However, another acceptable scenario would have been to assume a 
pass-through rate less than one, where the buyer will only bear a 
portion of the costs. HUD mentioned in the RIA that the pass-through 
rate would vary with the price elasticity of demand and supply.
     Imperfect information: HUD explored the possibility that 
energy efficiency may not be perfectly capitalized in the value of a 
home. If the value of energy efficiency is not transparent to a 
prospective buyer, then insufficient capitalization reduces the 
incentive to build energy-efficient housing. In addition to imperfect 
information, thin markets (few buyers and sellers) could lead to an 
undervaluation of less common goods (such as above-average energy 
efficiency).
     Role of the appraiser: A well-informed appraiser is 
expected to perform valuation services competently and assess the 
market value of an energy-efficient building relative to other 
buildings. Increasing education and awareness of energy-efficient 
improvements for appraisals will contribute to stronger valuations as 
market and cost data become more available.
    HUD and USDA therefore understand that lenders, buyers, and 
builders of energy efficient housing may be impacted in the short-term, 
particularly in markets where comparable sales are not yet available, 
and that intervention can be helpful in certain areas to raise 
awareness of the value of these improvements. One study finds that 
approximately 1-in-10 homes are undervalued, while thirty percent are 
appraised at their sales price.\32\
---------------------------------------------------------------------------

    \32\ Calem, Paul, et al, ``Appraising home purchase 
appraisals.'' Real Estate Economics 49.S1 (2021): 134-168,
---------------------------------------------------------------------------

    A study of home appraisals conducted for DOE by the Building 
Industry Research Alliance identified several barriers to valuing 
energy efficiency improvements in residential appraisals.\33\ These 
included: (1) lack of comparable sales, surveys of property performance 
and return expectations in most markets (where limited data is 
available, appraisers may resort to ``assessing arbitrary values'' for 
energy efficiency improvements); (2) variations

[[Page 33126]]

in occupancy behavior, plug loads and/or weather conditions that could 
impact the actual energy consumption of a household relative to modeled 
or estimated energy use; (3) knowledge gaps in the lending and housing 
industries, both on the part of appraisers and underwriters; (4) lack 
of energy efficiency appraisal training and education (all states 
require education, experience and licensing for appraisers but energy 
efficiency requires a different kind of knowledge, and appraiser 
licensing does not recognize this specialty as distinct); and (5) 
``resistance to change'' by the appraisal industry with the current 
appraisal methods developed in the 1940s that provide market valuations 
for aesthetic and structural improvements (the proverbial ``granite 
countertop'') but do not necessarily recognize energy efficiency as a 
factor in homeownership cost or property value.
---------------------------------------------------------------------------

    \33\ Victoria Doyle, Abhay Barghava, The Role of Appraisals in 
Energy Efficiency Financing, Building Industry Research Alliance for 
the Department of Energy, May 2012.
---------------------------------------------------------------------------

    These are inherent limitations in the appraisal industry's current 
approach to valuing energy efficiency, but there are also important 
developments that are addressing these barriers. These include the 
introduction of sustainable building science education and 
certifications such as the Appraisal Institute's Sustainable Buildings 
Professional Development Programs that include Introduction to Green 
Buildings, Case Studies in Appraising Residential Green Buildings, and 
Case Studies in Appraising Commercial Green Buildings. The National 
Association of Realtors has expanded its curriculum for the General 
Accredited Appraiser program to include an introduction to energy-
efficient homes, and there is also now a ``Green Designation'' for real 
estate practitioners including Realtors.
    At the same time, to the extent that an appraisal overlooks or does 
not appropriately value one or more features or improvements of a home, 
buyers can dispute an appraisal that they feel did not consider all 
relevant information, so an incentive exists for lenders to engage 
appraisers who have sufficient competency to appraise energy efficient 
properties. Sellers in turn have an incentive to provide information 
that would generate buyer interest in the added improvements.
    Information prepared jointly by the Appraisal Institute, the 
Building Codes Assistance Project, and National Association of Home 
Builders provides practical solutions, such as how to communicate 
energy efficiency and where to find qualified appraisers.\34\ An 
appraiser who lacks experience in valuing an energy-efficient building 
may find that they are passed over for more qualified appraisers with 
more training. An analysis of energy-efficient buildings in the 
American Economic Review indicated that the diffusion of energy-
efficient technology is enhanced by educating building 
professionals.\35\
---------------------------------------------------------------------------

    \34\ Appraisal Institute, New Appraisal Guidance Addresses Green 
Housing, 2015, https://nationalmortgageprofessional.com/news/56670/new-appraisal-guidance-addresses-green-housing See also https://www.appraisalinstitute.org/education/education-resources/green-resources.
    \35\ Kok, Nils, Marquise McGraw, and John M. Quigley. ``The 
diffusion of energy efficiency in building.'' American Economic 
Review 101.3 (2011): 77-82.
---------------------------------------------------------------------------

    In response to the comments received, HUD reviewed the FHA-insured 
portfolio from fiscal year 2020 through 2023 to ascertain the extent to 
which the appraised value of new homes is below, equal to, or above the 
sales price of the home. One key data point is that, for many FHA 
borrowers, home appraisal valuations exceed sales prices: 87 percent of 
450,000 FHA-insured new home purchases over the past four years had 
appraisals that exceeded the sales price, and, for 32 percent of new 
home purchases, appraised values exceeded the sales price by $5,000 or 
more. The above sales price appraisals indicate that for a significant 
share of FHA borrowers, even first-time home buyers, there may be a 
sufficient cushion in the appraisal valuation to allow for some or all 
of the added cost of an energy-efficient new home, ranging from $2,945 
to $7,115 depending on climate zone. While the sales price-home 
valuation differential shown in Table 6 does not specifically address 
energy efficiency valuations, the $5,000 or more above-sales price 
appraised value is important because this buffer is sufficient to cover 
all or most of the additional cost of the energy improvements, despite 
any superadequacy or other market failure to recognize the value of the 
energy improvements.
[GRAPHIC] [TIFF OMITTED] TN26AP24.099

    Another important development that can support the recognition of 
energy efficiency in home appraisals has been the growth of regional 
Multiple Listing Service (MLS) databases that include energy efficiency 
and other sustainable measures in their listings. The National 
Association of Realtors (NAR) published its Green MLS Toolkit as an 
educational resource for homebuyers, homeowners, realtors, and 
appraisers to use to develop a better understanding of energy-efficient 
homes.\36\
---------------------------------------------------------------------------

    \36\ National Association of Realtors, Green MLS Implementation 
Guide, https://green.realtor/sites/files/2019-02/2014%20NAR%20Green%20MLS%20Implementation%20Guide.pdf.
---------------------------------------------------------------------------

    The importance of this initiative cannot be understated. A key 
concern from the housing, financing and appraisal industries has been 
the lack of

[[Page 33127]]

data or access to supporting documentation for valuing energy 
efficiency improvements. A Green MLS mediates this concern, documenting 
both measures that are visible and apparent, as well as high-impact 
energy efficiency measures that are less visible, such as wall 
insulation and/or low-e windows. The development of the Green MLS 
Toolkit is ``pivotal for the proper valuation of efficiency. . .For 
appraisers, a Green MLS supports an apples-to-apples comparison for 
energy efficient features; without a Green MLS, the appraiser may not 
have sufficient information and data to support an assessment of energy 
efficiency improvements.'' \37\
---------------------------------------------------------------------------

    \37\ Doyle, Victoria and Bhargava, Abhay, The Role of Appraisals 
in Energy Efficiency Financing, Building Industry Research Alliance, 
National Renewable Energy Laboratory.
---------------------------------------------------------------------------

    Another significant development has been the development of the 
Residential Energy Efficiency and Green Addendum for use with the 
Uniform Residential Appraisal Report, one of the most commonly used 
forms for completing a home appraisal. It provides standardized 
reporting and analysis for single family home valuations. The 3-page 
form provides appraisers the opportunity to recognize energy 
improvements as part of a home evaluation assessment, including 
appliance efficiency or insulation levels, whether the home achieves an 
energy efficiency certification such as Energy Star or other green 
building standards, and other salient characteristics of the home. By 
enabling appraisers to collect and document the additional information 
needed to form an Opinion of Value on a high-performance home, 
appraisers will be better equipped to identify recent comparable sales. 
If the home has a HERS rating, RESNET or other third-party energy 
raters can verify and pre-populate the Addendum for the appraiser. This 
removes the responsibility of the appraiser to attempt to provide an 
energy assessment of home performance as it relates to other homes when 
they lack the training and certifications to do energy assessments.
    There is also growing evidence that new energy-efficient homes are 
in demand and valued at higher prices than other homes. A new study 
conducted by Freddie Mac reported on 70,000 homes rated under RESNET's 
HERS between 2013 and 2017.\38\ The report's goal was to ``understand 
the value and the loan performance associated with energy-efficient 
homes to support the consideration of energy efficiency in mortgage 
underwriting practices.'' The findings include analysis of property 
value, loan performance, default risk, borrower characteristics, and 
demographics. The report found that HERS rated homes sold, on average, 
2.7 percent more than comparable unrated homes. In addition, homes that 
received lower (i.e., more energy efficient) HERS Index Scores sold for 
3-5 percent more than homes with higher HERS Index Scores. The study 
also looked at loan performance, with several important findings: the 
default risk of energy-rated homes is not on average different from un-
rated homes--and loans in a high debt-to income (DTI) range (45 percent 
and above) that have energy ratings ``appear to have a lower 
delinquency rate than unrated homes.'' In rural areas, there are 
reports of energy efficient and resilient homes commanding higher sales 
prices: two homes of two bedrooms and one bath each, built by Habitat 
for Humanity to high performance standards of Phius and ZERH as well as 
to the hurricane standard of FORTIFIED in Opelika, Alabama appraised at 
the equivalent amount of the standard Habitat for Humanity home of 
three bedrooms and two bathrooms.\39\
---------------------------------------------------------------------------

    \38\ Argento, Robert et al, Energy Efficiency: Value Added to 
Properties and Loan Properties, https://sf.freddiemac.com/docs/pdf/fact-sheet/energy_efficiency_white_paper.pdf.
    \39\ Rural Studio, https://ruralstudio.org/auburn-opelika-habitat-homes/.
---------------------------------------------------------------------------

    The cost and income approaches to valuation may help assign a 
contributory value to energy efficiency features of a home. The FHA 
Single Family Housing Policy Handbook 4000.1 provides for three types 
of home appraisal approaches applied to one-to-four-residential unit 
properties: the sales comparison approach, the cost approach, and the 
income approach.\40\ However, the Handbook states that ``(t)he 
Appraiser must obtain credible and verifiable data to support the 
application of the three approaches to value. The Appraiser must 
perform a thorough analysis of the characteristics of the market, 
including the supply of properties that would compete with the subject 
and the corresponding demand. The Appraiser must perform a highest and 
best use of the Property, using all four tests and report the results 
of that analysis.''
---------------------------------------------------------------------------

    \40\ https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh.
---------------------------------------------------------------------------

    HUD and USDA are considering taking several steps to address the 
appraisal gap issue:
    First, FHA will provide outreach and training to market 
participants, including lenders and appraisers detailing the impact of 
this Final Determination and promoting awareness and education about 
energy efficient improvements. This will include training for both 
underwriters and appraisers on how the cost or income approaches can be 
used as part of appraisals in certain markets.
    Second, HUD will work with USDA to provide a package of training 
through HUD's Community Compass Technical Assistance program aimed at 
educating appraisers and lenders about acceptable methods and 
techniques for accurately appraising energy efficient homes financed 
with an FHA-insured mortgage, including the proper use of the cost and 
income approaches. HUD has allocated FY22 funding to support this 
technical assistance.
    Third, FHA's four Homeownership Centers (HOCs), which already 
provide training for appraisers and lenders, will include targeted 
training for the roster of FHA-approved appraisers, with an emphasis on 
places with a high volume of FHA-insured new home sales in the south 
and southwest.
    Ultimately, the extent and impact of the appraisal gap for energy 
efficiency measures is a concern but does not change HUD and USDA's 
overall determination. While the appraisal gap indicates a failure in 
the market to keep pace with innovative energy efficiency measures, the 
gap does not exist in all markets, and its impacts can be alleviated by 
interventions such as increased market awareness, appraiser education, 
and resources such as the Green MLS for greater transparency and the 
Green Addendum to appraisal reports, as well as by the higher valuation 
of new construction that can cover some or all of the costs of the 
energy efficient improvements. The resources outlined in this notice, 
along with HUD and USDA efforts outlined above, will aid in closing the 
gap for FHA borrowers and should serve as further motivation to 
overcome market barriers that impede efficiency.
6. Delegation of Legislative Power
    Two commenters stated that the Cranston Gonzalez Act is either an 
improper delegation of legislative power to a private entity, the 
International Code Council and ASHRAE which promulgate the IECC and 
ASHRAE-90.1 respectively, or an improper divestment of the executive 
power to a private entity, and that HUD and USDA should rescind the 
preliminary determination until Congress passes legislation that 
affirms what standards should apply.
    HUD-USDA Response: In issuing this determination, HUD and USDA are 
following the statutory directive of 42 U.S.C. 12709(d). The Cranston 
Gonzalez

[[Page 33128]]

National Affordable Housing Act of 1990 (Cranston-Gonzalez), as amended 
by the Energy Independence and Security Act of 2007 (EISA) (Pub. L. 
110-140), requires HUD and USDA to establish energy efficiency 
standards for housing specified in 42 U.S.C. 12709(a)(1).
    The original efficiency standards were required to meet or exceed 
the requirements of the 2006 International Energy Conservation Code 
(2006 IECC) and the American Society of Heating, Refrigerating, and 
Air-Conditioning Engineers Standard 90.1-2004 (ASHRAE 90.1-2004). (42 
U.S.C. 12709(a)(2)). If the requirements of the 2006 IECC or the ASHRAE 
90.1-2004 are revised, HUD and USDA must, within a year, amend their 
standards to meet or exceed the revised requirements of the 2006 IECC 
or the ASHRAE 90.1-2004, or issue a determination that compliance with 
the revised standards would ``not result in a significant increase in 
energy efficiency or would not be technologically feasible or 
economically justified'' (42 U.S.C. 12709(c)).
    If HUD and USDA have not adopted the revised standards or made the 
determination under 42 U.S.C. 12709(c), then all new construction and 
rehabilitation of specified housing must meet the requirements of the 
revised IECC and ASHRAE 90.1 standards if HUD and USDA determine that 
the revised codes do not negatively affect the availability or 
affordability of certain housing stock specified in 42 U.S.C. 
12709(d)(1) and DOE determines that the revised codes would improve 
energy efficiency. 42 U.S.C. 12709(d)). The present HUD/USDA 
determination fulfills HUD and USDA's statutory directive to determine 
whether the updated standards negatively affect availability and 
affordability. The commenter's stated interpretation of the Act does 
not dismiss HUD and USDA's statutory requirement to make this 
determination.
7. Lower Availability of Affordable Homes for Home Buyers
    Several commenters shared concerns that the higher first or 
incremental costs associated with adopting the 2021 IECC over the 
current 2009 IECC would lower homebuyer options and/or limit the 
availability of housing to otherwise-qualified buyers or renters. Two 
commenters suggested that these high standards will result in fewer FHA 
and USDA constructed properties and limit the supply of housing in a 
way that contradicts HUD's mission.
    HUD-USDA Response. The agencies appreciate the concerns raised by 
the commenters but do not agree that the higher standards will result 
in fewer FHA- and USDA-financed properties. HUD and USDA conducted 
thorough and extensive analyses on the impact of the 2021 IECC on 
affordability and availability, using established cost and savings 
methodologies that have been developed by DOE for multiple code cycles. 
The agencies determined that the codes will not negatively impact the 
affordability or availability of the covered housing. HUD and USDA 
recognize that, as of December 2023, only five states have adopted a 
code that meets or exceeds the 2021 IECC. Nevertheless, in those 
states, affordability and availability will, by default, not be 
impacted by HUD and USDA's adoption of the 2021 IECC because no 
additional requirements would be put in place above those already 
adopted by the state. In addition, while the number of states that have 
already adopted the codes is currently limited, the number is growing 
rapidly, with more than 20 states actively considering adoption of the 
2021 IECC. State adoption of ASHRAE 90.1-2019 is more advanced than the 
IECC: ten states and the District of Columbia have adopted a code that 
meets or exceeds this standard, and a similar number of states (twenty 
or more) are currently considering its adoption. Additionally, many 
local jurisdictions have gone beyond the statewide residential or 
commercial code by adopting the 2021 IECC or ASHRAE 90.1-2019.\41\
---------------------------------------------------------------------------

    \41\ Department of Energy, Municipal Building Codes and 
Ordinances. Updated December 2023. https://www.energycodes.gov/infographics#Municipal.
---------------------------------------------------------------------------

    Nevertheless, the agencies recognize that it will be necessary for 
builders who are accustomed to the requirements of the 2009 IECC and 
ASHRAE 90.1-2007--the current HUD and USDA standards--to familiarize 
themselves with the verification methods incorporated into the 
subsequent versions of the code (including blower door and duct 
testing). HUD and USDA will provide technical assistance and training 
resources to aid in the implementation of these new standards, as 
described in more detail in section A.2. above. These resources will 
address elements of the verification requirements for the 2021 IECC 
that could be unfamiliar to some builders. As these builders become 
familiar with these requirements and construction practices, the energy 
improvements required by the more current codes will strengthen the 
quality of the built product and will benefit consumers in the long 
term as a result of high-quality construction.
8. Affordability and Availability Impacts in Rural Communities
    Three commenters expressed concern regarding the specific impact 
that the proposed code requirements would have on rural areas. One 
commenter suggested that challenges related to adoption or 
implementation of the 2021 IECC and ASHRAE 90.1-2019 standards would be 
more significant for rural areas ``because materials or workers may 
need to be transported from elsewhere, [and] [r]ural residents may not 
have easy access to specialized materials or specific worker skills 
when energy-efficient construction requires them. That is particularly 
likely in remote rural areas.'' One commenter, from the Umatilla Indian 
Reservation, stated that the reservation's rural location makes it 
particularly difficult to find contractors and access green products.
    Another commenter, a trade association of rural housing 
organizations, also stated that rural areas would have a higher cost 
differential for a mortgage between the 2009 IECC and 2021 IECC than 
the $5,500 increase indicated in the preliminary determination due to 
construction costs that might be higher in rural areas. Factors that 
contribute to this higher cost include difficulty sourcing materials 
and limited access to an appropriately trained workforce for energy 
efficient construction projects. In addition, the commenter noted that 
the cost to the homeowner may be higher under USDA's Section 502 direct 
loan program, since the PNNL cash flow projections assumed a 
downpayment of 10-12 percent whereas Section 502 typically requires no 
downpayment and will therefore yield a higher mortgage amount.
    Two commenters suggested that few contractors have the knowledge 
and resources to meet the proposed standards, and that it will be 
difficult to find a contractor to build to the proposed standards in 
states that have not or will not adopt the 2021 IECC.
    One commenter pointed to specific challenges likely to be 
encountered by non-profit affordable housing developers: they suggested 
that affordable nonprofit housing developers will have trouble 
producing new rental and homeownership housing units in Appalachian 
communities with the proposed standards due to the ``increased costs to 
construct homes, the unique nature of [these] housing markets, and the 
difficulty in implementing the standard.'' As a result, the commenter 
argued that there

[[Page 33129]]

will be very few (if any) affordable new homes on the market that can 
be acquired by low to moderate income homebuyers or developers. The 
commenter urged HUD and USDA to consider the ability of their nonprofit 
partners to ``produce the same quantity of housing after increased 
costs in without any increase in funding support.''
    HUD-USDA Response: The concerns noted by the commenters fall into 
three broad areas: the increased costs to build homes to the proposed 
standard in rural areas; the ``nature of rural economies and housing 
markets;'' and operational, technical, and other difficulties in 
implementing the standard.
    In response to the comment about the potential impact of HUD and 
USDA energy code adoption on housing on Indian reservations, with the 
exception of the Section 248 program, which has a small loan volume 
(only eight outstanding loans, no new endorsements since 2008), HUD and 
USDA note that Indian housing programs are excluded from this notice 
because they are not covered under the requirements of the governing 
statute: they neither constitute ``assisted housing'' nor are 
authorized under the National Housing Act (12 U.S.C. 1701 et seq.) as 
specified in EISA. For example, the Section 184 guaranteed loan program 
is authorized under Section 184 of the Housing and Community 
Development Act of 1992 (42 U.S.C. 1715z-13a).
Increased Costs in Rural Areas
    HUD and USDA agree that there are increased first costs associated 
with building to the higher energy standards outlined in the 
preliminary determination but conclude that the initial investment will 
benefit both Appalachian and all rural communities across the U.S. 
through energy cost savings to residents and as well as health, 
comfort, and durability of higher-performance housing. Rural 
communities will especially benefit from more energy efficient homes in 
that rural households are typically overburdened with higher energy 
costs as a percentage of household income. Nationally, the median rural 
household energy burden is 4.4 percent, almost one-third higher than 
the national rate of 3.3 percent and about 42 percent above the median 
metropolitan energy burden of 3.1 percent.\42\ One commenter cited a 
Virginia Tech report on Appalachian housing costs that concluded that 
``utility costs contribute to housing costs substantially'' in Eastern 
Kentucky, Southern West Virginia and the western section of Appalachian 
Alabama, where both owners and renters saw the highest costs relative 
to metropolitan areas.\43\ For some low- or very-low income households, 
the energy bill may be greater than the cost of the mortgage. Energy 
bills fluctuate and are only billed post-usage, often leading to 
unexpected increases in these bills, which can create serious financial 
stresses on lower income households.
---------------------------------------------------------------------------

    \42\ Lauren Ross et al, the High Cost of Energy in Rural 
America, ACEEE, 2018. https://www.aceee.org/press/2018/07/rural-households-spend-much-more.
    \43\ Virginia Center for Housing Research at Virginia Tech, 
Housing Needs and Trends in Central Appalachia and Appalachian 
Alabama, 2018.
---------------------------------------------------------------------------

    At the same time there are good examples in rural America of how 
better performing homes can alleviate the impact of higher energy costs 
experienced by lower income households. One such example is a USDA 
Rural Community Development Initiative (RCDI) grantee, Mountain T.O.P., 
a faith-based organization in Grundy County, Tennessee. Based in one of 
Appalachia's persistent poverty counties where a significant share of 
the housing stock is dilapidated, the organization worked closely with 
the Rural Studio Front Porch Initiative to build Mountain T.O.P.'s 
capacity to replace homes with new, high-performance homes to address 
the high energy burden in their community.
    Despite the long-term affordability benefits of building high 
performance, energy efficient homes, rural areas may face first cost 
(and other) constraints in adopting construction standards or codes 
above prevailing local codes. HUD and USDA do not, however, agree that 
there is a broad and consistent impact for all rural areas across the 
nation. Geographic distance may play a role in creating challenges for 
construction projects in rural areas when there are not locally 
available skilled workers, but this is true of all building 
construction, regardless of the specific codes that are in place.
    While both HUD and USDA programs serve rural areas, USDA is 
especially focused on rural housing through its Rural Housing Service 
programs. USDA's Single Family Direct Loan program is the only direct 
mortgage product offered by the federal government; USDA can and does 
work intensively through its underwriting process to assist rural, low-
income borrowers to become and to remain homeowners. This program 
offers 100 percent financing, zero downpayment and the ability to 
amortize beyond 30 years in addition to having an interest rate that is 
below market. It is also able to offer additional subsidies based on 
need. Borrowers of this program, of all the single family borrowers 
impacted by this notice, are likely to benefit the most from the 
proposed adoption of the 2021 IECC, and the addition of homes built to 
higher performance quality will generate long-term benefits to rural 
locations where housing quality has lagged behind.
    One commenter raised a concern that Direct Loan borrowers would see 
higher costs since downpayment requirements can be as low as zero, and 
to the extent that the additional costs would need to be financed, this 
would make these loans less affordable. USDA believes that this concern 
is misplaced since, by eliminating the downpayment requirement, the 
Section 502 loan in fact removes a significant potential barrier to 
financing the added first costs of the IECC, and, given the very low 
interest rates associated with this product, this seems like an optimal 
financing vehicle available to rural borrowers for energy efficient 
housing.
    The commenter also raised concerns regarding appraisals, and the 
``appraisal gap'' in rural areas. These concerns are addressed in the 
larger appraisal discussion in section A.3 of this notice. The 
limitations of the current appraisal process are broadly applicable, 
but the gap may be higher in rural areas due to fewer available sales 
comparisons in these areas, as well as fewer appraisers qualified to 
assess energy efficient or other green features of a home, e.g., solar. 
The agencies acknowledge that the current appraisal system in the U.S. 
for single family homes is not generally set up to fully account for 
energy efficiency or renewable energy but have proposed potential 
actions that can help close the gap for FHA and USDA borrowers, as 
discussed in-depth in section A.3 above.
Technical Capacity Issues in Rural Areas
    Other difficulties besides the added cost noted by commenters 
included limited technical capacity and the need for workforce training 
in rural areas. HUD and USDA believe that contractors have or are 
capable of obtaining the knowledge and resources to meet the proposed 
standards before commencement of the applicable compliance period. The 
commenter does not provide evidence as to the basis of this 
proposition. As discussed elsewhere in response to similar comments, 
the agencies recognize that there will be places where builders may

[[Page 33130]]

not be familiar with energy code requirements, but these are likely to 
be more the exception than the rule, especially with regard to larger 
home builders who build a significant portion of homes, and 
unequivocally with regard to multifamily housing.
    HUD and USDA agree that remote rural areas may not always have the 
proper skilled professionals to execute certain types of construction 
and that training may be needed. Training and support are planned by 
the two agencies to assist rural America in achieving homeowner 
financial sustainability through building to the most current energy 
codes. Trainings on standards that exceed energy codes (Energy Star New 
Homes, Zero Energy Ready Homes) are also available from EPA and DOE, 
while additional tax credits for affordable multifamily housing as well 
as electrification rebates are also becoming available to build energy 
efficient housing, discussed in more detail in section A.3 above.
    HUD and USDA also agree that building codes that require on-site 
inspection are more challenging in rural areas than where building 
sites are located in close proximity to HERS rater, building inspector 
or verifier, but given that HUD and USDA already require the 2009 IECC 
these issues will not materially change with the adoption of an updated 
code. The increase in energy codes from the 2009 IECC to the 2021 
edition will indeed require learning and implementation of new skills 
and project delivery methods, but these are relatively modest and 
likely limited to energy modeling, blower door testing, and duct leak 
testing. Note that these testing methods have been in place at least 
since the 2012 edition of the IECC.
    As discussed in response to other comments in this notice, HUD will 
partner with USDA in implementing a training and technical assistance 
program to facilitate implementation of the energy codes requirements, 
including trainings on these blower door and duct testing skills. 
Additionally, USDA is exploring the feasibility of and potential for 
remote-hybrid inspections with RESNET and others, in which third-party 
verification may be completed remotely with the on-site assistance of 
individuals who have received minimum training to perform testing tasks 
such as blower door testing, duct leakage testing and infrared camera 
techniques but who may not yet be fully certified home raters.\44\
---------------------------------------------------------------------------

    \44\ Third-party verification is an increasingly common 
mechanism for enforcing building codes in localities with a limited 
number of code officials capable of doing so. A third-party code 
verification program utilizes private sector organizations to verify 
energy code compliance by providing plan review and analysis, 
performance testing, and field inspections. More information on 
third-party verification is available at https://www.eepartnership.org/wp-content/uploads/2015/07/Third-Party-Verification_Best-Practices_10-15-14-final.pdf.
---------------------------------------------------------------------------

    Finally, in recognition of the specific capacity constraints 
identified in Appalachia and other high needs rural areas to adopting 
these standards, HUD and USDA will provide a longer lead time for 
adoption of the IECC and ASHRAE 90.1 standards in these areas, as 
outlined in the Implementation section of the Final Determination, 
section VI. An additional year of compliance will be provided in 
persistent poverty rural areas, as defined by USDA's Economic Research 
Service, including persistent poverty census tracts located in rural 
(non-metro) counties.\45\
---------------------------------------------------------------------------

    \45\ USDA, Economic Research Service, Poverty Area Measures, 
Descriptions and Maps, https://www.ers.usda.gov/webdocs/charts/105111/persistentcountytracts.png?v=7741.2. See also USDA ERS 
definition of rural (non-metro) counties at https://www.ers.usda.gov/topics/rural-economy-population/rural-classifications/.
---------------------------------------------------------------------------

9. Limited Cost Effectiveness of Individual Code Measures
    One commenter suggested that HUD and USDA should evaluate the cost 
effectiveness of individual measures in the 2021 IECC and amend those 
measures that do not provide value to the consumer. Relying on the 
overall cost-effectiveness ``masks the extremely low-cost effectiveness 
of some of the individual measures by averaging the results with the 
measures that are more cost effective.'' The commenter identified two 
specific measures as not meeting any reasonable cost effectiveness 
test: ceiling insulation requirements of R-60 in Climate Zones 3-8 and 
R-49 in Climate Zones 1-2; and wall insulation requirements of R-20+5 
or R-13+10 in Climate Zones 4-5. The commenter indicated that on their 
own these measures do not meet ``any reasonable cost-effectiveness 
test'' and provided data showing paybacks of 63-150 years on these 
items.
    The commenter noted that these two problematic measures were 
considered by the 2024 IECC consensus committee. These were realigned 
to their 2018 levels in the draft 2024 IECC or were provided an opt-out 
provision in exchange for an additional three credits in Section R408 
(Additional Efficiency Requirements). The commenter recommended that in 
lieu of evaluating all individual measures in the 2021 IECC, the 
agencies should allow similar amendments to the 2021 IECC as has been 
approved for the 2024 IECC. Another commenter suggested that HUD and 
USDA review the determinations made on both codes and identify 
provisions that do not increase energy efficiency and exclude them as 
requirements.
    HUD-USDA Response. The statutory requirement (Section 109(d) of the 
Cranston Gonzalez Act of 1990) for this notice requires HUD and USDA to 
make a determination on the latest ASHRAE 90.1 or IECC code editions as 
published. It does not allow for selecting only the most cost-effective 
measures in the code. The overall efficiency of the code relies on a 
package of measures considered and adopted by consensus during the code 
development process, with the more cost-effective measures essentially 
supporting less cost-effective measures. Therefore, HUD and USDA do not 
have the ability to pick and choose between specific amendments to the 
code. In addition, the conventional practice by DOE has been to 
consider the combined costs and savings for the entire code, rather 
than for each amendment separately. HUD and USDA believe that it is 
sound policy to align with DOE practice and cost-benefit methodologies 
for the purpose of this notice.
    Even if allowed under the statutory constraints of this notice, 
unpacking the code to consider each amendment individually contradicts 
standard practice when implementing energy efficiency measures. Energy 
codes typically consider a bundle of measures that enable longer-
payback measures to balance out shorter-term measures and enable the 
savings of the shorter payback items to pay for those that on their own 
may be less cost-effective. For example, codes combine shorter payback 
lower-cost lighting measures with more efficient windows that typically 
have longer paybacks when installed in isolation from other measures. 
In addition, the agencies believe that the combination of mandatory and 
optional measures as well as two performance paths provide builders 
with a great deal of flexibility in complying with the 2021 IECC.
    HUD and USDA are aware that the two insulation amendments to the 
2021 IECC cited by the commenter have been incorporated in the draft 
2024 IECC, which is currently scheduled for publication in early 2024. 
As noted above, these amendments would roll back ceiling and wall 
insulation requirements for certain climate zones to the 2018 level, or 
provide for an opt-out, in exchange for an additional three energy 
efficiency credits. While HUD and USDA are not able to accept

[[Page 33131]]

individual amendments such as this one to the 2021 IECC, if, after 
publication of the 2024 IECC, DOE determines that the revised code is 
more energy efficient than the 2021 IECC, housing built to comply with 
the 2024 IECC in its entirety will meet the requirements of the 2021 
IECC.
    HUD and USDA note that PNNL has conducted a preliminary analysis of 
the savings associated with the proposed 2024 IECC, and that DOE's 
preliminary cost-benefit analysis indicates that the 2024 IECC will 
exceed the energy efficiency of the 2021 IECC by approximately 6.7 
percent. Energy cost savings are estimated to increase by approximately 
6.4 percent.\46\
---------------------------------------------------------------------------

    \46\ PNNL for DOE, Energy Savings Analysis 2024 Residential IECC 
Interim Progress Indicator.
---------------------------------------------------------------------------

    The savings result from the following measures: Additional energy 
efficiency credits (10 energy credits); Fenestration Table--Improved 
Window and Skylight U-factors in Climate Zones 4C--8; Ceiling 
Insulation changes in Climate Zones 4-8 from R-60 to R-49; Climate 
Zones 6-8 to 2.5 ACH50; Pipe Insulation Requirements update (1 inch 
thickness = R7); Heat Recovery Ventilator required in Climate Zone 6.
10. Understated Impact on Low-Rise Multifamily
    One commenter suggested that the Regulatory Impact Analysis (RIA) 
is ``seriously flawed'' because it inadequately considers the impact of 
the 2021 IECC on low-rise multifamily construction and fails to give 
appropriate regard to the potential impact on the availability of 
affordable housing for low-to-moderate income renters. Another 
commenter questioned the use of a 30-year period of analysis, which the 
commenter says ignores investment and construction cost considerations 
for rental apartment investors that work on shorter investment horizons 
of a 10-year maximum.
    HUD-USDA Response: As stated in the preliminary determination, the 
2021 IECC may impact an estimated 170,000 housing units of HUD- and 
USDA-financed or -insured housing, which includes single family and 
low-rise multifamily housing. The majority of impacted units will be 
single family (86 percent); additionally, single family housing faces a 
greater estimated incremental cost when compared to low-rise or high-
rise multifamily. As such, it is reasonable for the bulk of the 
analysis to center on the most significantly impacted housing type; 
however, HUD and USDA recognize the need to provide additional detail 
on availability impacts to low-rise multifamily housing. HUD estimates 
approximately 27,000 low-rise multifamily units may be impacted by this 
notice; all are HUD-financed since USDA multifamily programs are not 
covered by this notice.
    When considering impacts on the availability of affordable housing, 
the economic rationale remains consistent when considering impacts for 
each housing type; the percentage change in the quantity of housing 
depends on the price elasticity of demand, price elasticity of supply, 
and incremental cost. The 1.5 percent reduction cited in the Regulatory 
Impact Analysis (p.80) applies broadly to housing, meaning that this 
rate holds for both single family and low-rise multifamily. As such, 
the maximum number of negatively impacted units is 405 units out of the 
27,000 units of low-rise multifamily housing that are estimated to be 
impacted by this notice.
    Existing energy efficiency programs make building to a higher 
standard more accessible for subsidized housing compared to market-rate 
housing. A report from DOE's Office of Scientific and Technical 
Information found that low-rise multifamily buildings were often 
designed to higher standards in order to qualify for additional energy 
efficiency certification programs.\47\ The Low Income Housing Tax 
Credit program often requires above-code energy efficiency measures 
through state Qualified Allocation Plans, resulting in many affordable 
low-rise multifamily projects that are already being built to higher 
above-code standards, e.g., Energy Star for New Construction or Passive 
House.
---------------------------------------------------------------------------

    \47\ DOE, Office of Scientific and Technical Information, 
Residential Building Energy Efficiency Field Studies: Low-Rise 
Multifamily (Technical Report), https://www.osti.gov/biblio/1656655/.
---------------------------------------------------------------------------

    As far as impacts on renters, the energy efficiency improvements 
required by the most recent energy codes will provide health benefits 
in addition to reductions in energy expenditures for families living in 
rental housing, circumventing the split-incentive issue of landlords 
being unwilling or uninterested in improving the quality of rental 
housing for their tenants.
    A 30-year period is used in HUD and USDA's affordability analysis 
following the well-established methodology developed by DOE for 
assessing the cost effectiveness of the IECC.\48\ HUD's Regulatory 
Impact Analysis provides additional detail (p. 25). In response to the 
comments that investors in rental apartments typically rely on a 10-
year timeline, HUD and USDA added Tables 17 and 18 to the final 
determination. These show the cash flow for single family and low-rise 
multifamily housing, respectively. For each building type, the cash 
flow is positive by the end of the second year, and the simple payback 
for the national average occurs after 7.7 years in both cases.
---------------------------------------------------------------------------

    \48\ PNNL, Methodology for Evaluating Cost-Effectiveness of 
Residential Energy Code Changes, prepared for DOE, https://www.energycodes.gov/sites/default/files/2021-07/residential_methodology_2015.pdf.
---------------------------------------------------------------------------

    Additionally, it should be noted that this is only applicable to 
low-rise multifamily; mid-rise and high-rise multifamily buildings are 
required to meet the ASHRAE 90.1-2019 standard, which shows national 
average cost increases of only $208 per dwelling unit and negative cost 
increases for certain states and climate zones (meaning adopting the 
new standard saves money). Nationally, the simple payback is immediate 
with 40 states receiving immediate payback and South Dakota having the 
longest payback period of 1.6 years.

B. Current Status and Anticipated Timetable for State and Local 
Adoption of the Next Revision of the IECC and/or ASHRAE Codes

    HUD and USDA requested comments from code officials on the current 
status of code adoption in their states, and the anticipated timetable 
for adopting the next revision of the IECC and/or ASHRAE 90.1 codes. No 
comments were submitted on the specific question of proposed timetables 
for state and local adoption of subject codes. However, multiple 
comments were received that expressed concerns regarding the 
interaction or alignment between the HUD and USDA proposal and state 
and local adoption of prior codes. These are discussed below.
1. Alignment of HUD and USDA Standards With State and Local Codes
    Several commenters shared concerns regarding the transition that 
would be required to implement the 2021 IECC and ASHRAE 90.1-2019. 
Commenters cited the lack of alignment with state or local home rule 
adoption of these codes. One commenter suggested that the proposed 
standards would conflict with local building codes, causing delays in 
construction and significant cost impacts. One commenter suggested that 
HUD and USDA align implementation of the 2021 IECC with state and local 
government efforts for updating their energy codes to avoid placing 
major challenges on builders and local code enforcement officers. One 
commenter suggested that HUD and USDA accept

[[Page 33132]]

the two most recent versions of the IECC and ASHRAE 90.1 standards to 
help alleviate compliance issues for states and localities with code 
requirements below the proposed standards.
    HUD-USDA Response: The statutory framework for this notice requires 
HUD and USDA to align their codes with the latest editions of the 
specified codes, i.e., the 2021 IECC and ASHRAE 90.1-2019. The 
statutory requirement at Cranston Gonzalez Section 109(d) does not 
provide for substituting state-adopted codes (or previous editions as 
suggested by one commenter) for this cohort of HUD- and USDA-financed 
new buildings. The intent of the statute is for HUD and USDA to adopt 
the latest edition of the codes independent of the codes that states 
have adopted, provided that these do not negatively impact the 
affordability and availability of the subject homes.
    HUD and USDA recognize that this above-code requirement (in states 
or localities that have not yet adopted the latest editions of the 
codes) will require builders, developers, and designers to familiarize 
themselves with the requirements of the new codes. However, the 
agencies note that it is not expected that local code officials will be 
required to ensure compliance with or enforce the proposed standard. 
The agencies will not rely on local code officials to certify 
compliance with the HUD and USDA requirements, and therefore local 
building inspectors will not be expected to familiarize themselves with 
the HUD and USDA requirements should they differ from the prevailing 
state or local code. Rather, HUD and USDA will rely on existing builder 
self-certification requirements and will also put in place a technical 
assistance and training program to educate and inform builders, 
architects, engineers, and developers about the requirements of the 
standard.
    Additionally, there are some jurisdictions that do not adopt 
building codes at all, and federal agencies must provide prudent 
guidance and protection of consumers, taxpayers, and housing assets by 
requiring an industry-accepted code as a standard for all types of 
project development.
    As noted, HUD and USDA's statutory requirement to consider adoption 
of the latest editions of the code does not allow acceptance of the 
previous 2018 IECC and ASHRAE 90.1-2016 editions as a compliance 
pathway, as suggested by one commenter, since these editions have been 
determined by DOE to be less efficient than the current standards. 
However, as has been standard practice, all subsequent versions of the 
IECC and ASHRAE 90.1 that have been determined by DOE to meet or exceed 
the energy efficiency of the 2021 IECC and ASHRAE 90.1-2019, are 
sufficient to meet the requirements that will go into effect as a 
result of this notice. Additionally, there are now significant federal 
incentives and encouragement from federal agencies for builders to 
achieve even higher energy performance through, for example, the 
Department of the Treasury's section 45L tax credit of up to $2,500 for 
homes that are certified as meeting the requirements of the EPA's 
Energy Star Single Family Homes or the Energy Star Multifamily Homes 
National Program (but do not meet the ZERH standards) and up to $5,000 
for homes that are certified as meeting the requirements of DOE's ZERH 
program. Both the EPA's Energy Star Programs and DOE's ZERH's programs 
require minimum compliance with the most current energy code (2021 
IECC) and energy performance of at least 10 percent better. It is 
anticipated that many builders will take advantage of these tax 
incentives--as well as rebates that will become available in 2025 or 
earlier for electric heat pumps and other building electrification 
measures--and in the process achieve energy efficiencies that are well 
above the 2021 IECC. Additionally, 45L tax credits of up to $2,500 per 
unit for Energy Star Multifamily New Construction and up to $5,000 per 
unit for DOE Zero Energy Ready Homes for multifamily homes are 
available for multifamily builders that meet prevailing wage 
requirements.
2. Adoption of Earlier Versions of the Energy Codes
    One commenter stated that requiring the IECC 2021 breaks with the 
precedent established by HUD and USDA in 2015 of selecting an 
attainable code standard for states rather than the most recently 
published version. The commenter pointed out that in 2015, HUD 
established the baseline requirement of 2009 IECC despite newer 
versions having been published by that time; the commenter recommended 
that HUD and USDA delay this update until more states adopt the most 
recent versions of the codes or opt for the 2018 IECC as the 
requirement.
    HUD-USDA Response. The authorizing statute for this notice requires 
HUD and USDA to adopt the most recent edition of the IECC and does not 
provide for consideration of prior editions; the delayed adoption of 
the 2009 IECC by HUD and USDA in 2015 was a function of the length of 
time the regulatory process took to publish a final determination on 
the 2009 IECC, not to establish a precedent for future adoption.
    Further, the statute does not allow HUD and USDA to tie adoption by 
HUD and USDA of the most recent edition of the code to the number of 
states that have adopted that code. Specifically, section 109(d) of 
Cranston-Gonzalez (42 U.S.C. 12709) provides that revisions to the IECC 
or ASHRAE 90.1 codes will apply to the housing specified in the statute 
if: (1) either agency ``make(s) a determination that the revised codes 
do not negatively affect the availability or affordability'' of such 
housing. HUD and USDA therefore do not have the statutory authority to 
delay adoption of the most recent code until ``more states'' have 
adopted the code. The agencies note, however, that the number of states 
considering or adopting the revised standards is growing and is 
expected to grow further as a result of newly available IRA or BIL 
funding from DOE to support state adoption of the 2021 IECC or higher 
energy standards. As of December 2023, while only five states have 
already adopted the 2021 IECC, more than 20 additional states are 
actively considering its adoption.
    HUD and USDA recognize that this presents challenges for developers 
and builders with regard to adopting a standard that may be above the 
prevailing locally adopted state or local code, but the governing 
statute for this notice limits the factors to be considered by HUD and 
USDA to ``affordability'' and ``availability;'' it does not provide for 
accepting alternative state or local codes as a compliance path. If HUD 
and USDA were to wait until more states had adopted the 2021 IECC, this 
would undermine the purpose of the governing legislation, which is to 
strengthen the standards for HUD- and USDA-financed new construction 
separately from state adoption provided that these were found to meet 
the affordability and availability standards.
3. IECC and ASHRAE 90.1 Alignment With State and Local Code Amendments
    One commenter noted that the adoption of the 2021 IECC and ASHRAE 
90.1-2019 creates ``hurdles in states that have not yet adopted these 
versions of the codes or have amended the codes so they are not deemed 
equivalent.'' The commenter suggested that HUD and USDA should 
``conduct further due diligence on these issues'' to better understand 
the practical impact of updating the code requirements.
    One commenter suggested that HUD and USDA postpone issuing the 
final determination until a critical mass of states adopt the 2021 IECC 
and ASHRAE 90.1-2019 standards. The commenter stated that prematurely 
enforcing these new standards will lead

[[Page 33133]]

to jurisdictions being unprepared to review or verify compliance; 
construction trades being untrained in implementing the new energy 
efficiency measures; builders, developers, and designers not being 
ready to transition to the new standards; third-party verification 
organizations being unprepared to certify compliance; appraisers not 
being able to recognize the added costs in valuations; and coordination 
with other code requirements at the jurisdictional level having limited 
time, leading to non-compliance and performance issues.
    HUD-USDA Response. As noted in the above response, HUD and USDA 
recognize the potential challenges regarding compliance with the 
statutory requirement to adopt the most recent edition of the codes 
that may exceed the standards adopted by a state or locality. The 
preliminary determination provided an extensive discussion and analysis 
of the impact that adoption of the 2021 IECC would have on the 
availability of agency-financed housing. In places which have a 
significant share of FHA-insured or HUD-financed housing, including 
California (7,977 total units), Florida (22,607 total units), Georgia 
(9,736 total units), North Carolina (8,432 total units) and Texas 
(41,230 total units), HUD and USDA have determined that builders are 
more likely to build to the standards covered under this notice.
    HUD and USDA also note that state adoption is an ongoing process: 
as of December 2023, only five states have adopted a code that meets or 
exceeds the 2021 IECC; however, five additional states have adopted the 
2021 IECC, although with weakening amendments. Additionally, a 
significant number of states are currently actively considering the 
adoption of this standard (with or without amendments). Some 20 states 
are currently considering adoption of the 2021 IECC; when combined with 
the 10 states that have already adopted the 2021 IECC, or codes that 
meet or exceed the 2021 IECC, these states represent approximately 50 
percent (an estimated 80,000 units) of HUD and USDA financed units 
projected to be impacted by this determination.
    In summary, while the statute specifically limits HUD and USDA's 
ability to tie code requirements to the level or extent of state 
adoption of these requirements, from a practical point of view the 
pipeline of states currently considering or projected to adopt the 2021 
IECC discussed above indicates that by the time the HUD and USDA 2021 
IECC requirement takes effect, many more states will in fact have 
adopted the 2021 IECC or its equivalent, thereby aligning the HUD and 
USDA standard more directly with state or local code adoption. 
Additionally, HUD and USDA will put in place a technical assistance and 
training program to better enable builders, architects, and engineers 
to meet the 2021 IECC and ASHRAE 90.1-2019 standards.

C. Cost-Benefit Methodology Utilized by Pacific Northwest National 
Laboratory (PNNL) as Described in the Preliminary Determination

    HUD and USDA requested comments on the methodology developed by 
PNNL and used by the agencies for their affordability analysis. Most 
comments received in response to this question were in support of the 
PNNL cost-benefit analysis. One commenter presented their own analysis, 
conducted by ICF, which aligns with the PNNL analysis and found that 
the 2021 IECC is cost effective when compared to the 2018 IECC across 
all climate zones.
    However, some commenters shared concerns regarding the methodology 
used in the cost-benefit analysis. Among these concerns, two commenters 
expressed that the PNNL study overestimated the value of future 
savings, particularly for low-income buyers. Others raised concerns 
with the incremental costs, as well as the economic factors used to 
estimate cash flow and life cycle savings. One commenter presented an 
analysis prepared by Home Innovation Research Labs (Home Innovation) 
disputing PNNL's analysis, showing significantly higher cost estimates 
than the PNNL costs used by HUD and USDA for their analysis.
    HUD-USDA Response: HUD and USDA acknowledge the many supportive 
comments on the cost-benefit analysis included in the preliminary 
determination. This analysis accurately reflected the economic 
landscape at the time of development in 2020. In addition, HUD and USDA 
reviewed the independent cost-benefit studies referenced in the public 
comments, one of which, by ICF, affirms PNNL's analysis and one of 
which (Home Innovation) disputes PNNL's analysis.
    In general, HUD and USDA affirm the original analysis and 
methodology conducted by PNNL used by the agencies in the preliminary 
determination; however the agencies recognize that significant time has 
elapsed since the analysis was conducted in 2020 and have accordingly 
revised their analysis to include updated economic factors that better 
reflect current market conditions, including a significant increase in 
construction costs to reflect the supply-chain and other factors that 
have impacted construction costs from 2020-23. The appropriate tables 
have been revised in the final determination.\49\
---------------------------------------------------------------------------

    \49\ The final determination uses the same cost effectiveness 
methodology as the RIA, which HUD developed based on PNNL's 
incremental cost and energy cost savings figures. A key difference 
between the methodologies is that PNNL includes residual value and 
replacement costs in their calculation. Page 25 of the RIA explains 
why these factors are not included in this alternative methodology.
---------------------------------------------------------------------------

1. Construction Cost Estimates
    One commenter stated that the construction costs used in the PNNL 
analysis are substantially lower than the current market costs. The 
commenter included a summary of alternative cost estimates based on 
Home Innovation's analysis which demonstrates a much more significant 
(negative) impact on affordability.\50\ The commenter also stated that 
the cost effectiveness analysis should consider the amount paid by the 
consumer as well as the builder, i.e., should include builder gross 
profit margins as a cost factor.
---------------------------------------------------------------------------

    \50\ Home Innovation Research Labs, 2021 IECC Residential Cost 
Effectiveness Analysis, June 2021, https://www.homeinnovation.com/-/media/Files/Reports/2021-IECC-Residential-Cost-Effectiveness-Analysis.pdf.

---------------------------------------------------------------------------

[[Page 33134]]

    HUD-USDA Response: The analysis produced by PNNL was developed with 
a methodology that underwent a rigorous public comment and peer review 
process, has been used for cost-benefit analysis of the revised 
editions of the IECC and ASHRAE since the 2006 IECC. The Home 
Innovation report and a response report developed by ICF are 
independent, third-party studies that include additional data and 
analysis but are not peer reviewed nor do they follow a federally 
approved methodology. HUD carefully reviewed the cost estimates 
provided in the Home Innovation report. The agency recognizes that the 
incremental cost estimates in the Home Innovation report are two to 
three times higher than those estimated by PNNL, but ultimately 
determined that the current analysis' approach and findings most 
accurately represent accepted means of assessing building energy code 
impacts, including anticipated cost impacts. Additionally, there are 
other entities (ICF) that estimate lower cost increases than those 
calculated by DOE/PNNL.
    It is important to note that both independent studies show 
consensus with the PNNL energy savings estimates used by HUD and USDA 
in their determination. Home Innovation concluded that energy savings 
from adopting the code would range from 6.4 percent to 11.6 percent 
depending upon the additional option chosen. For the basic package plus 
the water heater option, Home Innovation found a reduction of 9.7 
percent of energy expenditures. This range is similar to the estimate 
reported by PNNL of 8 percent for single family homes (see RIA Figure 
11).\51\ However, the cost-effectiveness analysis conducted by Home 
Innovation estimates significantly higher incremental costs for the 
2021 IECC over the 2018 IECC, ranging from $6,548 to $9,301 per house 
on average, compared to the government estimate of $2,372 per home; 
while the Home Innovation savings estimates are the same as those 
estimated by DOE, the higher estimated cost in the Home Innovation 
report result in significant differences in estimated simple payback 
periods for the initial investment.\52\
---------------------------------------------------------------------------

    \51\ https://www.energycodes.gov/sites/default/files/2021-07/2021_IECC_Final_Determination_AnalysisTSD.pdf.
    \52\ https://www.nahb.org/-/media/NAHB/advocacy/docs/top-priorities/codes/code-adoption/2021-iecc-cost-effectiveness-analysis-hirl.pdf.
---------------------------------------------------------------------------

    With regard to construction cost estimates, the agencies would 
expect there to be slight differences in the cost estimates given the 
variety of building types, methods of compliance, costs of materials, 
and quantity of materials. However, the differences between these the 
PNNL and Home Innovation estimates are unusually large: HUD and USDA 
attribute such a large difference to two factors: Home Innovation's 
assumption of a high profit margin and differences between the 
configuration of the model homes used by PNNL and Home Innovation 
respectively.
    The representativeness of the Home Innovation and PNNL data are not 
equivalent. The set of prototypes PNNL uses in its analysis are 
designed to represent the majority of the new residential building 
construction stock in the United States using a combination of U.S. 
Census, RECS, and Home Innovation data. DOE's established methodology 
uses a suite of representative residential prototype buildings, 
including a single family and a low-rise multifamily residential 
building, each with four different foundation types (i.e., slab-on-
grade, vented crawlspace, heated basement, unheated basement) and four 
heating system types (i.e., gas furnace, electric resistance, heat 
pump, fuel oil furnace). The Standard Reference House by Home 
Innovation is primarily based on the results of the 2008-2009 Annual 
Builder Practices Survey (ABPS). The ABPS is an annual national survey 
of builders that gauges national and regional building practices and 
material use. This survey represents a comprehensive source of general 
housing characteristics in the United States and contains information 
on building square footage, wall square footage, climate-based 
foundation type, climate-based wall construction type, and other 
residential construction characteristics. The parameters represent the 
average (mean) values from the survey for building areas and features 
not dictated by the 2006 IECC.
    The Home Innovation study calculates the unit cost of any change 
and adds to that an overhead and profit premium of approximately 27 
percent. For example, the incremental cost to the builder of installing 
a square foot of ceiling insulation is 59 cents per square foot, which 
is derived by inflating the 46-cent incremental cost by the overhead 
premium. The total incremental cost to the producer is given by the 
inflated unit cost of 59 cents and the quantity (1,875 square feet of 
ceiling insulation) to settle on an estimate of $1,106. The cost paid 
by the consumer is assumed to be the cost to the producer plus a return 
of 23.5 percent on the change in costs. The cost to the consumer of 
requiring thicker ceiling insulation would then be $1,366 (1.235 x 
$1,106).\53\ Adding these markups on incremental costs would inflate 
the cost estimate by 57 percent (1.27 x 1.235).
---------------------------------------------------------------------------

    \53\ HUD expects that builder profits would diminish rather than 
increase from this regulation. The NAHB implies the reverse: that 
the increase in revenue is greater will be greater than the cost. It 
is more likely that profit rates will fall.
---------------------------------------------------------------------------

    The design of the home plays a role by determining the quantity of 
insulation. The model single family homes of PNNL are similar in terms 
of living space (floor area). The Home Innovation model is less dense, 
however, and has more of its floor area in the first floor than the 
second floor. A low-density design leads to larger areas exposed to the 
exterior and in need of insulation. For example, although the floor 
area of the Home Innovation home is only 5 percent greater, the ceiling 
area requiring insulation is 56 percent greater.
    The profit assumption combined with the design of the home would 
lead to cost estimates approximately 2.2 times larger than the PNNL 
analysis. (The PNNL cost estimates include a 15 percent overhead and 
profit.)
    While HUD and USDA continue to rely on PNNL construction cost 
estimates, the agencies recognize that construction costs have 
increased since the original analysis was conducted of the 2021 IECC. 
Accordingly, a supply chain cost increase factor of 37 percent has been 
applied to the incremental cost of adopting the new code to account for 
the increase in inputs for residential construction over the 2020-23 
period. The 37 percent increase is derived by from the Bureau for Labor 
Statistics' Producer Price Index for inputs to residential construction 
less energy and cited by the NAHB in their monthly Eye on Housing 
blog.\54\ Tables 13-15 in the Final Determination have been updated to 
reflect this cost increase.
---------------------------------------------------------------------------

    \54\ Producer Price Index Report, https://www.bls.gov/news.release/ppi.nr0.htm. See NAHB, Eye on Housing, Building 
Materials Prices Fall for Second Month Straight, https://eyeonhousing.org/2023/06/building-materials-prices-fall-for-second-month-straight/.
---------------------------------------------------------------------------

2. Builder vs. Consumer Costs
    One commenter asserted that the PNNL analysis relied on by HUD and 
USDA is based on costs experienced by the builder and does not account 
for the full costs experienced by the homeowner, including mark-ups 
such as builder profit margin.
    HUD-USDA Response: Profit margin is already included in the DOE/
PNNL Methodology. The PNNL methodology for evaluating the impacts of 
building energy codes defines first cost as the marginal retail cost of 
implementing a

[[Page 33135]]

code change. This includes the price experienced by the home buyer, 
including materials, labor, equipment, overhead, and profit. A factor 
of 15 percent is included for overhead and profit.
3. Reliance on Simple Payback vs. Life Cycle Cost Savings
    Another commenter cited an independent cost analysis by ICF of the 
Home Innovation report. The ICF analysis concluded that the Home 
Innovation analysis only evaluates cost effectiveness with a simple 
payback metric, which ignores many longer-term factors in the economic 
performance of an energy efficiency investment.
    HUD-USDA Response: Beyond the specific figures cited by the 
commenter, the Home Innovation cost analysis is based solely on a 
simple payback metric which divides an incremental cost by the 
associated consumer cost savings to identify the time, typically in 
number of years, required to ``pay back'' the initial investment. While 
being a straightforward metric and relatively simple to calculate, it 
is not deemed sufficient to capture the full range of costs and 
benefits experienced by the home buyer. A life-cycle cost analysis is 
preferred as the widely accepted means of evaluating incremental costs 
of construction, including updated building energy efficiency 
standards, against expected consumer cost savings. The life-cycle 
approach accounts for the incremental costs of construction and 
consumer cost savings, as well as other costs and impacts experienced 
by the homeowner, including maintenance and replacement costs 
associated with a given measure. The Congressionally-recognized energy 
code development and consensus bodies, the International Code Council 
(ICC) and ASHRAE 90.1, both rely upon a life-cycle based approach for 
evaluating the cost impacts of their updated codes. As the Home 
Innovation analysis relies solely on simple payback, it is not directly 
comparable to the life-cycle cost analysis developed by PNNL and used 
in this notice by HUD and USDA. That said, USDA and HUD do include 
simple paybacks in their analysis, but provide it as a supplemental 
rather than primary measure of affordability.
4. Financing and Economic Factors Do Not Reflect Current Market 
Conditions
    Several commenters raised concerns about certain economic factors 
used for the cash flow and Life Cycle Cost savings analysis in the 
preliminary determination and the RIA. The main concerns were with 
savings estimates, interest rates, down payments, discount rates, 
payback period, and applicability for typical FHA and USDA borrowers.
    One commenter suggested that HUD and USDA should conduct additional 
analysis on the costs of compliance for their federal programs. 
Commenters stated that the PNNL analysis assumed an inflation rate of 
1.4 percent and a mortgage rate of 3 percent while, as of July 2023, 
the inflation rate is 3.0 percent and mortgage rates are 6.97 percent. 
They also stated that the PNNL use of a 12 percent downpayment does not 
reflect the average downpayment for an FHA or USDA borrower, which are 
stated as 4.5 percent and zero percent respectively.
    One commenter also suggested the cost effectiveness analysis used 
in the preliminary determination does not reflect the typical FHA and 
USDA borrowers for single family homes. The commenter suggested that 
``HUD and USDA should conduct an independent analysis of the cost 
impact on the typical lending profiles for the borrowers that use their 
programs and customize the analysis to represent their clients more 
accurately.''
    HUD-USDA Response: Regarding comments received on the economic 
factors used in the analysis, HUD and USDA address the effect of the 
relationship between the mortgage interest rate and the consumer's 
discount rate on mortgage affordability on page 31 of the RIA. 
Additionally, HUD and USDA did consider the differences in monthly 
mortgage payments and insurance premiums between HUD and USDA borrowers 
and the average borrower in PNNL's analysis. See pages 33-43 of the RIA 
for cash flow impacts to FHA and USDA borrowers.
    At the same time, the agencies understand the significance of 
COVID-19 and global supply chain issues on factors such as inflation, 
interest rates, and energy prices. This issue is not unique to this 
final determination, as the ICC and DOE have also updated the economic 
factors proposed for determining the cost effectiveness of the 2024 
IECC, as outlined below in Table 7.\55\ These factors were agreed to by 
all stakeholders in the consensus process, including the home building 
industry.
---------------------------------------------------------------------------

    \55\ 2024 IECC Residential Cost Effectiveness Analysis Proposal, 
https://www.iccsafe.org/wp-content/uploads/IECC_res_cost_effectiveness_proposal_final.pdf.
[GRAPHIC] [TIFF OMITTED] TN26AP24.100


[[Page 33136]]


    HUD and USDA have used similar or equivalent sources, updated to 
reflect 2023 costs and fuel price escalators and mortgage interest 
rates to revise the economic factors used in the preliminary 
determination's affordability analysis to reflect current market 
conditions (Tables 13-16). This acknowledges the unusual circumstances 
of the recent four-year 2020-23 period, both with regard to increased 
mortgage interest rates as well as COVID-related supply chain shortages 
and associated cost increases. With these revisions, HUD and USDA have 
adopted a modified DOE methodology for the analysis. The analysis is 
based on the original cost effectiveness results from PNNL; however, it 
has been updated as described in response to several public comments. 
The economic parameters that have been revised are listed below in 
Table 8.
[GRAPHIC] [TIFF OMITTED] TN26AP24.101

    These revisions better reflect impacts on HUD and USDA borrowers 
and also account for the higher cost of construction materials and 
labor, as well as increased energy prices over the past three years, as 
follows:
    Economic Factors:
     Construction cost increase (2020-23). A supply chain cost 
increase factor of 37 percent has been applied to the incremental cost 
of adopting the new code to account for the increase in residential 
construction costs 2020-23. The 37 percent increase utilizes Bureau of 
Labor Statistics' Producer Price Index for inputs to residential 
construction less energy as reported by the National Association of 
Home Builders.\56\
---------------------------------------------------------------------------

    \56\ ``Building Materials Prices Fall for Second Month 
Straight,''[bond] Eye On Housing, https://eyeonhousing.org/2023/06/building-materials-prices-fall-for-second-month-straight.
---------------------------------------------------------------------------

     Energy price increase (2020-22). An energy price increase 
factor was developed by averaging price for electricity, natural gas, 
and heating oil for 2020 through 2022. The three-year averages were 
used to establish the rate of increase based on PNNL's original energy 
prices for each source. Finally, these rates were averaged based on the 
residential energy mix for 2022. Data for calculating the energy price 
increase factor was sourced from the U.S. Energy Information 
Administration.\57\
---------------------------------------------------------------------------

    \57\ EIA, Natural Gas Prices: Average Residential Price, https://www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PRS_DMcf_a.htm; Heating Oil 
Prices: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M_EPD2F_PRS_NUS_DPG&f=M; Electricity 
Prices: Electricity data browser--Average retail price of 
electricity, https://www.eia.gov/electricity/data/browser/#/topic/
7?agg=0,1&geo=vvvvvvvvvvvvo&endsec=vg&linechart=~ELEC.PRICE.US-
RES.A&columnchart=ELEC.PRICE.US-ALL.A↦=ELEC.PRICE.US-
ALL.A&freq=A&start=2001&end=2022&ctype=linechart&ltype=pin&rtype=sπ
n=&rse=0&maptype=0.
---------------------------------------------------------------------------

     Energy price escalator. A new fuel price escalator is 
used, based on the estimated 30-year trends in the Energy Information 
Administration's (EIA) 2023 Annual Energy Outlook.\58\ While the energy 
price increase reflects historical increase in energy prices from 2020-
23 and is used to estimate first year energy savings, the energy price 
escalator estimates future changes to energy prices over the full 
period of the analysis, changing the price for future years to align 
with the expected movement in energy prices over the 30-year mortgage. 
The escalator is set based on the projections with prices in nominal 
dollars.
---------------------------------------------------------------------------

    \58\ EIA, U.S. Energy Information Administration--EIA--
Independent Statistics and Analysis, https://www.eia.gov/outlooks/
aeo/data/browser/#/?id=3-AEO2023&region=1-
0&cases=ref2023&start=2021&end=2050&f=A&linechart=ref2023-
d020623a.3-3-AEO2023.1-0~ref2023-d020623a.5-3-AEO2023.1-
0↦=ref2023-d020623a.3-3-AEO2023.1-0&ctype=linechart&sourcekey=0.
---------------------------------------------------------------------------

    Cash Flow and Financing Factors:
     Mortgage interest rate. A 5.3 percent nominal mortgage 
interest rate has been adopted, using DOE's established cost 
effectiveness methodology. HUD and USDA have based their analysis and 
the economic parameters on DOE's methodology wherever possible, despite 
incorporating some modifications to reflect the current economic 
landscape.
     Discount rate.\59\ A 5.3 percent nominal discount rate (3 
percent real discount rate) has been adopted for the purpose of this 
Notice. The discount rate reflects the time value of money. Following 
established DOE methodology, the discount rate has been set equal to 
the mortgage interest rate in nominal terms. Mortgage payment is an

[[Page 33137]]

investment available to consumers who purchase homes using financing, 
which makes the mortgage interest rate a reasonable estimate for a 
consumer's alternative investment rate.
---------------------------------------------------------------------------

    \59\ Methodology for Evaluating Cost-Effectiveness of 
Residential Energy Code Changes, U.S. Department of Energy, https://www.energycodes.gov/sites/default/files/2021-07/residential_methodology_2015.pdf.
---------------------------------------------------------------------------

     Down payment. Down payment has been revised from 12 
percent used by PNNL to 5 percent to better reflect the HUD and USDA 
borrower. Note that this is somewhat higher than the minimum down 
payment required for FHA-insured mortgages of 3.5 percent, but the 
average down payment for new construction loans is somewhat higher than 
the minimum.
     Other closing costs. A 1.75 percent upfront mortgage 
insurance premium (MIP) to reflect current FHA requirements, a 0.55 
percent annual MIP, and one percent variable closing costs are also 
included in the analysis.
     FHA Typical Home Adjustment Factor. An FHA cost adjustment 
factor and an FHA savings adjustment factor of 5 percent and 3 percent 
respectively were added to adjust the PNNL analysis to better reflect 
the smaller home size of a typical FHA or USDA property (2,000 sf) 
compared to a conventionally financed house modeled by PNNL (2,774 sf).
    The relevant tables in the final determination have been updated to 
reflect these revised economic factors. Nationally, the updated 
economic factors have a minor adverse impact on the affordability of 
adopting the 2021 IECC. By way of illustration, Table 9 presents the 
new analysis included in the Final Determination using the revised 
economic factors (Table 13).
[GRAPHIC] [TIFF OMITTED] TN26AP24.102

    The revised economic factors provide a revised estimate of average 
costs and benefits as outlined in the preliminary determination, both 
nationally and for individual climate zones. The average per-unit 
incremental cost increases to $7,229 (compared to $5,555 in the 
preliminary determination) due to the supply chain cost increase factor 
of 37 percent; however, the increase is moderated by the inclusion of 
the 5 percent FHA cost reduction factor to reflect the smaller FHA-
sized house relative to the larger market as described above. Estimated 
annual energy savings increases to $963 (compared to $751 in the 
preliminary determination) due to the energy price increase factor of 
32 percent. Net life cycle cost savings become $15,071. With these 
revisions, simple payback period increases slightly from 7.6 years 
shown in the preliminary determination to 7.7 years in the final 
determination. Due to the revised down payment rate of 5 percent 
reflecting the average FHA borrower's downpayment, years to positive 
cashflow is reduced to 1.5 years (compared to 2 years in the 
preliminary determination). Accordingly, HUD and USDA's analysis still 
demonstrates the affordability of the 2021 IECC.
5. Timeframe of Analysis
    One commenter recommended calculating energy cost savings over the 
economic lifespan of a building, which is 75 years, instead of over a 
typical 30-year mortgage period, which would show greater energy cost 
savings.
    HUD-USDA Response: HUD and USDA based the lifetime of the 
investment for the preliminary determination on the typical length of a 
mortgage, which is 30 years. This is the well-established cost estimate 
methodology established by DOE in consultation with the ICC and 
associated stakeholder input. The commenter is correct, and HUD and 
USDA agree, that these improvements will yield improved home quality 
and energy efficiency well beyond the 30 years, potentially for the 
life of the building, but there are no established estimates for 
accurately or reliably estimating these longer-term benefits. It is 
also likely that homeowners will upgrade their homes with more 
efficient equipment or improved building measures such as higher 
performance windows. While DOE's analysis includes replacement costs 
over the period of a typical mortgage, estimates of efficiency gains 
beyond that period are not included in the modeling here.

D. Impact of Manually Operated Bathroom Fans Allowed Under the IECC on 
Indoor Air Quality and the Health of Occupants

    HUD and USDA requested comments on anecdotal reports that because 
manually operated bathroom fans allowed under the IECC to meet 
ventilation requirements rely on occupant action to operate them, these 
may impact indoor air quality and the health of occupants.
    There were no comments, supportive or otherwise, that directly 
addressed the possible health concern caused by the use of manually 
operated bathroom fans to meet IECC ventilation requirements.

[[Page 33138]]

However, several comments were received on moisture management, and 
ventilation issues. One commenter reiterated the importance of moisture 
management in energy efficient buildings and recommended the use of 
energy recovery ventilation (ERV) or heat recovery ventilation (HRV) 
equipment. Another commenter indicated that ``HUD must ensure that that 
the benefits of the proposed standards do not come at the expense of 
resident health,'' noting that updated energy codes require more 
tightly sealed envelopes that, if not accompanied by appropriate and 
well-maintained ventilation, may create the risk of moisture retention 
and mold, accumulation of indoor air pollutants, and other causes of 
building related illness. The commenter proposed that HUD should 
``fully fund and vigorously implement'' time-of-construction 
inspections to enforce ventilation requirements such as ASHRAE 62.1 and 
62.2, as well as on-going NSPIRE inspections.
    HUD-USDA Response: HUD and USDA share the commenter's commitment to 
resident health in energy efficient buildings. The 2021 IECC sets 
maximum air leakage of 5.0 ACH50 (5 air changes per hour) or 0.28 CFM/
sf as measured by a blower door test, or 3.0ACH50 when following 
prescriptive requirements (allows for 0.30 CFM/sf enclosure area for 
attached dwelling units and buildings that are 1,500 sf or smaller). 
The IECC requires compliance with Section M1505 of the International 
Residential Code (IRC), which sets minimum ventilation rates for whole 
house ventilation systems as well as local exhaust rates. ASHRAE 90.1 
for multifamily buildings references ASHRAE 62.2, Ventilation and 
Acceptable Indoor Air Quality in residential buildings.
    Regarding energy or heat recovery systems, the 2021 IECC requires 
such systems for Climate Zones 7 and 8 (colder climate zones), but 
these are optional in other climate zones. Heat Recovery Systems (HRVs) 
supply continuous fresh air from outside the home and recover between 
60-95 percent of heat in exhaust air, thereby contributing 
significantly to the energy efficiency of a building. Energy Recovery 
Systems (ERVs) can exchange both heat and moisture, thereby keeping 
humidity levels relatively stable.

E. Potential Fire Code Issues Associated With Air-Sealing Requirements 
for Attached Single Family Homes or Low-Rise Multifamily Properties

    HUD and USDA asked for comments on potential challenges to meeting 
both the more stringent air sealing requirements introduced in the 2012 
IECC (3 ACH 50 in certain climate zones) as well as fire code 
specifications in attached row-house, town home or multifamily 
settings. This had been identified as a possible barrier when 3ACH 50 
was originally proposed in the 2012 IECC.
    Several commenters indicated that the 2021 IECC air leakage 
requirements of 3 air changes per hour or 5 air changes per hour at 50 
pascals depending on the climate zone should not present fire code 
issues for single family attached homes or low-rise multifamily 
properties. Commenters experienced on the issue indicated that they 
have no knowledge of any challenges meeting the 2021 IECC air leakage 
requirements and fully complying with the fire code. One commenter 
included that 28 states and more localities have implemented the code 
without any fire code issues. Another commenter stated that 
technologies exist to comply with air leakage and fire code 
requirements without challenges.
    HUD-USDA Response: Air sealing of area separation wall assemblies 
in multifamily buildings had been identified by DOE and others as a 
barrier that limits the ability of builders to cost effectively achieve 
higher energy efficiency and quality levels in multifamily housing.\60\
---------------------------------------------------------------------------

    \60\ Department of Energy, Building America Expert Meeting: Code 
Challenges with Multifamily Area Separation Walls, 2015.
---------------------------------------------------------------------------

    Air leakage through these assemblies could also be a barrier to 
achieving air leakage limits mandated by the IRC and IECC. More 
specifically, fire blocking sealants approved for use to seal framing 
penetrations within a dwelling are not allowed to be used to seal the 
perimeter of \3/4\ inch air space required in UL 263 (also ASTM E119) 
area separation walls. This unsealed perimeter condition makes these 
walls porous to airflow coming from the exterior or from attached 
garages.
    Training materials from the Energy Efficient Building Association 
(EEBA) also indicate that the 3 ACH 50 air sealing requirement may be a 
challenging target for townhomes or where there are common walls 
between units, and that there is a lack of clarity in how to air seal 
the wall between these units without violating the fire-rated 
assembly.\61\ EEBA indicated that there have been some breakthroughs 
recently with retesting fire-rated wall assemblies with specific foams 
and sealants to show that they will perform, and several options are 
now listed in the UL database. Based on the comments received, this 
issue seems to have been resolved.
---------------------------------------------------------------------------

    \61\ Energy Efficient Building Association (EEBA), Air Sealing 
Requirements for IECC 2021 with Building Code Expert Joe Nebbia; 
Excerpts from Module 6 of an 8-Part IECC 2021 Code Series, https://www.eeba.org/air-sealing-requirements-for-iecc-2021-with-building-code-expert-joe-nebbia.
---------------------------------------------------------------------------

F. Time Required for Builders and Building Designers To Familiarize 
Themselves With the New Codes and Training or Technical Support That 
May Be Required

    HUD and USDA requested comments on the time required for builders 
and building designers to familiarize themselves with the new codes, 
the training or technical support that may be required by building 
professionals and local code officials on the new requirements of the 
2021 IECC and ASHRAE 90.1-2019 standards, workforce training needs, and 
any other issues related to implementation of these standards. Comments 
on particular challenges or issues facing rural areas in adoption and/
or implementation of these codes were also requested.
1. Implementation Timeline
    Several commenters indicated that HUD and USDA should implement the 
new 2021 IECC and ASHRAE 90.1-2019 standards in a way that accommodates 
time requirements, training and technical support requirements, and 
other issues necessary for builders and building designers to meet the 
new codes.
    One commenter noted that implementation of these standards has 
already begun in certain states and localities. One commenter suggested 
that the implementation timeline should align with state activities and 
federal incentives to best ensure the intended benefits are achieved. 
Another commenter suggested that an implementation timeline of at least 
two years be adopted to enable builders and code enforcement officials 
to become familiar with the new standards.
    Some of the commenters suggested approaches to most easily support 
the implementation of the 2021 IECC and ASHRAE 90.1-2019 standards. 
Several commenters advised HUD and USDA to recognize and consider key 
market dynamics, including supply chain issues and contractor education 
and training in the development of an implementation timeline. One 
commenter suggested that HUD and USDA should clarify compliance 
requirements for builders and conduct training for builders, 
developers, designers, and construction workers on the new codes.

[[Page 33139]]

    One commenter suggested that extending the implementation timeline, 
particularly for FHA-insured and USDA-guaranteed loans, would improve 
the implementation process of the new requirements. The commenter 
stated that such an extension may be necessary to align the proposed 
HUD and USDA requirements with the Inflation Reduction Act section 
50131 funding, which serves to assist jurisdictions in the adoption and 
effective implementation of energy codes that meet or exceed the 2021 
IECC.
    HUD-USDA Response: HUD and USDA agree that the implementation time 
period for new editions of the codes needs to have some flexibility to 
allow for proper training and education of builders on the requirements 
of the most recent editions of the IECC and ASHRAE 90.1. Note, however, 
such training is already offered by, for example, the Regional Energy 
Efficiency Organizations (REEOs), such as SPEER in Texas and Oklahoma, 
and there are already builders that are using these codes. Some states 
have also already required them or exceeded them. In addition, DOE is 
offering new funding for energy codes training for the building 
industry, states, and local municipalities.
    HUD and USDA also agree that alignment with existing or new sources 
of funding that can assist in the effective implementation of the 
energy codes will be useful. This transition will have some learning 
curves. The agencies anticipate gradual adoption beginning for some 
programs at the publication of this notice and full implementation 
within all programs covered by this final notice by the date of January 
1, 2025, or later for certain programs.
    HUD and USDA also agree that there is a need to align federal 
incentives that can assist builders to become trained in these codes. 
HUD and USDA are working with DOE and the states to leverage the 
unprecedented levels of funding through the Bipartisan Infrastructure 
Law (BIL) and Inflation Reduction Act (IRA) to support builders and 
developers in complying with the 2021 IECC and ASHRAE 90.1-2019 
standards proposed in this notice. This funding includes $225 million 
in BIL funding for state agencies to partner with key stakeholders, 
such as local building code agencies, codes and standards developers, 
and associations of builders and design and construction professionals 
to update their building codes. In addition, another $1 billion in IRA 
funds is available to support states, territories, and jurisdictions 
with the authority to adopt energy codes in adopting and implementing 
the latest energy codes and zero energy codes.
    DOE has already released funding in advance of this notice to 
support the training of builders in these codes. As part of the $225 
million in BIL funding, DOE announced $90 million as Resilient and 
Efficient Codes Implementation (RECI) competitive grant awards in July 
2023 to help states and partnering organizations implement updated 
building energy codes. This funding is the first installment of a 5-
year program established to support building energy code adoption, 
training, and technical assistance at the state and local levels. 
Twenty-seven awards were made in 26 states.\62\ In addition, in 
September 2023 DOE announced another $400 million in IRA formula funds 
to the states to implement energy codes; $240 million will be available 
to adopt and implement the latest building energy code, the 2021 IECC 
for residential buildings and ANSI/ASHRAE/IES Standard 90.1-2019 for 
commercial buildings, or other codes that achieve equivalent or greater 
energy savings.\63\ HUD and USDA will work with DOE and its grant 
recipients to leverage technical assistance and training for builders, 
developers, and others involved in building HUD- and USDA-financed 
housing.
---------------------------------------------------------------------------

    \62\ https://www.energy.gov/articles/biden-harris-administration-announces-90-million-support-resilient-and-efficient-building.
    \63\ $160 million will be available to adopt and implement the 
zero energy provisions in the 2021 IECC, or other codes with 
equivalent or greater energy savings. https://www.energy.gov/articles/biden-harris-administration-announces-400-million-states-improve-building-energy.
---------------------------------------------------------------------------

    In addition to the BIL and IRA funds awarded to states to advance 
adoption of more current energy codes, including the 2021 IECC and zero 
energy codes, HUD and USDA anticipate a significant increase in the 
number of new homes certifying to Energy Star New Home or ZERH 
standards as builders take advantage of the Section 45L tax credits of 
up to $2,500 and $5,000 that are now available to build to these 
standards. Building to these standards will automatically comply with 
2021 IECC requirements. For multifamily, tax credits of up to $2,500 
per unit for Energy Star Multifamily New Construction and up to $5,000 
per unit for DOE Zero Energy Ready Homes for multifamily homes are now 
available as well, when builders comply with prevailing wage 
requirements.
    Some affordable housing builders of rental housing are already 
building to higher energy standards as required by state, federal, or 
local affordable housing funding streams. A significant driver of 
affordable housing is the Low-Income Housing Tax Credit, administered 
by the states. Some states set their energy requirements to exceed 
prevailing state codes in their Qualified Allocation Plans (QAPs); 
housing developers who take advantage of such funding are already well 
versed in meeting higher level energy codes than the baseline.
    Regarding comments that HUD and USDA should align its 
implementation timeline requirements with state code adoption 
timetables, states follow a wide range of schedules and procedures when 
considering adoption of the new editions of the codes. States adopt 
building codes on their own timelines, with some achieving or exceeding 
the code levels of energy efficiency and others not adopting any code 
at all. The statutory requirement governing this notice does not 
provide for HUD and USDA adoption of prevailing state standards but 
sets the 2021 IECC and ASHRAE 90.1-2019 as published by the relevant 
code bodies as the required standard for the covered programs.
2. Need for Training and Technical Assistance
    Several commenters stated the need for training on the 2021 IECC 
and ASHRAE 90.1-2019 standards to limit the potential gap between the 
efficiency levels required in the standards and the efficiency levels 
achieved in the field. One commenter stated that a lack of training can 
result in poor implementation of the code and cause unintended building 
performance and compliance issues.
    One commenter referenced a DOE study that found proper training for 
code officials and the construction community can reduce energy costs 
by an average of 45 percent due to varying levels of compliance with 
the codes. Another commenter suggested that HUD and USDA provide free 
code books and workbooks as part of the training and technical 
assistance for builders and building designers to alleviate the cost 
concerns related to training materials and resources. One commenter 
suggested that HUD and USDA should offer a comprehensive, no-cost 
training program to ensure equal access to the material necessary to 
comply with the new standards. The commenter also suggested that the 
Federal government should cover the cost of any technical training or 
equipment necessary for nonprofit housing developers to meet the new 
standards.
    HUD-USDA Response: As with any code update, training is indeed an 
important issue, particularly for changes that include fundamental 
changes in technology, materials, or practices. In

[[Page 33140]]

updating to the 2021 standard, the primary focal points will be wall 
insulation, mechanical systems, and envelope air tightness. Due to the 
outdated nature of the 2009 IECC, many of these transitions and 
practices are already happening across the country. Recent energy code 
field studies, including those conducted by DOE in the 2014 through 
2023 timeframe, indicate that higher insulation values, better windows, 
more advanced mechanicals, and tighter envelopes are already 
commonplace due to natural market forces and advancements in building 
products.
    Even with this being the case, HUD and USDA will develop training 
materials and offer training to builders, developers, and lenders 
through guidance materials and webinars to support the implementation 
of these new standards, as described in detail in section A.2. above.
3. Enforcement and Compliance
    Several commenters emphasized the need to prioritize enforcement of 
the standards upon enacting the new requirement to ensure the new 
requirements are being met. One commenter suggested allowing builders 
to demonstrate compliance through DOE's REScheck code compliance tool. 
One commenter suggested that HUD and USDA should ensure ventilation 
maintenance meets the higher standard required in tightly sealed 
buildings. One commenter suggested that HUD and USDA provide technical 
assistance to state and local officials to support enforcement. One 
commenter suggested that HUD and USDA should conduct a post-
implementation study to assess compliance and enforcement over the 
first one to two years of the new requirements.
    HUD-USDA Response: HUD and USDA agree that enforcement of the 
standards will be important in ensuring compliance with the standard. 
The agencies are anticipated to rely on self-certification that 
builders and developers will comply with the code requirements 
specified in this notice. For single family FHA-insured properties, FHA 
employs self-certification requirements for many of their policies and 
program requirements and may pursue enforcement for any false claims or 
false statements made. Enforcement can include criminal penalties, 
civil penalties, or both.
    For FHA single family new construction, in HUD-92541, HUD already 
requires the builder to certify that the new construction meets or 
exceeds the 2009 IECC; this certification will be updated for the 2021 
IECC.\64\ HUD will update the Minimum Property Standards referenced in 
HUD-92544 with a conforming amendment to align with the requirements of 
this notice; HUD is the final adjudicator of whether a defect exists 
and whether the remedy is required.\65\
---------------------------------------------------------------------------

    \64\ HUD Builder Certification, https://www.hud.gov/sites/dfiles/OCHCO/documents/92541.pdf.
    \65\ https://www.hud.gov/sites/dfiles/OCHCO/documents/92544.pdf.
---------------------------------------------------------------------------

    Certainly, REScheck is a tool that can be used to demonstrate 
compliance; it is a DOE-supported tool for builders, designers, and 
contractors to quickly and easily determine whether new homes, 
additions, and alterations meet the requirements of the IECC or a 
number of state energy codes. REScheck also simplifies compliance 
determinations for building officials, plan checkers, and inspectors by 
allowing them to quickly determine if a low-rise residence meets the 
code.
    Note that REScheck is set up for building envelope-related 
insulation and window trade-off calculations in residential single 
family and low-rise multifamily buildings only; it is not used for the 
IECC performance path, which relies on other energy modeling tools, 
e.g., HERS or IC3. REScheck works by performing a simple U-factor x 
Area (UA) calculation for each building assembly to determine the 
overall UA of a building. The UA that would result from a building 
conforming to the code requirements is compared to the UA for the 
building constructed. If the total heat loss (represented as a UA) 
through the envelope of a building does not exceed the total heat loss 
from the same building conforming to the code, the software generates a 
report that declares the building is compliant with the code.

G. Impact and Duration of COVID-Related Supply Chain Challenges for 
Certain Products and Materials, Particularly But Not Exclusively for 
Lumber Products

    HUD and USDA's preliminary determination acknowledged the 
construction industry's experience with COVID-related supply chain 
challenges for certain products and materials, particularly but not 
exclusively for lumber products, leading to significant price increases 
in such products as framing lumber, plywood, and oriented strand board 
(OSB). The agencies solicited comments on the duration, persistence and 
intensity of these price increases, the extent to which they may impact 
the cost of energy related products or materials covered by the IECC or 
ASHRAE 90.1 energy codes addressed in this notice, and to what extent 
these supply chain issues may impact implementation of the codes 
addressed by this notice.
    One commenter affirmed the insulation industry's ability to meet 
any increase in demand as a result of requiring the 2021 IECC and 
ASHRAE 90.1-2019 standards.
    Two commenters expressed concern for the construction industry's 
ability to meet the additional demand caused by HUD and USDA's 
requirement of the 2021 IECC and ASHRAE 90.1-2019 standards. A 
commenter stated that additional code requirements will exacerbate the 
existing stresses for homebuyers and developers, which include market 
scarcity, rising prices, high interest rates, increased construction 
costs, labor shortages, and limited subsidies.
    One commenter stated their concern with construction costs 
continuing to rise which impacts affordability on top of supply 
shortages for required materials such as windows, insulation, and other 
components. The commenter highlighted the fact that HUD's National 
Housing Market Summary for the first quarter of 2023 indicated that 
rising construction costs are expected to have an ongoing impact on the 
affordability of rental housing. Another commenter suggested that the 
agencies create a right of review on a case-by-case basis for builders 
unable to source required building materials.
    HUD-USDA Response: HUD and USDA recognize that there were 
significant cost increases in certain construction materials resulting 
from specific COVID-related supply chain shortages, as well as 
inflation. The agencies have included a construction cost increase 
using the Bureau of Labor Statistics Producer Price Index (PPI) of 37 
percent, as cited by the NAHB.66 67 This reflects cost 
increases for residential construction during the 2020-23 period. While 
this additional cost increase adds to the initial first cost of 
complying with the 2021 IECC, this does not impact the overall 
affordability of the investment, as shown in Tables 13-16 of this final 
determination.
---------------------------------------------------------------------------

    \66\ BLS, Producer Price Index Commodity Data, One-Screen Data 
Search, https://data.bls.gov/PDQWeb/wp. [Under Select a Group, 
select ``IP Inputs to industries''; under Select one or more Items, 
select ``IP23110013 Inputs to residential construction, goods less 
foods and energy.''
    \67\ Building Materials Prices Fall for Second Month Straight, 
Eye On Housing, https://eyeonhousing.org/2023/06/building-materials-prices-fall-for-second-month-straight/.
---------------------------------------------------------------------------

    With regard to material shortages including windows and insulation 
and

[[Page 33141]]

their potential impact on builders' ability to comply with the latest 
editions of the codes, HUD and USDA recognize that some materials may 
be in short supply and may cause construction delays, but have been 
unable to determine the scale and scope of such shortages nationwide. 
In addition, the 2021 IECC and ASHRAE 90.1-2019 do not require 
specialized materials that are not already required for previous 
editions. According to one recent report, the hardest insulation 
material to procure has been polyiso insulation, a closed-cell, rigid 
foam board typically used for roofing--as a result of 2021's winter 
storm Uri that disrupted the supply chain of MDI, one of the raw 
materials that goes into polyiso insulation material.\68\ That resulted 
in a shortage of insulation materials starting in February 2021. In 
other parts of the country, COVID-19 and transportation issues strained 
supply. However, the report cites industry sources report that lead 
times for items like fiberglass insulation and spray foam insulation 
have improved in recent months.
---------------------------------------------------------------------------

    \68\ Construction Dive, Construction's supply chain outlook: 
more shortages, price hikes ahead, November 2022 https://www.constructiondive.com/news/supply-chain-construction-building-materials-price-2023/636442/.
---------------------------------------------------------------------------

    HUD and USDA recognize that shortages may arise as a result of 
COVID-19 supply chain issues. If shortages arise that prevent builders 
from meeting the IECC 2021 and ASHRAE 90.1-2019 requirements, builders 
should contact HUD or USDA with information on the product shortage. 
HUD and USDA will consider alternate materials based on the agencies' 
review of available materials. In addition, HUD and USDA will publish a 
list of possible material shortages and provide options for builders to 
comply with the codes.

H. Alignment With Green Building Standards and Alternate Compliance 
Paths

    The preliminary determination noted that HUD and USDA currently 
provide incentives or require green building standards for some 
programs and their interest in maximizing alignment between the 2021 
IECC and ASHRAE 90.1-2019 and these green building standards. 
Recognizing that there might be a lag time between the publication of 
the current editions of the IECC and ASHRAE 90.1 and their 
incorporation in these green building standards, the agencies requested 
comments on the current minimum IECC and ASHRAE 90.1 requirements in 
these standards, and/or the timetable for adopting the 2021 IECC and 
ASHRAE 90.1-2019 as baseline requirements.
    One comment was received on the specific question of the baseline 
energy code established in third-party green building standards but 
several comments were submitted as to how these or other standards 
could be used as alternative compliance paths for the 2021 IECC and 
ASHRAE 90.1-2019 requirements of this notice. Several commenters who 
expressed their support for the preliminary determination provided 
suggestions for certification alternatives to meet the 2021 IECC and 
ASHRAE 90.1-2019 standards. One commenter emphasized that any 
alternative compliance pathways must enforce equivalent building 
envelope standards to those required by the 2021 IECC and ASHRAE 90.1-
2019. One commenter stated that third-party certifications are an 
essential part of expanding access to HUD and USDA financing in markets 
where there may be a lack of certified inspectors or inspectors who are 
trained on an amended energy code that does not meet the program 
requirements.
1. Alternative Compliance Pathways
    One commenter stated that third-party certifications are an 
essential part of expanding access to HUD and USDA financing in markets 
where there may be a lack of certified inspectors or inspectors who are 
trained on an amended energy code that does not meet the program 
requirements. Several commenters proposed that HUD and USDA accept 
specific green building or energy code standards. One commenter 
proposed an alternative compliance pathway of ENERGY STAR v3.1.
    One commenter suggested HUD and USDA accept the following as 
alternative compliance pathways: ENERGY STAR Certified Homes, DOE Zero 
Energy Ready Homes, ANSI/RESNET/ICC standard 301, Enterprise Green 
Communities, ENERGY STAR Indoor Air Plus, LEED, Living Building 
Challenge, and Passive House. Multiple commenters proposed an 
alternative compliance pathway of the National Green Building 
Standards.
    One commenter suggested HUD and USDA recognize the Home Energy 
Rating System (HERS) Index as an alternative compliance pathway. The 
commenter suggested adopting a threshold of a HERS Index Score of 
either 60, as used by Freddie Mac for their Single Family Green 
Mortgage-Backed Securities program, or 57 as the equivalent index to 
IECC 2021. Another commenter proposed an alternative compliance pathway 
of a HERS Index Score of 57 or lower.
    One commenter suggested that HUD and USDA accept third-party energy 
and green building certifications as alternative energy compliance 
methods. Two commenters suggested that HUD and USDA move towards the 
adoption of an all-electric new construction standard to achieve zero 
carbon new homes for low- and moderate-income communities. The 
commenter suggested the adoption of the optional zero-emissions and 
zero-energy appendices of the 2024 IECC and adapt the appendixes for 
ASHRAE 90.1-2022.
    One commenter suggested that HUD and USDA offer the ASHRAE 90.2-
2018 standard as an alternative compliance pathway to the 2021 IECC 
standard as it provides more flexibility to satisfy local conditions 
and costs while delivering residential building energy performance that 
is approximately 50 percent less consumptive than the 2006 IECC 
standard and approximately 20 percent more energy efficient than the 
2021 IECC standard.
    HUD-USDA Response: HUD and USDA appreciate the range of 
recommendations for alternative compliance pathways suggested by the 
commenters. Most of these pathways conform to the requirements of 
meeting and exceeding the 2021 IECC and ASHRAE 90.1-2019. These are 
discussed below:
     HERS Ratings. With regard to the proposal to accept the 
HERS rating as an acceptable alternative, HUD and USDA recognize the 
important role that the HERS Index plays in rating new homes in the 
U.S. A recent RESNET report shows that 330,000 homes received a HERS 
rating in 2022. The commenter recommending adoption of the HERS Index 
pointed to two states, Massachusetts and Texas, that have adopted the 
HERS Index as an alternate compliance path. Texas has adopted a sliding 
scale for the HERS Index with graduated increases in efficiency from 
2022 to 2028, with a HERS Index of 55-59 required after 2028 for 
Climate Zones 2,3,4. These scores are above (i.e., less efficient than) 
the 2021 IECC ERI scores of 51-54 for these zones. Massachusetts, on 
the other hand, set the required HERS rating at 52, the same as the 
2021 IECC.
    These alternative HERS ratings do not include the mandatory 
requirements of the 2021 IECC; accordingly, HUD and USDA are not in a 
position to accept a HERS rating as an alternative to the 2021 IECC but 
do recognize the growing importance of this rating as a means to 
communicate energy performance better to homebuyers and encourage its 
use by builders. The HERS rating is also an integral part of the two 
federal above-

[[Page 33142]]

code standards of EPA's Energy Star for Homes and DOE's Zero Energy 
Ready Homes, which can earn the 45L tax credit of $2,500 and $5,000 
respectively.
     Zero Energy or Zero Energy Ready standards: HUD and USDA 
are aware of the voluntary IECC zero emission appendix and the new zero 
energy appendix to ASHRAE 90.1-2022. While the statute that governs 
this notice does not allow the agencies to require an above-code zero 
energy standard or zero energy ready standard without an affordability 
or availability determination, the agencies encourage builders to 
consider building to the standards outlined in these appendices as 
published by the ICC and ASHRAE respectively. Adoption of the 
appendices is at the builder or developer's discretion.
    Additionally, there are IRA funds that support solar and renewable 
energy installations including the Greenhouse Gas Reduction Fund and 
solar and renewable energy tax credits, which are refundable and offer 
greater incentives for low-income communities. HUD and USDA encourage 
builders to explore ways to utilize this financing to build zero energy 
homes that will, by lowering energy expenditures, assist homebuyers in 
achieving long-term homeowner financial sustainability.
     Energy Star for New Construction. Energy Star Version 3.1, 
the prevailing version of the standard that is nationally required by 
EPA as of January 2023, has been modeled to exceed the 2015-2018 IECC 
by approximately 10 percent, which on an overall performance basis is 
likely to be equivalent or equal to the 2021 IECC. However, the absence 
of specific thermal backstop requirements specified in the 2021 IECC 
excludes Version 3.1 from serving as a compliance pathway for the 2021 
ICC. Version 3.2, however, takes effect January 2025, and will be 
accepted by HUD and USDA as an alternate compliance path. Similarly, 
Energy Star for Multifamily New Construction Version 1.2 will be 
accepted as an alternate compliance path.
     DOE Zero Energy Ready Homes Program. The DOE Zero Energy 
Ready Homes Program sets rigorous efficiency and performance criteria, 
with certified homes capable of offsetting most or all of the home's 
annual energy use through a renewable energy system. Single family 
homes must achieve Single Family Version 2 certification to be accepted 
as an alternate compliance path. Multifamily homes must achieve 
Multifamily Version 2 certification, which will be released on January 
1, 2025, to be accepted as an alternate compliance path.
     Green Building Standards. As noted in the preliminary 
determination, HUD specifies a range of green building certifications 
through a range of programs, either as an incentive (the Green Mortgage 
Insurance Premium) or as a requirement (CDBG-DR). HUD and USDA will 
accept a Green Building Certification as a compliance pathway upon 
submission and approval by the agencies of evidence that the 2021 IECC 
and ASHRAE 90.1-2019; Energy Star Single Family New Construction 
Version 3.2 certification or Version 1.2 for Multifamily New 
Construction certification; or DOE Zero Energy Ready Homes Single 
Family Version 2 or, once released, Multifamily Version 2 have been 
established as minimum requirements.
2. Promoting Unvented Attic Spaces
    Several commenters suggested HUD and USDA allow for the use of 
unvented attics, which provide builders with additional flexibility by 
enabling insulation with lower R-values and eliminating thermal losses 
from ductwork in unconditioned attic spaces. Two of these commenters 
suggested that HUD and USDA adopt the International Residential 
Building Code (IRC), which would replace existing references to the 
1994 CABO Code and enable the use of unvented attics.
    One commenter suggested that to promote the use of unvented attics, 
HUD and USDA adopt an alternative compliance pathway for insulating 
attics. The commenter suggested an alternative standard for unvented 
attics and enclosed rafter assemblies. This included lowering R values 
for ceiling insulation in Climate Zones 1-3 to R-22 and in Climate 
Zones 4-8 to R-26, requiring blower door tests results of less than 3.0 
ACH50 for all climate zones, and other measures.
    HUD-USDA Response: While significant efficiency gains can be 
achieved by locating all heating and cooling equipment in a property's 
conditioned space and providing for unvented attic space, the specific 
proposal recommended by the commenter would lower ceiling/roof 
insulation levels below those specified in the 2021 IECC and therefore 
cannot be accepted as part of the HUD and USDA determination. The 
agencies are not able to adopt amendments to the 2021 IECC and must 
establish the standard in full as is required by the statute.
    Note that the reference by the commenter to the 1994 CABO is 
assumed to reference outdated code citations that have not been updated 
in HUD regulations; HUD anticipates removing any references to outdated 
codes in its regulations as part of its implementation of this 
standard.
3. Alignment With Existing State or Local Codes
    One commenter suggested that HUD and USDA take local and state 
requirements into consideration when finalizing code requirements at 
the national level. Two comments were received on how the HUD and USDA 
requirements would align with adoption by states of the 2021 IECC with 
amendments. One commenter suggested that HUD and USDA accept the IECC 
code version adopted by the state where a project is located instead of 
requiring the 2021 IECC. Another commenter stated their concern that 
implementation of this proposed rule would leave many jurisdictions out 
of HUD and USDA programs, including three states that have adopted the 
2021 IECC with amendments and would not be in compliance with this 
requirement.
    HUD-USDA Response: HUD and USDA recognize that states considering 
IECC adoption may do so with either weakening or strengthening 
amendments. DOE's State Portal analyzes the impact of any amendments to 
the site energy index for the energy code adopted by each state. For 
example, Idaho adopted the 2018 IECC with amendments and DOE found 
these amendments to reduce the efficiency of the 2018 IECC to more 
closely resemble the 2009 IECC.
    As of December 2023, 42 states and the District of Columbia have 
adopted some version of the IECC. Of these states, 33 have adopted the 
IECC with amendments. According to DOE's analysis, 24 of these 
amendments weaken the efficiency of the code, five do not substantially 
alter the efficiency of the code, and four improve the efficiency of 
the code.\69\
---------------------------------------------------------------------------

    \69\ State Portal, Building Energy Codes Program, https://www.energycodes.gov/state-portal. Based on update from 09/29/2023.
---------------------------------------------------------------------------

    Of the 22 states that are shown by DOE to have adopted the 2009 
IECC or its equivalent due to weakening amendments, two states have 
adopted the 2012 IECC with weakening amendments, six states have 
adopted the 2015 IECC with weakening amendments, nine states have 
adopted the 2018 IECC with weakening amendments, and one state have 
adopted the 2021 IECC with amendments that have been determined by DOE 
to be equivalent to a weaker code. The governing EISA-amended Cranston 
Gonzalez statute does not provide for the flexibility of amending

[[Page 33143]]

either code; the statute requires that all housing specified in the 
statute ``meet the requirements of the revised code or standard''. (42 
U.S.C. 12709(d)). HUD and USDA recognize that many states adopted the 
codes with amendments; however, these amendments often impact the 
energy efficiency of the code. To comply with the final determination, 
all impacted HUD and USDA housing must meet or exceed the energy 
efficiency of the 2021 IECC or ASHRAE 90.1-2019 regardless of any 
amendments adopted to the code at the state level.
    HUD and USDA acknowledge that the code adoption landscape has 
changed and will continue to change ahead of the final determination 
going into effect. Since the drafting of the preliminary determination, 
two states, Connecticut and New Jersey, have adopted the 2021 IECC as 
the state requirement. With this in mind, the estimated 150,000 single 
family homes and low-rise multifamily units and 16,550 high-rise 
multifamily units affected by this notice represents the approximate 
number of impacted homes based on average annual production from 2019 
to 2021.
4. Proposed Alternative Prescriptive and Performance Compliance 
Pathways
    One commenter proposed an alternative prescriptive compliance path 
framework. This alternative compliance path involves integrating the 
expected 2024 IECC ceiling insulation and wall insulation requirements 
into the 2021 IECC, as well as a credit system for prescriptive 
measures similar to that proposed for the 2024 IECC. The same commenter 
also proposed an alternative performance compliance framework for 
energy modeling software developers.
    HUD-USDA Response: The commenter is proposing an approach that is 
not applicable for including in a federal determination. These 
amendments are more relevant to the code development process, which has 
been discussed in the 2021 and 2024 energy code update cycle, rather 
than the code adoption process.
    The EISA statute requires HUD and USDA to adopt the code in full, 
meaning that the preliminary determination is not an opportunity to 
reevaluate the code package itself. HUD and USDA cannot specify an 
alternative code that deviates from the published and consensus-based 
model energy code, which has gone through a rigorous affordability and 
availability analysis in preparation for its proposed adoption. Both 
the proposed prescriptive and performance compliance path frameworks 
envision modifications to the 2021 IECC that have been proposed or 
adopted for the 2024 IECC, e.g., realignment of ceiling and wall 
insulation requirements (Prescriptive Framework proposal 2), 
establishing requirements for energy modeling software for envelope 
backstops (Performance Framework proposal 3).
    Once the 2024 IECC is published, it can serve as a viable 
alternative to the 2021 IECC for states who choose to adopt the new 
code as has been the case for states that have adopted versions beyond 
the 2009 IECC over the past decade. The proposed changes would require 
modifying the 2021 IECC in a manner that is inappropriate for this 
technical review of the 2021 IECC and ASHRAE 90.1-2019 standards. In 
addition, changes resulting from these proposed modifications to the 
modeling software would likely result in modifications to the 
requirements of the 2021 IECC; modifications to the 2021 IECC are 
beyond the scope of the statutory requirements that govern this notice. 
HUD has provided DOE with the performance modeling framework proposals 
for consideration in future code modeling.

I. Additional Comments

1. Veterans Administration Enhanced Loan Underwriting Methods
    One commenter suggested that HUD and USDA add a provision for the 
recently enacted Department of Veterans Affairs (VA) enhanced loan 
underwriting methods to FHA and USDA mortgages.
    HUD-USDA Response: This comment references recently enacted 
legislation requiring the VA to incorporate energy expenditures when 
underwriting VA loans (Consolidated Appropriations Act of 2023, Section 
203. Enhanced Underwriting Methods (Pub. L. 117-238). While the 
legislation does not specify methodology for addressing energy 
efficiency, it will incorporate household energy expenditures into the 
Principal Interest Taxes Insurance (PITI) calculation. This is beyond 
the scope of this notice, which does not address underwriting methods. 
The agencies will track the VA initiative for lessons learned and 
applicability to HUD and USDA programs.
2. Incorrect Montana Data
    One commenter suggested that the data utilized in the preliminary 
determination to produce the energy cost savings and financial impacts 
incorrectly utilized the 2009 IECC for the State of Montana instead of 
the 2021 IECC, which Montana adopted with exceptions for cost-
prohibitive requirements based on state-specific variables and climate 
requirements in June 2022.
    HUD-USDA Response: As noted in the preliminary determination, HUD 
and USDA use DOE-PNNL assessments of the effective or equivalent code 
adopted by a state after weakening amendments. In Montana's case, the 
state adopted the 2021 IECC with amendments that reduce the overall 
energy efficiency of the code by 10.4 percent. As such, DOE has 
determined that Montana's code functionally resembles the 2009 
IECC.\70\
---------------------------------------------------------------------------

    \70\ State Portal, Building Energy Codes Program, https://www.energycodes.gov/state-portal.
---------------------------------------------------------------------------

3. Inclusion of Greenhouse Gas Emissions
    One commenter suggested that the RIA and the final determination 
should not consider the external social value of reducing emissions of 
greenhouse gases because the statute does not require its 
consideration. In contrast, another commenter suggested that the 
preliminary determination may understate the benefits associated with 
updating minimum efficiency requirements by not quantifying the non-
energy benefits from improved efficiency as well as the total emissions 
reductions.
    HUD-USDA Response. Pursuant to OMB requirements, the RIA includes 
estimated reduction of carbon emissions and associated savings in the 
social cost of carbon. However, HUD and USDA agree that the social 
impact of reducing carbon emissions is not relevant to the consumer 
affordability analysis required by the statute. The inclusion of these 
costs in the RIA is used to determine the larger benefits of this 
regulatory action, but they are not taken into account when considering 
the affordability and availability of the impacted housing.
4. Covered Housing vs. Existing Housing Stock
    One commenter stated that the statute specifically requires HUD and 
USDA to make a determination that the revised codes do not negatively 
affect the availability or affordability of new construction, 
indicating that the availability of new construction specifically needs 
to be the point of analysis instead of the overall availability of the 
existing housing stock. This commenter stated that this is particularly 
important due to the outsized role new homes play in the current 
market, making up 31 percent of the housing stock.
    HUD-USDA Response: With regard to considering the ``overall 
availability'' of the existing housing stock, it is not clear

[[Page 33144]]

what item in the RIA or preliminary determination the commenter is 
referring to; both the RIA and the preliminary determination focused on 
the impact that this notice would have on the supply/production of new 
USDA-HUD financed housing, not on the availability of housing outside 
this stock.
    The RIA does acknowledge purchase of an existing home as an 
alternative option; however, the availability analysis focuses on 
impacts to new construction as per the statute. As part of the 
analysis, it takes into account the broader economic impacts of the 
proposed standards. This perspective is included to demonstrate the 
substitutes available to buyers in the real world; however, existing 
homes are not considered as a central part of the availability 
analysis. HUD and USDA have modified the RIA.
5. Impact on Increased Sprawl
    One commenter suggested that the preliminary determination does not 
accurately account for the potential increase in urban sprawl, which 
would increase travel-associated greenhouse gas emissions.
    HUD-USDA Response: The commenter raises an important point 
regarding carbon emissions and the built environment: siting and 
location of housing will impact transportation carbon emissions, as 
discussed in the National Transportation Decarbonization Blueprint. 
Siting housing near transportation options or adjacent to schools, 
employment, services, and amenities will significantly lower Vehicle 
Miles Traveled (VMTs) and associated carbon emissions. However, this is 
outside the scope of this notice.

III. Final Determination--2021 IECC

A. Overview

    The IECC is a model energy code developed by the International Code 
Council (ICC) through a public hearing process involving national 
experts for single family and low-rise residential buildings as well as 
commercial buildings.\71\ The code contains minimum energy efficiency 
provisions for residential buildings, defined as single family homes 
and low-rise multifamily buildings (up to three stories). The code 
offers both prescriptive and performance-based approaches. The 
efficiency standards associated with the IECC set benchmarks for a 
structure's walls, floors, ceilings, lighting, windows, doors, duct 
leakage, and air leakage.
---------------------------------------------------------------------------

    \71\ The IECC covers both residential and commercial buildings. 
States that adopt the IECC (or portions thereof) may choose to adopt 
the IECC for residential buildings only or may extend the code to 
commercial buildings (which include multifamily residential 
buildings of four or more stories). Chapter 4 of the IECC Commercial 
Code allows compliance with ASHRAE 90.1 as an optional compliance 
path.
---------------------------------------------------------------------------

    Revised editions of the IECC are typically published every three 
years. Full editions of its predecessor, the Model Energy Code, were 
first published in 1989, and new editions of the IECC were published 
every three years beginning in 1998. The residential portion of the 
IECC was heavily revised in 2004: the Climate Zones were completely 
revised (reduced from 17 Zones to the current eight primary Zones) and 
the building envelope requirements were restructured into a different 
format.\72\ The post-2004 code became much more concise and simpler to 
use, but these changes complicate comparisons of State codes based on 
pre-2004 versions of the IECC to the more recent editions.
---------------------------------------------------------------------------

    \72\ In the early 2000s, researchers at the U.S. Department of 
Energy's Pacific Northwest National Laboratory prepared a simplified 
map of U.S. climate zones. The map was based on analysis of the 
4,775 U.S. weather sites identified by the National Oceanic and 
Atmospheric Administration, as well as widely accepted 
classifications of world climates that have been applied in a 
variety of different disciplines. This PNNL-developed map divided 
the United States into eight temperature-oriented climate zones. See 
https://www1.eere.energy.gov/buildings/publications/pdfs/building_america/4_3a_ba_innov_buildingscienceclimatemaps_011713.pdf.
---------------------------------------------------------------------------

    For single family housing, the IECC is one component of the larger 
International Residential Code (IRC). Each version of the IRC, 
beginning with the 2015 edition, has the corresponding version of the 
IECC embedded directly into that code (Chapter 11). A majority of 
states have adopted some version of the IRC. For other building types, 
including multifamily housing, the equivalent building code is the 
International Building Code (IBC), which also refers to other codes 
such as the International Plumbing Code, the International Electrical 
Code or, in this case, the IECC. Those codes also then embody or refer 
to other codes in the industry, such as ASHRAE 90.1. In this hub and 
spoke model, there is even more differentiation between states 
regarding which versions of which codes are adopted as a suite of codes 
at any given point in time. Even with the adoption of the IRC, the all-
in-one code that is focused on single family housing, states and local 
areas sometimes make adjustments to the code, removing and in some 
cases adding requirements for some building elements.
1. Current HUD-USDA Standard and Subsequent Revisions
    In May 2015, HUD and USDA published a Final Determination that 
established the 2009 IECC as the minimum standard for both new single 
family housing built with HUD and USDA assistance and new HUD-assisted 
or FHA-insured low-rise multifamily housing.\73\ HUD and USDA estimated 
that 3,200 multifamily units and 15,000 single family units per year 
could potentially be impacted in the 16 states that had not yet adopted 
either of these codes. The average incremental cost of the higher 
standard was estimated to be $1,019 per unit, with average annual 
savings of $215, for a 5-year payback and a 1.3-year net positive cash 
flow. HUD and USDA determined that adoption of the 2009 IECC would not 
negatively impact the affordability and availability of the covered 
housing. The 2009 IECC represented a significant increase in energy 
efficiency of 7.9 percent and a 10.8 percent cost savings over the 
previous (2006) code.
---------------------------------------------------------------------------

    \73\ 80 FR 25901 (May 6, 2015).
---------------------------------------------------------------------------

    Since HUD and USDA's adoption of the 2009 IECC, there have been 
four revisions to the IECC.\74\ No action was taken by the prior 
Administration to comply with the statutory requirements to consider or 
adopt these updated codes.
---------------------------------------------------------------------------

    \74\ IECC 2012, 2015, 2018, and 2021.
---------------------------------------------------------------------------

    The figure below shows the average national energy cost savings 
estimated with each version of the IECC. The greatest incremental 
savings come from the 2012 IECC (23.9 percent), followed by the 2009 
IECC (10.8 percent over the 2006 IECC), followed by the 2021 IECC (8.7 
percent). PNNL provided HUD with cost and benefit estimates for 
adopting the 2021 IECC from a baseline of the 2009 IECC and has made 
publicly available estimates for adopting the 2021 IECC from a 2018 
IECC baseline. For states that have adopted standards equivalent to the 
2012 or 2015 IECC, HUD and USDA use the estimates for the adoption from 
the 2018 to the 2021 IECC, as the 2012 and 2015 IECC both are closer to 
the 2018 IECC than the 2009 IECC.

[[Page 33145]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.103

    Each successor edition since the 2009 IECC has increased energy 
efficiency and offered cost savings to consumers in varying degrees:
---------------------------------------------------------------------------

    \75\ Sources: DOE, 2012: https://www.pnnl.gov/main/publications/external/technical_reports/PNNL-22068.pdf; 2015: https://www.energycodes.gov/sites/default/files/2021-07/2015_IECC_FinalDeterminationAnalysis.pdf; 2018: https://www.energycodes.gov/sites/default/files/2021-07/EERE-2018-BT-DET-0014-0008.pdf, 2021: https://www.regulations.gov/document/EERE-2021-BT-DET-0010-0006.
---------------------------------------------------------------------------

    (1) The 2012 IECC was published in May 2011, representing a 
significant increase of 23.9 percent in energy cost savings over the 
2009 IECC.76 77 Key changes in the 2012 edition included: 
increased stringency for opaque thermal envelope components; 
clarification that sun rooms enclosing conditioned spaces must meet the 
thermal envelope provisions; requirements for a blower door test to 
determine the air leakage rate and limits for the number of prescribed 
air changes per hour (ACH) per climate zone; insulation to at least R-3 
for hot water piping; and an increase in the minimum number of high-
efficacy electrical lighting sources from 50 percent to 75 percent of 
permanent fixtures or lamps in permanent fixtures.78 79 This 
translated into an estimated $500 or 32.1 percent annual cost savings 
per unit over the 2006 IECC.\80\
---------------------------------------------------------------------------

    \76\ U.S. Department of Energy, ``Updating State Residential 
Building Energy Efficiency Codes: notice of Final Determination.'' 
77 FR 29322 (May 17, 2012). http://www.gpo.gov/fdsys/pkg/FR-2012-05-17/pdf/2012-12000.pdf.
    \77\ Pacific Northwest National Laboratory, Cost-Effectiveness 
Analysis of the 2009 and 2012 IECC Residential Provisions--Technical 
Support Document, U.S. Department of Energy, PNNL-22068, April 2013. 
https://www.pnnl.gov/main/publications/external/technical_reports/PNNL-22068.pdf.
    \78\ Pacific Northwest National Laboratory, Guide to the Changes 
between the 2009 and 2012 International Energy Conservation Code, 
U.S. Department of Energy, PNNL-21435, May 2012. http://www.pnnl.gov/main/publications/external/technical_reports/PNNL-21435.pdf.
    \79\ Pacific Northwest National Laboratory, Energy savings for a 
Typical New Residential Dwelling Unit Based on the 2009 and 2012 
IECC as Compared to the 2006 IECC, Letter Report, PNNL-88603, April 
2013, Table 1.
    \80\ Pacific Northwest National Laboratory, Cost-Effectiveness 
Analysis of the 2009 and 2012 IECC Residential Provisions--Technical 
Support Document, U.S. Department of Energy, PNNL-22068, Tables 8.1 
and 8.4, April 2013.
---------------------------------------------------------------------------

    (2) The 2015 IECC was substantially the same as the 2012 edition, 
with a modest increase in energy efficiency of just 0.87 percent over 
the 2012 IECC.\81\ Revisions in this edition included: revised 
provisions for existing buildings; removal of exemption for historic 
buildings; revised requirements for building envelope and duct leakage 
testing and hot water distribution efficiency. The most notable 
innovation was the introduction of a new Energy Rating Index (ERI) 
performance path that utilizes the Home Energy Rating System (HERS) 
Index.
---------------------------------------------------------------------------

    \81\ U.S. Department of Energy, Determination Regarding Energy 
Efficiency Improvements in the 2015 International Energy 
Conservation Code, 80 FR 33250 (June 11, 2015), https://www.federalregister.gov/documents/2015/06/11/2015-14297/determination-regarding-energy-efficiency-improvements-in-the-2015-international-energy-conservation.
---------------------------------------------------------------------------

    (3) The 2018 IECC also saw limited changes to the prior edition. In 
its efficiency determination for the 2018 IECC, DOE found site energy 
savings over the prior code of just 1.68 percent; 1.91 percent source 
energy savings; and 1.97 percent annual energy cost savings.\82\ Of the 
47 changes in this edition, most were expected to have a neutral impact 
on energy efficiency, with two changes making up most of the energy 
savings associated with the updated code: (1) lower fenestration U-
factors in Climate Zones 3 through 8, and (2) an increase in high-
efficacy lighting from 75 percent to 90 percent of permanently 
installed fixtures in all climate zones.
---------------------------------------------------------------------------

    \82\ DOE, ``Final Determination Regarding energy efficiency 
Improvements in the 2018 International Energy Conservation Code,'' 
84 FR 67435 (Dec. 10, 2019), https://www.federalregister.gov/documents/2019/12/10/2019-26550/final-determination-regarding-energy-efficiency-improvements-in-the-2018-international-energy; 
also PNNL for DOE, Energy Savings Analysis: 2018 IECC for 
Residential Buildings, November 2019, https://www.energycodes.gov/sites/default/files/2021-07/EERE-2018-BT-DET-0014-0008.pdf.
---------------------------------------------------------------------------

2. 2021 IECC--Overview
    As required by statute, this notice addresses the most recent 
edition of the IECC, the 2021 IECC.\83\ In its efficiency determination 
for this standard, DOE determined that this edition would result in 
significant savings relative to the 2018 IECC: 9.4 percent savings in 
annual site energy use intensity (EUI); 8.8 percent in annual source 
EUI; 8.7 percent in annual energy cost savings; and 8.7 percent 
reduction in carbon emissions.\84\ The 2021 standard will yield a 
national weighted energy cost savings of 34.4 percent over the current 
USDA-HUD baseline 2009 standard.
---------------------------------------------------------------------------

    \83\ International Code Council, 2021 International Energy 
Conservation Code, January 29, 2021. https://codes.iccsafe.org/content/IECC2021P1.
    \84\ 86 FR 40529 (July 28, 2021), Analysis Regarding Energy 
Efficiency Improvements in the 2021 International Energy 
Conservation Code (IECC) https://www.federalregister.gov/documents/2021/07/28/2021-15969/analysis-regarding-energy-efficiency-improvements-in-the-2021-international-energy-conservation-code; 
also PNNL, Preliminary Energy Savings Analysis: 2021 IECC for 
Residential Buildings, April 2021, https://www.energycodes.gov/sites/default/files/2021-07/2021_IECC_PreliminaryDetermination_TSD.pdf.
---------------------------------------------------------------------------

    In their qualitative assessment of the code, PNNL identified a 
total of 114 approved code changes or addenda in this edition of the 
code over the prior edition, of which 35 will have a direct impact on 
energy use in residential buildings. Of these, 29 are expected to 
reduce energy use, while six are expected to increase energy use.\85\
---------------------------------------------------------------------------

    \85\ 79 additional changes were determined to be administrative 
or impact non-energy portions of the code.
---------------------------------------------------------------------------

    The following are the primary technical changes in the 2021 IECC 
over the previous edition:
     Building Envelope. Building envelope revisions include 
increased insulation requirements; more efficient U factors and Solar 
Heat Gain Coefficients (SHGCs) for windows and fenestration; maximum 
air leakage rate of 5 Air Changes per Hour (ACH) at 50 pascals for all 
compliance paths, with 3 ACH for Climate Zones 3-8 following the 
prescriptive path. Testing alternatives are provided for smaller homes 
and attached single family and multifamily buildings.\86\
---------------------------------------------------------------------------

    \86\ AMCA International, International Energy Conservation Code: 
2021 Changes, Getting Involved in the 2024 Process, May 5, 2021, 
https://www.amca.org/assets/resources/public/assets/uploads/FINAL-_ICC_Webinar-_presentation_May_5__2021.pdf.

---------------------------------------------------------------------------

[[Page 33146]]

     Heating, Ventilation and Air Condition (HVAC). Mechanical 
ventilation in Climate Zones 7 and 8 provided by a Heat Recovery 
Ventilator (HRV) or Energy Recovery Ventilator (ERV) is required for 
the prescriptive compliance path.\87\
---------------------------------------------------------------------------

    \87\ Northeast Energy Efficiency Partnerships, Key Changes in 
the 2021 IECC for the Northeast and Mid-Atlantic, https://neep.org/sites/default/files/media-files/2021_iecc_one-pager_.pdf.
---------------------------------------------------------------------------

     Additional Efficiency Options. Additional efficiency 
options in the 2021 IECC include an enhanced envelope performance 
option--a 5 percent improvement in proposed home UA value (R408.2.1); a 
more efficient HVAC equipment option (highlighted above); a reduced 
energy use in service water heating option 0.82 EF for fossil fuel, 2.0 
EF for electric fuels or 0.4 solar fraction water heater (R405.2.3); a 
more efficient duct thermal distribution system option--100 percent of 
ducts in conditioned space or ductless systems (R405.2.4); and an 
improved air sealing and efficient ventilation option--air leakage at 
3.0 ACH50 with ERV or HRV with 75 percent Sensible Recovery Efficiency 
(SRE) (R405.2.5).
     Lighting Changes. The efficacy value of high-efficacy 
lamps increases to 70 lumens/watt (100 percent of lighting), a 10 
percent increase over the 2018 standard.
     Renewables. The 2021 IECC revises the definition for ``on-
site renewables'' for consistency with other national standards; adds a 
definition for biogas and biomass; and requires that Renewable Energy 
Certificates (RECS) be retired with the homeowner when using the ERI 
compliance approach.\88\
---------------------------------------------------------------------------

    \88\ New Buildings Institute, 2021 IECC National Model Energy 
Code (Base Codes). https://newbuildings.org/code_policy/2021-iecc-base-codes/.
---------------------------------------------------------------------------

     Zero Energy Appendix. In addition to these technical 
changes, the 2021 IECC includes, for the first time, a Zero Energy 
Appendix that requires compliance with an ERI score without renewables 
and then achieving an ERI score of ``0'' with renewables. This provides 
jurisdictions with an opportunity to adopt a base or stretch code that 
achieves zero energy in homes and low-rise multifamily buildings.\89\
---------------------------------------------------------------------------

    \89\ Ibid.
---------------------------------------------------------------------------

     Building Electrification. While the 2021 IECC did not 
include building electrification provisions in the final version of the 
code, provisions are available for adoption by states as amendments to 
the 2021 IECC: RE147-19, Electrification-Ready; RE126-19, Energy 
Efficient Water Heating; RE107-19, Eliminate Continuous Burning Pilot 
Light.
     Compliance Pathways. There are three compliance pathways 
in the 2021 IECC: Prescriptive, Performance, and Energy Rating Index or 
ERI, which reverted to IECC 2015 levels. The prescriptive paths can 
follow the R-value minimum table, the U-Factor equivalent table, or the 
UA equivalent alternative. All compliance pathways now have required 
Additional Efficiency Options (AEOs) to achieve five percent greater 
energy efficiency than base levels. The 2021 IECC lowers the 
performance path ERI scores compared to the 2018 IECC.
3. Current State Adoption of the 2021 IECC
    There is typically a lag time between the publication of a new 
edition of the IECC and state adoption of the code: Table 11 and Figure 
1 show that, as of December 2023, while all but eight states have 
adopted a version of the IECC, only five states (California, 
Washington, Vermont, New Jersey, and Connecticut) have adopted the 2021 
IECC or its equivalent.\90\
---------------------------------------------------------------------------

    \90\ California's Title 24 2019 Building Energy Efficiency 
standard, Washington's 2018 State Energy Code, and Vermont's 
amendments to the 2018 IECC were determined to meet or exceed the 
2021 IECC.
---------------------------------------------------------------------------

    Overall, 41 states plus the District of Columbia have adopted a 
version of the code that is equivalent to or higher than the current 
HUD and USDA standard of the 2009 IECC. Of these, only 18 states plus 
the District of Columbia have adopted a code above the 2009 IECC (the 
2018 IECC, the 2015 IECC, or equivalent to the 2021 IECC),\91\ while 23 
states have set their codes at the 2009 IECC or its equivalent. The 
remaining 9 states have either adopted standards that pre-date the 2009 
IECC (1 state) or have no state-wide codes (8 states).
---------------------------------------------------------------------------

    \91\ PNNL, State Level Residential Codes Energy Use Index, FY 
2023Q2, Excel File at https://www.energycodes.gov/state-portal.
---------------------------------------------------------------------------

    Based on historical experience and the continued consideration or 
adoption of the 2021 IECC by states, it is anticipated that over time 
additional states are likely to adopt the 2021 IECC, either as 
published by the ICC or with amendments.

[[Page 33147]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.104

    This tabulation is drawn from DOE's tracking of state adoptions of 
the IECC, available at DOE's state portal at https://www.energycodes.gov/state-portal. For the purpose of this notice, HUD 
and USDA rely on the December 2023 update of the status map maintained 
by DOE at this site. Figure 1 displays the state IECC adoption status 
shown in Table 11.

[[Page 33148]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.105

    Note that states often adopt amendments to the code as published by 
the ICC. In some cases, these amendments will sufficiently alter the 
IECC code as published, such that the energy performance of buildings 
meeting the amended code provisions may be equivalent to that of a 
prior code.
    The DOE code adoption map and the adopted codes listed in Table 11 
reflect DOE/PNNL's analysis of state adopted codes (including 
amendments) and associated assessment of their IECC code equivalent. 
Accordingly, 18 states have adopted the 2012, 2015, 2018, or 2021 IECC 
with amendments and were determined by PNNL to be equivalent to the 
2009 IECC. These are therefore shown in Table 11 and Figure 1 as at the 
2009 IECC level.\92\ Additionally, DOE provides an analysis of the 
energy use index of each state-adopted code on their state portal.\93\
---------------------------------------------------------------------------

    \92\ The 23 states deemed equivalent to the 2009 IECC are: AL, 
GA, ID, IL, IN, IA, KY, MI, MN, MT, NV, NM, NC, ND, OH, OK, RI, SC, 
TN, UT, VA, WV, WI. See Table for a listing of these code 
equivalents at https://www.energycodes.gov/state-portal and 
``Reidential State Level Results'' Excel file at ``Available Data'' 
for detailed DOE/PNNL analysis.
    \93\ DOE, State Portal, https://www.energycodes.gov/state-portal.
---------------------------------------------------------------------------

    Ohio, for example, adopted the 2018 IECC with amendments to 
basement and crawl space wall R-values, air leakage rates and the 
allowance to utilize framing cavities as return ducts.\94\ DOE/PNNL 
determined that the Ohio code as adopted with amendments is equivalent 
to the 2009 IECC.\95\ New Mexico adopted the New Mexico Energy 
Conservation Code, based on the 2018 IECC, with state-specific 
amendments which were determined by DOE/PNNL to yield a performance 
standard equivalent to the 2009 IECC. On the other hand, if the new 
code is less than one percent more efficient than the prior code then 
DOE counts the newer code as equivalent to the previous code. 
California has adopted its own standard, Title 24, which DOE has 
determined meets or exceeds the 2021 IECC.
---------------------------------------------------------------------------

    \94\ ACEEE, State Scorecard Ranking, https://database.aceee.org/state/ohio.
    \95\ See ``Residential State Level Results'' at https://www.energycodes.gov/state-portal.
---------------------------------------------------------------------------

    In certain cases, home rule cities or counties within a State may 
adopt a different code from the rest of the State. For example, Austin, 
Texas has adopted the 2021 IECC energy code, thereby exceeding the 
minimum Texas statewide code of the 2015 IECC.\96\ In instances where a 
local entity has a more stringent standard, the affordability impacts 
within a State will differ.\97\
---------------------------------------------------------------------------

    \96\ City of Austin, Building Technical Codes. https://www.austintexas.gov/department/building-technical-codes.
    \97\ HUD and USDA do not maintain a list of local communities 
that may have adopted a different code than their state code. See 
ACEEE, State and Local Policy Database for codes adopted by 
individual cities. https://database.aceee.org/city/energy-code-stringency.
---------------------------------------------------------------------------

4. Estimated Impacts
    Table 12 provides an estimate of the average number of units that 
may be impacted annually by adoption of the 2021 IECC. HUD and USDA 
used prior-year production for these programs in order to estimate 
future annual production for these programs.\98\ Based on average 
annual production for the three year 2019-21 period, the agencies 
estimate that a total of approximately 161,700 units of HUD- and USDA-
financed or insured housing may be impacted by the 2021 IECC, of which 
150,227 are in the 45 states plus DC and U.S. territories that have not 
yet adopted this standard.
---------------------------------------------------------------------------

    \98\ Three-year averages were used (2019-21) for all programs, 
except for public housing which used four-year 2016-2020 averages 
since limited data were available for the three-year period. Prior-
year production data provided by program offices using internal 
tracking or reporting systems.

---------------------------------------------------------------------------

[[Page 33149]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.106


[[Page 33150]]


[GRAPHIC] [TIFF OMITTED] TN26AP24.107

    Table 12 includes both single family and low-rise multifamily 
housing. Of the total, in the 45 states and the U.S. territories that 
have not yet adopted the 2021 IECC, approximately 106,650 units are 
estimated to be FHA-insured new single family homes; approximately 
13,100 units are USDA Section 502 direct loans, and 1,800 units are 
Section 502 guaranteed loans. The remaining single family units are 
financed through the HOME program (5,000 units), HUD's Public and 
Indian Housing (PIH) programs (approximately 600 units through the 
Choice Neighborhoods and Capital Fund Financing Programs), and 500 
units through the Housing Trust Fund program. Also included in Table 12 
are some 20,200 FHA-insured multifamily housing units financed with FHA 
multifamily insurance that are estimated to be low-rise multifamily and 
therefore covered under the 2021 IECC.\100\ When adjusted to exclude 
units in states that have already adopted codes equivalent to the 2021 
IECC (California, Connecticut, New Jersey, Vermont, Washington), the 
total potential number of estimated units potentially impacted 
decreases to around 150,000 units.
---------------------------------------------------------------------------

    \99\ Estimated count of impacted units does not include the 
Project-Based Voucher program. There is insufficient data on the 
annual use of this program for new construction. Additionally, it is 
likely that, in most cases, Project-Based Vouchers are used for new 
construction projects that also rely on one or more of the other 
programs included in this table.
    \100\ In order to derive the number of low-rise multifamily 
units, the following assumptions were made: for FHA units, 50 
percent of all multifamily units are assumed to be low-rise; for 
public housing units, all units coded as ``multifamily/walkup 
apartments'' are assumed to be low-rise; and for HOME units, all 
units in multifamily developments with less than 100 units are 
assumed to be low-rise, as well as 50 percent of all units in 
developments with more than 100 units.
---------------------------------------------------------------------------

    Note that the volume of estimated production is not evenly 
distributed across the states but reflects historic demand for FHA and 
USDA financing for one or more of the agencies' programs: two states, 
Texas (24 percent) and Florida (14 percent), account for almost 40 
percent of potentially impacted units based on prior-year production. 
As noted above, Austin, Texas, has already adopted the 2021 IECC, as 
have 86 other Texas home-rule jurisdictions albeit often with 
amendments. Given Texas and Florida have passed more current iterations 
of the IECC since 2009, and one or more areas of Texas is IECC 2021 
compliant, it is possible builders will be more adaptable to 
constructing in accordance with the 2021 IECC. Along with Georgia (6 
percent), North Carolina (6 percent) and California (5 percent), five 
states account for more than half of all potentially impacted units (56 
percent). Note that historical production is used as a guide to future 
production; actual state by state unit counts in the future may vary 
from these estimates, based on actual supply and demand.

[[Page 33151]]

B. 2021 IECC Affordability Analysis

    In this notice, HUD and USDA address two aspects of housing 
affordability in assessing the impact that the revised code will have 
on housing affordability. As described further below, the primary 
affordability test is a life-cycle cost savings (LCC) test, i.e., the 
extent to which the additional, or incremental, investments required to 
comply with the revised code are cost effective inasmuch as the 
additional measures pay for themselves with energy cost savings over a 
typical 30-year mortgage period. A second test is whether the 
incremental cost of complying with the code as a share of total 
construction costs--regardless of the energy savings associated with 
the investment--is affordable to the borrower or renter of the home.
    Note that there may be other benefits associated with energy 
efficient building codes in addition to energy cost savings. These 
include increased resilience against extreme temperature events, the 
potential for lowering mortgage defaults, and lowering the 
disproportionate energy burden for low-moderate income households. In 
addition, studies show that added energy efficiency may also yield 
improved health outcomes.\101\
---------------------------------------------------------------------------

    \101\ See, for example, DOE, Jonathan Wilson et al, Home Rx: The 
Health Benefits of Home Performance, December 2016; HUD, BRIGHT 
Study Finds Improved Health at Boston Housing Authority's Old Colony 
Homes, https://www.huduser.gov/portal/casestudies/study-05042017.html.
---------------------------------------------------------------------------

    A 2023 study from PNNL found that energy efficiency measures 
improve the habitability of single family buildings during extreme cold 
and extreme heat events by up to 120 percent and 140 percent, 
respectively.\102\ With the frequency and intensity of extreme weather 
events, particularly heatwaves, expected to increase, the improved 
resilience of energy efficient buildings will save lives. In 2020, 34 
million U.S. households, or 27 percent of all households, reported 
difficulty paying their energy bills or kept their homes at an unsafe 
temperature because of energy cost concerns, according to the Energy 
Information Administration.\103\ In some cases, homes perform so poorly 
that the energy bills impact spending choices about allocating 
financial resources for other necessities, like food, clothing, 
transportation, and medical care.\104\ Excessive energy bills can 
create a snowball effect, leading to mortgage defaults, missed 
opportunities to participate in job training and educational 
opportunities, and family separations, ultimately increasing wealth 
inequality. Poor-performing homes can even cause physical harm and 
death in extreme heat and cold events during power outages.\105\
---------------------------------------------------------------------------

    \102\ Franconi, E, E Hotchkiss, T Hong, M Reiner et al. 2023. 
Enhancing Resilience in Buildings through Energy Efficiency. 
Richland, WA: Pacific Northwest National Laboratory. PNNL-32737, Rev 
1.
    \103\ Energy Information Administration, https://www.eia.gov/todayinenergy/detail.php?id=51979.
    \104\ https://fahe.org/wp-content/uploads/Summary-of-Issues-Facing-Rural-Housing-V1.2.pdf.
    \105\ National Institutes of Health, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10249403/ PMC10249403/.
---------------------------------------------------------------------------

    Another benefit may be the potential for lower mortgage defaults 
associated with improved energy efficiency. A study by the University 
of North Carolina (UNC) Center for Community Capital and the Institute 
for Market Transformation (IMT) shows a correlation between greater 
energy efficiency and lower mortgage default risk for new homes. The 
UNC study surveyed 71,000 Energy Star-rated homes and found that 
mortgage default risks are 32 percent lower for these more energy 
efficient homes than homes without Energy Star ratings.\106\
---------------------------------------------------------------------------

    \106\ UNC Center for Community Capital, Institute for Market 
Transformation, ``Home Energy Efficiency and Mortgage Risks,'' March 
2013, Available at: http://www.imt.org/uploads/resources/files/IMT_UNC_HomeEEMortgageRisksfinal.pdf.
---------------------------------------------------------------------------

1. Cost Benefit Analysis and Results
    The baseline analysis used for this Determination is the PNNL study 
prepared for DOE, National Cost Effectiveness of the Residential 
Provisions of the 2021 IECC, published in June 2021. This analysis 
estimates annual energy and cost savings as well as life-cycle cost 
(LCC) savings that assume initial costs are mortgaged over 30 
years.\107\ The study provides an assessment of both the initial costs 
as well as the long-term estimated savings and cost-benefits associated 
with complying with the 2021 IECC.
---------------------------------------------------------------------------

    \107\ PNNL, Salcido et al, National Cost Effectiveness of the 
Residential Provisions of the 2021 IECC, June 2021. https://www.energycodes.gov/sites/default/files/2021-07/2021IECC_CostEffectiveness_Final_Residential.pdf.
---------------------------------------------------------------------------

    HUD and USDA have adopted a modified version of the DOE 
methodology. These modifications include adding a supply chain cost 
increase factor and energy price increase factor to adjusted for 
inflation from 2020 to 2023 as well as cost and savings adjustment 
factors that reflect the smaller FHA home relative to the prototypes 
used in the PNNL model. Additionally, one difference in this approach 
is that it does not take into account replacement costs or residual 
value, which are factored in for the PNNL model. The RIA explains the 
reasoning for this difference on page 25. The modifications to the DOE 
methodology have been included to respond to public comments that the 
HUD-USDA analysis take into account current market and economic 
conditions as well as the specific features of HUD-USDA financing and 
characteristics of the FHA-USDA borrower.
    The LCC method used by DOE And adapted by HUD and USDA for this 
final determination is a ``robust cost-benefit metric that sums the 
costs and benefits of a code change over a specified time frame. LCC is 
a well-known approach to assessing cost-effectiveness'' \108\ and 
reflects extensive prior public comment and input. In September 2011, 
DOE solicited input on their proposed cost-benefit methodology \109\ 
and this input was incorporated into the final methodology posted on 
DOE's website in April 2012 and further updated in August 
2015.110 111
---------------------------------------------------------------------------

    \108\ Department of Energy, National Energy and Cost Savings for 
new Single- and Multifamily Homes: A Comparison of the 2006, 2009 
and 2012 Editions of the IECC. April 2012, p. A-1, https://www.energycodes.gov/sites/default/files/2020-06/NationalResidentialCostEffectiveness_2009_2012.pdf.
    \109\ 76 FR 56413 (Sep. 13, 2011).
    \110\ Pacific Northwest National Laboratory for the Department 
of Energy (Z. Taylor, R. Lucas, N. Fernandez) Methodology for 
Evaluating Cost-Effectiveness of Residential Energy Code Changes. 
April 2012. Available at: http://www.energy.sc.gov/files/view/Taylor%202012.pdf.
    \111\ Pacific Northwest National Laboratory for the Department 
of Energy (V. Mendon, R. Lucas, S. Goel), Cost-Effectiveness 
Analysis of the 2009 and 2012 IECC Residential Provisions--Technical 
Support Document. April 2013, Available at https://www.pnnl.gov/main/publications/external/technical_reports/PNNL-22068.pdf.
---------------------------------------------------------------------------

    For this analysis, DOE calculates energy use for new homes using 
EnergyPlusT energy modeling software, Version 9.4.\112\ Two buildings 
are simulated: (1) a two-story single family home, with 2,376 square 
feet of conditioned floor area, excluding the conditioned basement (if 
any), and a window area equal to 15 percent of the conditioned floor 
area; and (2) a low-rise apartment building (a three-story multifamily 
prototype with six 1,200 square-foot dwelling units per floor) with a 
window area of approximately 23 percent of the exterior wall area. DOE 
combines the results into a composite average dwelling unit based on 
Census building permit data for each state and for eight Climate Zones. 
Single family home construction is more common than low-rise 
multifamily construction;

[[Page 33152]]

the results are weighted accordingly to reflect this for each Climate 
Zone as well as each state.
---------------------------------------------------------------------------

    \112\ Pacific Northwest National Laboratory for the Department 
of Energy (Z. Taylor, V. Mendon, N. Fernandez), Methodology for 
Evaluating Cost-Effectiveness of Residential Energy Code Changes, 
August 2015, https://www.energycodes.gov/sites/default/files/2021-07/residential_methodology_2015.pdf.
---------------------------------------------------------------------------

    Four heating systems are considered for modeling the energy savings 
in these building prototypes: natural gas furnaces, oil furnaces, 
electric heat pumps, and electric resistance furnaces. The market share 
of heating system types is obtained from the U.S. Department of Energy 
Residential Energy Consumption Survey (2015). Domestic water heating 
systems are assumed to use the same fuel as the space heating system.
2. Limitations of Cost Savings Models
    HUD and USDA are aware of studies that discuss limitations 
associated with cost-savings models such as those developed by PNNL for 
DOE. For example, Allcott and Greenstone suggest that ``it is difficult 
to take at face value the quantitative conclusions of the engineering 
analyses'' associated with these models, as they suffer from several 
empirical problems. The authors cite two problems in particular. First, 
engineering costs typically incorporate upfront capital costs only and 
omit opportunity costs or other unobserved factors. For example, one 
study found that nearly half of the investments that engineering 
assessments showed in energy audits for medium-size businesses that 
would have short payback periods were not adopted due to unaccounted 
physical costs, risks, or opportunity costs. Second, engineering 
estimates of energy savings can overstate true field returns, sometimes 
by a large amount, and some engineering simulation models have still 
not been fully calibrated to approximate actual returns.\113\ HUD and 
USDA nevertheless believe that the PNNL-DOE model used to estimate the 
savings shown in this notice represents the current state-of-the art 
for such modeling, is the product of significant public comment and 
input, is now the standard for all of DOE's energy code simulations and 
models, and presents a reliable and validated methodology for 
estimating energy code costs and benefits.
---------------------------------------------------------------------------

    \113\ Hunt Allcott and Michael Greenstone, ``Is there an energy 
efficiency gap?'' Journal of Economic Perspectives, Volume 26, 
Number 1,Winter 2012, pp. 3-28.
---------------------------------------------------------------------------

3. Estimated Costs and Savings
    For all 50 states and the District of Columbia, DOE estimates that 
for a weighted average of both single family and low-rise multifamily 
housing, the 2021 IECC saves 9.38 percent of energy costs for heating, 
cooling, water heating, and lighting over the 2018 IECC.\114\ For the 
purposes of this notice, DOE provided HUD and USDA with a special 
tabulation that disaggregates this analysis into each building type 
(single family and low-rise multifamily). The disaggregated data are 
shown in Tables 13 (single family) and 14 (low-rise multifamily) for 
the following data points: LCC savings, incremental cost, annual 
mortgage increase, down-payment and other up-front costs, net first 
year annual cash flow, years to positive cash flow, and simple payback 
for the 2021 IECC in relation to the current HUD and USDA baseline of 
the 2009 IECC. Tables 13 and 14 provide both national average costs and 
benefits, as well as for each climate zone.
---------------------------------------------------------------------------

    \114\ PNNL, Salcido et al., 2021.
---------------------------------------------------------------------------

    The United States has eight Climate Zones, further subdivided to 
represent moist, dry, or marine climates, that are listed here: 1A Very 
hot humid; 2A Hot Humid; 2B Hot Dry; 3A Warm Humid; 3B Warm Dry; 3C 
Warm Marine; 4A Mixed Humid; 4B Mixed Dry; 4C Mixed Marine; 5A Cool 
Humid; 5B Cool Dry; 6A Cold Humid; 6B Cold Dry; 7 Very Cold; and 8 
Subarctic/Arctic. Zone 1 includes Hawaii, Guam, Puerto Rico, and the 
Virgin Islands. Almost all of Alaska is in Zone 7.\115\
---------------------------------------------------------------------------

    \115\ DOE, IECC climate zone map, https://basc.pnnl.gov/images/iecc-climate-zone-map.
---------------------------------------------------------------------------

    Tables 13 and 14 show the economics of adopting the 2021 IECC 
nationally and in each Climate Zone, relative to the 2009 IECC 
baseline. Table 15 shows costs and savings against the 2018 IECC 
baseline. Data points provided include, incremental or first costs, 
annual energy savings, increased debt service on a thirty-year 
mortgage, estimated down payment and closing costs, net annual cash 
flow in the first year, and simple payback on the initial 
investment.\116\
---------------------------------------------------------------------------

    \116\ The 2009 standard is used as the primary baseline for this 
analysis since, as shown in Table 11, 23 states still require a 
standard equivalent to the 2009 baseline, which is also the most 
recent baseline established by HUD and USDA, while eleven states and 
the District of Columbia have adopted the 2018 standard. However, 
Tables 19 and 20 below shows baseline data for individual states per 
data provided by DOE/PNNL based on the state adoption status in 
2021, which has seven states and the District of Columbia at the 
2018 IECC.
---------------------------------------------------------------------------

4. Analysis of Adopted State Energy Codes for Residential Buildings
    The Department of Energy assesses the energy code adopted by each 
state, considering the impact of any included amendments to the 
original IECC code. This analysis can be found in the ``residential 
state-level results'' available for download at https://www.energycodes.gov/state-portal. The analysis shows the energy index, 
which is the modeled energy use based on the adopted energy code, for 
the adopted code of each state as well as multiple versions of the 
IECC. A comparison of the energy index for the IECC code and any state-
adopted version with amendments demonstrates the impact of amendments 
to the code on energy efficiency.
5. Incremental or Added Costs
    Tables 13 shows the average per-unit incremental cost of adopting 
the 2021 IECC over the current HUD and USDA 2009 IECC baseline for 
single family homes, both nationally and for each Climate Zone: a 
national average of an estimated $7,229 per unit for single family 
housing,\117\ ranging from a low of $3,662 in Climate Zone 1, to a high 
of $8,845 in Climate Zone 8. Cost data sources used to derive these 
costs include: Building Component Cost Community (BC3) data repository; 
construction cost data collected by Faithful+Gould under contract with 
PNNL; RS Means Residential Cost Data; National Residential Efficiency 
Measures Database; and price data from nationally recognized home 
supply stores.\118\
---------------------------------------------------------------------------

    \117\ Source: Data provided by DOE to HUD and USDA showing 
disaggregated LCC Savings, Incremental Cost, and Annual Energy 
Savings for single family and low-rise multifamily homes.
    \118\ See for example, PNNL, Alaska Cost Effectiveness Analysis, 
https://www.energycodes.gov/sites/default/files/2021-06/AlaskaResidentialCostEffectiveness_2018.pdf.

---------------------------------------------------------------------------

[[Page 33153]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.108

6. Annual Cost Savings
    Table 13 summarizes the first-year annual energy cost savings per 
single family dwelling unit for the 2021 IECC compared to the 2009 
IECC, aggregated over 16 single family residential prototype buildings 
modeled by DOE/PNNL.\119\ Modeled energy savings are converted to cost 
savings using the most recent residential fuel prices from DOE's Energy 
Information Administration (EIA).\120\ Cost savings stated are time 
zero dollars not adjusted for inflation or fuel price escalation. The 
per-unit annual energy cost savings for single family homes is 
estimated to be $963 per unit, ranging from $608/unit in Climate Zones 
1 and 2, to a high of $2,467 in Climate Zone 8.
---------------------------------------------------------------------------

    \119\ For residential buildings, PNNL uses two base prototypes 
to simulate (1) a single family detached house and (2) a multifamily 
low-rise apartment building. These prototypes are modified to 
accommodate four different heating system types and four foundation 
types typically found in residential new construction. The result is 
an expended set of 32 models (16 for each building type) which is 
then simulated across 18 climate locations for each edition of the 
IECC. This results in a set of 3,552 energy models in EnergyPlus 
Version 9.5).
    \120\ U.S. Energy Information Administration, Washington, D.C. 
Natural Gas Prices, https://www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PRS_DMcf_m.htm. Electric Power Monthly, https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_5_06_b. 
Petroleum and Other Liquids. https://www.eia.gov/dnav/pet/PET_PRI_WFR_A_EPD2F_PRS_DPGAL_W.htm..
---------------------------------------------------------------------------

7. Simple Payback
    Simple payback is a commonly used measure of cost effectiveness, 
defined as the number of years required for the sum of the annual 
returns on an investment to equal the original investment. The simple 
payback for adoption of the 2021 IECC code is an estimated 7.7 years 
for single family homes, ranging from 3.7 years in Climate Zone 8 to 
9.2 years in Climate Zone 2.
8. Total Life Cycle Cost Savings
    LCC analysis computes overall cost savings per dwelling unit 
resulting from implementing efficiency improvements. LCC savings are 
based on the net change in overall cash flows (energy savings minus 
additional costs) resulting from implementing the new code. LCC savings 
are a sum over an analysis period of 30 years: future cash flows vary 
from year to year and are discounted to present values using a discount 
rate that accounts for the changing value of money over time. LCC is 
the primary metric used by DOE to determine the cost effectiveness of 
the code or specific code changes. The economic analysis assumes that 
initial costs are mortgaged, and that homeowners do not take advantage 
of the mortgage interest deduction since most FHA/USDA borrowers are 
likely to take the standard, non-itemized tax deduction.\121\
---------------------------------------------------------------------------

    \121\ PNNL, Salcido et al., 2021.
---------------------------------------------------------------------------

    Net life cycle cost savings shown in Table 13 average $15,071 per 
housing unit for adoption of the latest 2021 IECC. LCC savings vary 
considerably by Climate Zone, from as low as $8,313 in Climate Zone 2 
to a high of $52,078 in Climate Zone 8.
9. Consumer Cash Flows
    Converting first costs and annual savings to Consumer Cash Flows is 
an important component of the affordability analysis. Consumer Cash 
Flow results are derived from the year-by-year calculations that 
underlie LCC savings and provide an assessment of how annual cost 
outlays are compensated by annual energy savings and the time required 
for cumulative energy savings to exceed cumulative costs, including 
both increased mortgage payments and down payment and other up-front 
costs.
    The financial and economic parameters used by HUD in calculating 
LCC savings and annual cash flow are based on DOE's cost-effectiveness 
methodology. Based on public comments, HUD has revised the original DOE 
analysis to incorporate new economic parameters that better reflect 
current market and economic conditions. Figure 2 shows the original and 
revised parameters. These revised parameters account for significant 
changes in construction, labor, and energy costs as well as several 
adjustments to financing terms to better reflect HUD and USDA 
borrowers.

[[Page 33154]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.109

    Annual cash flow is defined as the net difference between annual 
energy savings and annual cash outlays (mortgage payments, etc.), 
including all tax effects but excluding up-front costs (mortgage down 
payment, loan fees, etc.). Only first year net cash flow is reported: 
subsequent years' cash flow will differ due to the effects of inflation 
and fuel price escalation, changing income tax effects as the mortgage 
interest payments decline, etc. Assuming a 5 percent, 30-year fixed 
mortgage, and a 5 percent down payment, increased annual debt service 
is shown in Table 13 to be an average of $439/unit, or $36.58/month, 
with annual energy savings more than twice that amount: $963, or 
$80.25/month. This translates into a net annual positive cash flow in 
Year One of $377 or $31.42/month. Years to Positive Cash Flow, i.e., 
the number of years needed to recoup the cost of the initial down 
payment and first-year debt service with annual savings, is just 
eighteen months on average.
---------------------------------------------------------------------------

    \122\ PNNL, Salcido et al., 2021.
---------------------------------------------------------------------------

10. Low-Rise Multifamily Buildings
    Table 14 shows costs and savings for low-rise multifamily housing 
similar to those shown in Table 13 for single family homes. The costs 
and savings shown are aggregated over 16 low-rise multifamily 
residential prototype buildings modeled by DOE/PNNL.\123\ The 
incremental costs for this housing type, as well as associated savings, 
are generally lower than for single family homes, as a result of both 
differences in unit size and building type. Incremental costs average 
$3,002/unit nationally, more than half of the $7,229 per unit cost for 
single family housing only. Net LCC savings of $6,345 for low-rise 
multifamily housing are also projected to be lower than for single 
family housing only ($15,071/unit).
---------------------------------------------------------------------------

    \123\ See Footnote 47 for methodology for prototype buildings.
---------------------------------------------------------------------------

    First year increased debt service for low-rise multifamily housing 
is estimated to be $182/unit, while savings are nearly three times that 
amount: $403/year, for a net annual cash flow of $160/year. While costs 
and savings differ, Years to Positive Cash Flow are similar to that of 
single family homes (1.4 years), and the national Simple Payback 
average of 7.6 years is also comparable. Simple paybacks range from a 
low of 5.1 years in Climate Zone 8 to a high of 8.2 years in Climate 
Zones 2 and 3. Net LCC savings vary considerably from $5,218 in Climate 
Zone 2 to a high of $18,185 in Climate Zone 8. Higher incremental or 
added costs typically translate into higher annual savings, with net 
annual positive cash flows for year one ranging from $123 to $565.

[[Page 33155]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.110

    Table 15 shows the energy savings and incremental costs of 
construction for the average housing unit (average of single family and 
multifamily). First costs average $2,620 per unit, well below the 
average first cost of $7,229 against the 2009 baseline. As would be 
expected, annual savings are similarly lower, and the resulting 
national average payback is higher than the 2009 IECC--at 10.7 years 
vs. 7.7 years against the 2009 IECC. Simple paybacks vary considerably 
across Climate Zones, from 4.8 years in Climate Zone 1 to 16.8 years in 
Climate Zone 5.
[GRAPHIC] [TIFF OMITTED] TN26AP24.111

11. Additional analysis--6 Percent Mortgage Interest Rate and 3.5 
Percent Down Payment
---------------------------------------------------------------------------

    \124\ HUD does not have PNNL estimates of energy savings 
disaggregated by single family and multifamily for the 2021 IECC 
relative to the 2018 standard. HUD computed a weighted average of 
the incremental cost of construction. The weights used by PNNL in 
their analysis are 66 percent for single family units and 34 percent 
for low-rise multifamily units.
---------------------------------------------------------------------------

    Table 16 provides cash flow analysis for single family housing 
using a 3.5 percent downpayment consistent with minimum FHA 
requirements, and a 6.5 percent nominal mortgage interest rate 
predicted to be in place at the end of 2024 (compared to 5% average 
downpayment and 5.3 percent mortgage interest rates used in Tables 13-
15, above). The cash flows are similar to the prior analysis, with 
positive cash flows ranging from less than a year to 2.8 years and 
simple paybacks below 10 years.

[[Page 33156]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.112

12. Cash Flows for Single Family and Low-Rise Multifamily
    HUD and USDA rely on a 30-year term for the loan based on guidance 
from DOE. Tables 13 and 14 show net life-cycle costs of $15,071 (single 
family) and $6,345 (low-rise multifamily) for the 2021 IECC over the 
2009 IECC. In both cases, positive cashflows occur by the end of the 
second year. Table 17 and 18 present the cumulative, present value cash 
flow for each building type at the one-, two-, five-, 10-, 20-, and 30-
year marks as well as with no loan. The tables show cash flows for the 
national average as well as each climate zone.
    LCC savings for periods of less than 30 years also show positive 
cash flows. At the 10-year mark, the national savings are estimated to 
be $2,515 over the 2009 IECC and $1,076 over the 2018 IECC.
[GRAPHIC] [TIFF OMITTED] TN26AP24.113


[[Page 33157]]


[GRAPHIC] [TIFF OMITTED] TN26AP24.114

12. Appraisals of Energy Efficiency Improvements
    In this section of the determination, we address the question of 
home appraisals, and the extent to which they fully value energy 
efficiency improvements. As noted in the response to public comments 
received on this topic, the residential appraisal system in the U.S. is 
not generally set up to fully assign a contributory value to increased 
energy efficiency of a home, particularly in the absence of sales 
comparisons, in part because of imperfect information--the level of 
energy efficiency is not typically disclosed at the time of home 
purchase, unless the home has a HERS rating, or it has an energy 
efficient certification such as Energy Star or Zero Energy Ready Homes. 
In addition to information availability necessary to identify and 
develop the contributory value of energy efficient measures in a 
residential appraisal, the valuation requires a market recognizable 
response, appraiser technical expertise and training, and underwriter 
recognition of the approaches, methods and techniques applied in 
support of the conclusions.
    As discussed in the comments section of this notice, however, there 
are several mitigating factors, as well as emerging trends that 
indicate that tools are available to the appraiser that when properly 
applied allow for adjustments to as-is valuations. In addition, studies 
of sales prices in Washington, DC and other markets show that energy 
efficient homes command higher sales prices.\125\ A review of sales 
prices of FHA homes for the past four years relative to appraised 
values show that a significant share--32 percent--are valued at more 
than $5,000 or more above the sales price, thereby allowing a 
significant margin for borrowers to accommodate the estimated increase 
in value associated with the 2021 IECC. There is also increasing use of 
the MLS that have ``green'' fields including energy certifications, 
HERS ratings, and in some cases utility costs associated with a home 
(existing homes), which provide both lenders and appraisers with the 
necessary information needed to incorporate in the home valuation. In 
addition, while still underutilized, tools such as the Green Addendum 
that is available to appraisers and can be filled out by HERS raters 
(or even the homeowner) are available to identify the energy features 
of a home. See Section A.5 in the Comments section of this notice for a 
discussion of these issues. HUD and USDA plan to implement a robust 
training and technical assistance program for both appraisers and 
lenders to maximize the use of accurate and reliable valuation methods 
and will work with the rosters of FHA- and USDA-approved appraisers to 
provide such training.
---------------------------------------------------------------------------

    \125\ Adomatis, Sandra, ``What is Green Worth? Unveiling High 
Performance Home Premiums in Washington DC,'' September 2015, 
https://doee.dc.gov/sites/default/files/dc/sites/ddoe/service_content/attachments/2015_HighPerformance%20Home%20Valuation%20Report_FINAL.pdf.
---------------------------------------------------------------------------

14. State-Level Results 126 127
---------------------------------------------------------------------------

    \126\ State-level results are based on PNNL analyses on the 
cost-effectiveness of the 2021 IECC for residential buildings in 
each state. As such, Tables 19 and 20 present the cost-effectiveness 
of the 2021 IECC for each state based on their adopted energy code 
in July 2021. States that have revised their energy code 
requirements since July 2021 should look to other states in the same 
climate zone with the same energy code requirements for estimated 
costs and savings.
    \127\ State results use state-specific property tax rates 
provided in the PNNL analyses on the cost-effectiveness of the 2021 
IECC for residential buildings in each state instead of the national 
property tax rate of 1.5 percent.
---------------------------------------------------------------------------

    Table 19 provides a state-by-state breakout of estimated costs and 
savings, for single family homes only. This table provides a more 
granular breakout of estimated costs and savings than the national and 
Climate Zone averages shown in Table 13 above, using the HUD and USDA 
2009 IECC baseline for those states that have not yet adopted this 
standard or its equivalent as well as a 2018 IECC baseline for the 7 
states plus the District of Columbia that have adopted the 2018 IECC or 
its equivalent.128 129 All states have positive LCC savings 
and meet the necessary affordability requirements.
---------------------------------------------------------------------------

    \128\ Cost benefit data are not available for three states 
(California, Washington, and Oregon). According to DOE, these codes 
deviate significantly from the model codes and 
as a result DOE has historically not analyzed those states.
    \129\ The 2018 data shown in Tables 19 and 20 are aggregated 
single family and low-rise multifamily data adjusted for the 
weighted averages used by PNNL for the 2009 IECC.
---------------------------------------------------------------------------

    DOE did not provide HUD and USDA with a cost effectiveness analysis 
for the U.S. territories--American Samoa, Guam, North Mariana Islands, 
Puerto Rico, and U.S. Virgin Islands. In situations without a state-or 
territory-specific cost effectiveness analysis, the cost effectiveness 
analysis for the climate zone is used to determine affordability. As 
shown in Table 13, climate zone 1, the climate zone for each of the 
U.S. territories, has LCC savings of $10,774, which meets the 
affordability requirements. The climate zone also has an incremental 
cost of $3,662, annual energy savings of $608, and a simple payback 
period of 6.2 years.

[[Page 33158]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.115


[[Page 33159]]


[GRAPHIC] [TIFF OMITTED] TN26AP24.116

    Incremental costs for adoption of the 2021 IECC in those states 
currently at the 2009 IECC or its equivalent range from a low of $3,046 
(Hawaii) to a high of $11,523 (Alaska), with most states typically in 
the $6,000 range. Annual energy savings exceed added debt service in 
all states with energy savings ranging from a low of $564 (Florida) to 
a high of $2,849 (Alaska).
---------------------------------------------------------------------------

    \130\ Current code is set at the 2009 IECC, the current HUD 
requirement, for states at or below the 2009 IECC based on the 
standard adopted by each state as of July 2021, which was when PNNL 
conducted their state analysis for the 2021 IECC. States that have 
since adopted the 2021 IECC show no impact as they current require 
the proposed standard. As shown in Table 11, some states have 
adopted a state code that is below the current HUD/USDA standard 
(2009 IECC) or have not yet adopted any state code.
---------------------------------------------------------------------------

    Both incremental costs and savings for the 2021 IECC in the 11 
states plus the District of Columbia that have adopted the 2018 IECC 
are typically lower than for those at the 2009 IECC baseline. New York, 
for example, shows an added cost of $3,837/unit for adoption of the 
2021 IECC relative to its current 2018 baseline, $495 in annual 
estimated savings, yielding LCC savings of $7,782.
15. Total Costs and Benefits
    Table 20 provide estimated up-front costs, annual energy cost 
savings, and life cycle cost savings for the 2021 IECC for all 50 
states and the District of Columbia, weighted by the estimated share of 
single family and low-rise multifamily units potentially impacted by 
the adoption of the 2021 IECC. As previously shown in Table 12, an 
estimated 140,000 single family and low-rise multifamily units would be 
impacted annually by this code if adopted today. By multiplying the 
incremental cost/unit per state by the number of units estimated likely 
to be impacted, the total cost of implementing the 2021 IECC is 
estimated at $605.4 million, total savings are estimated at $2.1 
billion, and net life-cycle cost savings of $1.3 billion.\131\
---------------------------------------------------------------------------

    \131\ Net LCC savings of $1.3 billion are based on life-cycle 
costs of $770 million and life-cycle savings of $2.1 billion over 
the 30-year period.

---------------------------------------------------------------------------

[[Page 33160]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.117


[[Page 33161]]


[GRAPHIC] [TIFF OMITTED] TN26AP24.118

    This LCC figure covers a single year's cohort of HUD and USDA 
financed housing. Annual effects will increase as more cohorts are 
added to the stock of new HUD- and USDA-assisted, insured, or 
guaranteed energy-efficient housing. In the second year, with two 
cohorts in place, there could be a stream of almost $150 million 
(future value) of energy savings. The number of units affected every 
year will decline as states update their standards to the 2021 IECC, or 
industry adopts the prescribed above-code standards. Thus, we expect 
the aggregate annual incremental effects to taper off. The maximum 
annual effect of all cohorts is not likely to exceed somewhere between 
three or four times the annual effect of a single-year cohort. While a 
new code edition is typically published every three years, since HUD 
and USDA must consider the affordability and availability impacts of 
each edition when it is published, in this notice, LCC savings cover 
one year's cohort. See ``Aggregate Incremental Impacts of IECC Update'' 
in the Regulatory Impact Analysis (p.44) for further discussion.
    The Regulatory Impact Analysis at www.regulations.gov provides an 
estimated first cost of $553 million, annual energy savings of $73 
million, and net LCC savings that range from $972 million (7 percent 
real discount factor) to $1.48 billion (3 percent real discount 
factor). (See RIA Figures 20 and 21).

C. Final Affordability Determination--2021 IECC

    Based on the analysis provided above, HUD and USDA have determined 
that adoption of the 2021 IECC will not negatively impact the 
affordability of homes covered by the statute. This conclusion 
recognizes the profile of FHA borrowers, who according to FHA's 2021 
Annual Report are typically first-time home buyers (84 percent) who are 
more likely than repeat buyers to be especially price sensitive.
    While the national average incremental cost shown in Table 13 of 
adopting this standard is $7,229, this represents a modest 2.2 percent 
increase in the median cost of $330,000 for a new FHA-insured home in 
2023. In all cases this translates into an increase in the downpayment 
and other first costs, on average, of $445, which represents 
approximately 0.13 percent of the median FHA-insured new energy 
efficient home mortgage.\132\
---------------------------------------------------------------------------

    \132\ Average USDA Section 502 Direct Loan 2018-20 of $191,100, 
and of Section 502 Guaranteed Loan of $210,700. Incremental cost of 
$7,229 equals 3.0 percent and 2.8 percent respectively of these 
loans; down payment and other upfront costs are 0.28 percent and 
0.26 percent. For average FHA new home mortgage of $363,000 (2023), 
added first cost equals 2.0 percent, average down payment and other 
upfront costs equals 0.15 percent.
---------------------------------------------------------------------------

    Unlike other added costs associated with the home purchase 
transaction, these incremental costs yield significant cost savings to 
the borrower. As shown in Tables 13-15, cash flows are extremely 
favorable for all types of housing covered by the IECC (single family 
and low-rise multifamily), for the 2021 IECC against both the 2009 IECC 
and the 2018 IECC baselines, in all Climate Zones, and for both life 
cycle cost savings as well as first year savings to the consumer. In 
all cases, annual energy savings in Year One exceed increases in debt 
service. Using the national average for the 2021 IECC over the 2009 
IECC as a base case, as shown in Table 13, debt service increases 
average just $36/month ($439/year) for net positive cash flows of $31/
month ($377/year) after debt service. Consumers are expected to see 
energy savings of $963 annually, and a net positive cash flow of $377 
in the first year. On a life cycle basis, consumers are projected to 
save $25,100 in energy bills over the life of a typical 30-year 
mortgage, and a net life cycle savings (after costs) of $15,071. Years 
to positive

[[Page 33162]]

cash flow range average 1.5 years and range from less than six months 
to 2.5 years depending on Climate Zone. The simple payback--the years 
required to recoup the full cost of the code update--averages 7.7 years 
and is less than 10 years in all Climate Zones, ranging from a low of 
3.7 years to a high of 9.2 years.
    While there is likely to be variability in actual cash flows 
depending on energy use associated with family size and behavior, the 
data shows that on average the adoption of these measures are likely to 
improve overall affordability in light of these positive cash flows.
    While the cash flows and lifetime cost savings are positive, an 
additional affordability consideration is whether increased down 
payment costs due to the added or incremental cost will negatively 
impact home buyers with regard to qualifying for a mortgage, or to meet 
mortgage down payment requirements. This is especially important for 
first-time home buyers who typically have lower cash availability for 
down payments. As shown in Table 13, HUD estimates increased average 
down payment and other up-front costs of $550, ranging from $279 to 
$673 for FHA-insured mortgages (varying by Climate Zone).\133\ This is 
based on an assumed average 5 percent down payment.
---------------------------------------------------------------------------

    \133\ Average price in 2023 for all FHA-insured purchases, 
including existing homes, was $363,000.
---------------------------------------------------------------------------

    HUD and USDA do not view these additional downpayment requirements 
as a barrier to qualifying for financing: a borrower purchasing a 
median FHA new energy code-compliant home of $337,200 will need an 
additional downpayment of $360 (5 percent down) plus an additional $190 
for variable closing costs, including $126 (1.75 percent) for the 
Upfront Mortgage Insurance Premium (MIP) for a total of $550. A cash-
constrained borrower may be able to finance the Upfront MIP in the 
mortgage and in doing so would still be well above the minimum FHA down 
payment requirement of 3.5 percent. Amortizing this amount will add a 
nominal additional monthly mortgage payment, yet result in an average 
of $80 per month or $963 a year in energy savings from this investment. 
The borrower who is already contributing the minimum 3.5 percent 
downpayment required by FHA will need an average of an additional $252 
down payment (3.5 percent of $7,229 added average cost) over the 
$11,550 downpayment required for a non-energy code compliant home. In 
the event that the borrower is not able to contribute this additional 
cash above the minimum 3.5 percent downpayment, we note the large 
number of down payment assistance programs that may be available to 
borrowers to close this gap.\134\ For one program, the USDA Section 502 
Direct Loan Program which serves low-income borrowers with 50-80 
percent incomes, there is a zero down payment requirement; for these 
borrowers the incremental down payment will by default present no 
affordability challenges. Longer amortization schedules (up to 38 years 
for up to 60 percent AMI borrowers) can also be used to lower monthly 
payments for Direct Loan borrowers if needed.
---------------------------------------------------------------------------

    \134\ See, for example, https://nwhomepartners.org/get-ready-help-for-homebuyers/down-payment-help/, or https://www.energy.gov/scep/slsc/low-income-community-energy-solutions.
---------------------------------------------------------------------------

    Note that energy costs and savings are generally not factored into 
current underwriting practices for single family mortgages, i.e., while 
positive cash flows related to improved energy efficiency will be 
realized, they are not specifically included in the Principal Interest, 
Taxes, and Insurance (PITI) debt-to-income ratios typically used by 
lenders to qualify borrowers. Multifamily underwriting, on the other 
hand, does take into account energy savings: FHA offers the Green 
Mortgage Insurance Premium to multifamily borrowers who build to a 
green building standard, which may include the most recent energy code 
as a mandatory element, or may offer additional points if the building 
meets or exceeds the latest IECC or ASHRAE 90.1 standard.
Equity Impacts
    The Regulatory Impact Analysis (RIA) that accompanies this notice 
includes an extensive equity analysis, which discusses the 
disproportionate energy burden experience by low-income borrowers--and 
conversely the increased benefits likely to be realized by low-income 
borrowers from increased efficiency. See the Equity Impacts section of 
the RIA (p.98) at www.regulations.gov.
    Lower-income households face disproportionately higher energy 
burdens; they spend a higher share of their gross household income on 
energy costs.\135\ Two-thirds of low-income households earning up to 
200 percent of the federal poverty level face high energy burdens, 
spending more than 6 percent of their income on energy bills. Black, 
Hispanic, Native American, and older adult households, as well as 
families residing in manufactured housing and low-income households 
with a person with a disability, experience disproportionately high 
energy burdens.\136\
---------------------------------------------------------------------------

    \135\ https://www.energy.gov/scep/slsc/low-income-community-energy-solutions.
    \136\ Drehobl, A.L. Ross, and R. Ayala. 2020. How High Are 
Household Energy Burdens? Washington, DC: American Council for an 
Energy-Efficient Economy.
---------------------------------------------------------------------------

    Since increasing energy efficient codes will lower the energy 
burden for buyers of energy efficient homes, more efficient codes will 
at the same time be most beneficial to lower-income households. These 
codes typically require added first costs, but HUD and USDA single 
family insured or guaranteed programs include mitigating factors which 
may make this investment more affordable to eligible borrowers, e.g., 
lower down payment requirements (3.5 percent for FHA-backed mortgages 
compared to 20 percent required for conventional financing without 
mortgage insurance), as well as more flexible underwriting requirements 
such as lower allowable credit scores. USDA's Direct Loan program 
serves an underserved market, very low or extremely low-income 
borrowers in rural areas, through no-or low-down payment requirements, 
as well as significant interest rate subsidies. FHA's low-rise 
multifamily housing serves a renter population that is not directly 
responsible for any additional first costs.
    The overall conclusion provided in the RIA concerning the equity 
impacts of a minimum energy standard is that lower-income households 
will benefit more from the existence of energy-efficient housing but 
may be challenged in their ability to address first costs. Empirical 
work has shown that residential energy is a necessary good, but that 
reducing its cost through energy efficiency requires an additional 
investment that lower-income households may not have the disposable 
income to accommodate. If, however, the notice encourages the supply of 
energy efficiency in the affordable housing stock, then low-income 
households will gain. Precise impacts are likely to vary by housing 
market and climate zone.

[[Page 33163]]

IV. Final Determination--ASHRAE 90.1-2019

Overview

    EISA requires HUD to consider the adoption of revisions to ASHRAE 
90.1 for HUD-assisted multifamily programs.\137\ Published and revised 
every three years in coordination with the publication schedule of the 
IECC, the standard provides minimum requirements for the energy-
efficient design of commercial buildings, including residential 
buildings with more than three stories.\138\
---------------------------------------------------------------------------

    \137\ USDA multifamily programs are not covered by the Act.
    \138\ Standard 90.1 is published in October of the year two 
years before the year listed for the IECC, to allow the latest 
version of standard 90.1 to be submitted to the IECC for inclusion 
in the commercial chapter of the IECC.
---------------------------------------------------------------------------

    ASHRAE 90.1 includes several compliance pathways. The first is the 
prescriptive path, which establishes energy-related criteria for 
individual building components, including minimum insulation levels, 
maximum lighting power, and controls for lighting and heating, 
ventilation, air conditioning, and refrigeration systems. Some 
requirements are considered mandatory, even when one of the optional 
paths is utilized. ASHRAE 90.1 also includes two optional whole-
building performance paths. The first is the Energy Cost Budget method, 
which allows the designer to trade off compliance among various code 
requirements, using established energy modeling protocols. A building 
is deemed in compliance when the annual energy cost of the proposed 
design is no greater than the annual energy cost of the reference 
building design (baseline). ASHRAE 90.1 also includes a second 
performance approach, the Performance Rating Method in Appendix G. 
Appendix G has been used to rate the performance of buildings that 
exceed the requirements of Standard 90.1 for above-code programs, such 
as LEED, Green Globes, ASHRAE Standard 189.1, the International Green 
Construction Code, the National Green Building Standard, and other 
above-code programs.
1. Current HUD and USDA Standard and Subsequent Revisions
    In their May 2015 Final Determination, HUD and USDA established the 
2007 edition of ASHRAE 90.1 (ASHRAE 90.1-2007) as the minimum standard 
for HUD-assisted multifamily properties. ASHRAE has revised the code 
four times since the publication of the 2007 edition. ASHRAE 90.1-2010 
was published in October 2010. There were 56 changes to the 2007 
edition code with a positive impact on energy efficiency, including 
revised requirements for the building envelope, HVAC systems, 
commissioning, lighting, and power.\139\ DOE determined that the ASHRAE 
90.1-2010 code would yield national energy cost savings of 7.72 percent 
in mid-rise apartment buildings and 6.99 percent in high-rise apartment 
buildings over the previous 2007 code.\140\
---------------------------------------------------------------------------

    \139\ A ``positive change'' is defined as a change to the code 
that results in increased energy efficiency. Other changes might 
include items that are either savings-neutral, or, in rare cases, 
may lower energy efficiency.
    \140\ Pacific Northwest National Laboratory for the Department 
of Energy, Cost-effectiveness of ASHRAE Standard 90.1-2010 Compared 
to ASHRAE Standard 90.1-2007, May 2013, Tables C.2, http://www.pnnl.gov/main/publications/external/technical_reports/PNNL-22043.pdf.
---------------------------------------------------------------------------

    The next edition, ASHRAE 90.1-2013, published in October 2013, 
included 52 changes over the 2010 edition, most of which were 
determined by DOE to be relatively minor. Only six were applicable to 
residential buildings, including improved lighting controls and 
decreased lighting power densities, increased building envelope 
requirements for ``opaque assemblies and fenestration,'' and increased 
efficiency requirements for smaller air conditioners and heat 
pumps.\141\ These amendments resulted in an average energy savings of 
5.4 percent in mid-rise apartment buildings and 6.9 percent in high-
rise multifamily buildings (site energy) over ASHRAE 90.1-2010.\142\ 
Cost savings were estimated by DOE to be 5.0 percent for mid-rise 
apartments and 8.7 percent for high-rise apartments.
---------------------------------------------------------------------------

    \141\ PNNL, National Cost-effectiveness of ANSI/ASHRAE/IES 
Standard 90.1-2013, January 2015, https://www.pnnl.gov/main/publications/external/technical_reports/PNNL-23824.pdf.
    \142\ U.S. Department of Energy, Determination Regarding Energy 
Efficiency Improvements in ANSI/ASHRAE/IES Standard 90.1-2013: 
Energy Standard for Buildings, Except Low-Rise Residential Building, 
Table IV.5, 79 FR 57900 (Sep. 26, 2014),  https://www.federalregister.gov/documents/2014/09/26/2014-22882/determination-regarding-energy-efficiency-improvements-in-ansiashraeies-standard-901-2013-energy. For more detailed analysis, 
see PNNL, ANSI/ASHRAE/IES Standard 90.1-2013 Determination of Energy 
Savings: Quantitative Analysis, August 2014. Available at https://www.pnnl.gov/main/publications/external/technical_reports/PNNL-23479.pdf.
---------------------------------------------------------------------------

    The following edition, ASHRAE 90.1-2016, yielded an additional 3.6 
percent site energy savings for mid-rise apartment buildings, and 4.0 
percent for high-rise apartment buildings.\143\ Energy cost savings 
were estimated by DOE to be 3.9 percent and 5.1 percent respectively 
over the 2013 edition for these two building types.
---------------------------------------------------------------------------

    \143\ PNNL/DOE Preliminary Energy Savings Analysis, ANSI/ASHRAE/
IES Standard 90.1-2016, June 2017, https://www.energy.gov/sites/default/files/2017/07/f35/Preliminary_90.1-2016_Energy_Savings_Analysis.pdf.
---------------------------------------------------------------------------

    DOE's quantitative analysis concluded that ASHRAE 90.1-2019 for 
mid-rise and high-rise multifamily buildings (representing 11.65 
percent of all commercial buildings) would yield an additional site 
energy savings of 2.65 percent over the 2016 edition, and energy cost 
savings (Energy Cost Index (ECI)) of 2.5 percent.144 145 146
---------------------------------------------------------------------------

    \144\ Op cit., PNNL, Energy Savings Analysis, July 2021.
    \145\ PNNL, Impacts of Model Building Energy Codes--Interim 
Update, July 21, 2021, https://www.pnnl.gov/main/publications/external/technical_reports/PNNL-31437.pdf. For all commercial 
buildings, DOE estimates national site energy savings of 4.7 percent 
and energy cost savings of approximately 4.3 percent.
    \146\ 86 FR 40543 (July 28, 2021), Final Determination Regarding 
Energy Efficiency Improvements in ANSI/ASHRAE/IES Standard 90.1-
2019, https://www.federalregister.gov/documents/2021/07/28/2021-15971/final-determination-regarding-energy-efficiency-improvements-in-ansiashraeies-standard-901-2019.
---------------------------------------------------------------------------

    Tables 21 and 22 show the changes in incremental costs for each 
code cycle since the 2007 edition. Table 21 shows that per square foot 
costs increased for the first two cycles (2010 and 2013) in a prototype 
mid-rise apartment building modeled by PNNL in five representative 
climate zones. In 2013, for example, the incremental cost of complying 
with ASHRAE 90.1-2019 ranged from just $0.17/sf to $0.69/sf, or 0.14 to 
0.59 percent of total building costs. In contrast, the last two code 
cycles (both 2016 and 2019) have seen incremental cost savings rather 
than cost increases as a result of complying with these codes. In all 
cases, the incremental cost, whether a cost increase or a cost savings, 
is a small fraction of the total per building first cost ($111/sf in 
2010 to $218/sf in 2019).

[[Page 33164]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.119

    Table 22 shows building-level incremental cost or cost savings for 
each code cycle since 2007. In Climate Zone 2A (Tampa) for example, the 
incremental cost for the prototype mid-rise building was estimated to 
be $20,858 and $5,711 for the 2010 and 2013 editions respectively, 
followed by a combined savings of $30,167 in the following 2016 and 
2019 codes.
[GRAPHIC] [TIFF OMITTED] TN26AP24.120

2. ASHRAE 90.1-2019 Overview
    This notice addresses ASHRAE 90.1-2019, which was the most recently 
published edition of ASHRAE 90.1 at the time of drafting the 
preliminary determination. In its qualitative analysis of the code, DOE 
identified a total of 88 changes, or addenda, to ASHRAE 90.1-
2016.147 148 Twenty-nine changes were determined to have a 
positive impact on energy efficiency (i.e., yield energy savings). 
These include: increased requirement for building vestibules, removal 
of data processing centers from exceptions to HVAC requirements, 
removal of hotel room exceptions to HVAC requirements, modification of 
demand-controlled ventilation requirements, modification of fan power 
limitations, modification of retail lighting requirements, modification 
of cooling tower testing requirements, modification of commercial 
boiler requirements, modification of part load fan requirements, 
modification of opaque envelope requirements, and modification of 
fenestration envelope requirements.
---------------------------------------------------------------------------

    \147\ Pacific Northwest National Laboratory for the U.S. 
Department of Energy, Energy Savings Analysis: ANSI/ASHRAE/IES 
Standard 90.1-2019, July 21, 2021, https://www.energycodes.gov/sites/default/files/2021-07/Standard_90.1-2019_Final_Determination_TSD.pdf.
    \148\ 148DOE determined that 59 of the 88 addenda will have a 
neutral impact on overall building efficiency; these included 
editorial changes, changes to reference standards, changes to 
alternative compliance paths, and other changes to the text of the 
standard that may improve the usability of the standard, but do not 
generally improve or degrade the energy efficiency of the building. 
Changes with impacts which do not become effective within three 
years from the publication of Standard 90.1-2019 (i.e., until a 
cutoff date of December 31, 2022), are also considered as having no 
impact within the context of this analysis.

---------------------------------------------------------------------------

[[Page 33165]]

    On March 6, 2024, DOE published an affirmative efficiency 
determination for ASHRAE 90.1-2022, which has additional energy 
savings.\149\ The 2022 edition includes 89 addenda in total, of which 
39 are expected to decrease energy use. With the publication of DOE's 
affirmative efficiency determination as required under the Energy 
Conservation and Policy Act, each state is now required to review the 
provisions of their commercial building code regarding energy 
efficiency, and, as necessary, update their codes to meet or exceed 
Standard 90.1-2022. This determination considered only ASHRAE 90.1-2019 
because that was the most recent determination available to HUD and 
USDA at the time of developing the preliminary determination.\150\
---------------------------------------------------------------------------

    \149\ Energy Efficiency and Renewable Energy Office, 2024-03-06 
Determination Regarding Energy Efficiency Improvements in ANSI/
ASHRAE/IES Standard 90.1-2022; Notification of determination. 
https://www.regulations.gov/document/EERE-2023-BT-DET-0017-0001.
    \150\ See ANSI/ASHRAE/IES Standard 90.1-2022 Changes for list of 
amendments. www.ashrae.org/technical-resources/bookstore/ansi-ashrae-ies-standard-90-1-2022-changes.
---------------------------------------------------------------------------

3. Current State Adoption of ASHRAE 90.1-2019
    Table 23 shows the current adoption status of ASHRAE 90.1 for mid-
rise or high-rise multifamily buildings. As of December 2023, ten 
states and the District of Columbia have adopted ASHRAE 90.1-2019. A 
total of 33 states and the District of Columbia have adopted an ASHRAE 
90.1 standard that is above the current HUD and USDA standard (one of 
the 2010, 2013, 2016, or 2019 editions), while 17 states have adopted 
codes that are currently equivalent to or below the current HUD and 
USDA standard or have no statewide codes.\151\ Additionally, DOE 
provides an analysis of the energy use index of each state-adopted code 
on their state portal.\152\
---------------------------------------------------------------------------

    \151\ DOE, Status of State Energy Code Adoption--Commercial, 
https://www.energycodes.gov/status/commercial. Note that the codes 
shown in Table 23 and Figure 3 represent DOE/PNNL's Determination of 
the standard that the state-adopted code is equivalent to, 
reflecting amendments that may have been adopted by each state.
    \152\ DOE, State Portal, https://www.energycodes.gov/state-portal.

---------------------------------------------------------------------------

[[Page 33166]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.121


[[Page 33167]]


[GRAPHIC] [TIFF OMITTED] TN26AP24.122

4. Analysis of Adopted State Energy Codes for Commercial Buildings
    As with residential buildings, the Department of Energy assesses 
the energy code adopted by each state for commercial buildings. This 
analysis can be found in the ``commercial state-level results'' 
available for download at https://www.energycodes.gov/state-portal. The 
analysis presents the energy index for each state-adopted code, 
including any amendments, as well as each version of ASHRAE 90.1. A 
comparison of the energy index for the amended codes to that of their 
code efficiency category demonstrates the impact of each amendment on 
energy efficiency.
5. Impacted Multifamily Housing
    Table 24 provides the estimated number of new mid-rise or high-rise 
multifamily units that are estimated to be impacted annually by the 
proposed Determination on ASHRAE 90.1-2019. Using a three-year average 
(2019 to 2021) annual production for each program, HUD preliminarily 
estimates that a total of approximately 15,000 new mid-or high-rise 
multifamily units (four or more stories) will be impacted annually in 
the 40 states that had not yet adopted ASHRAE 90.1-2019. This includes 
approximately 11,900 FHA-insured multifamily units, 300 public housing 
units, and 2,000 HOME- and 300 HTF-financed units. No USDA-guaranteed 
multifamily units are impacted since these are not covered under this 
notice.

[[Page 33168]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.123


[[Page 33169]]


[GRAPHIC] [TIFF OMITTED] TN26AP24.124

B. ASHRAE 90.1-2019 Affordability Analysis

1. Cost Benefit Analysis
    In its Final Determination of improved energy efficiency for 
commercial buildings, including multifamily buildings, DOE completes 
both a ``qualitative'' analysis and a ``quantitative'' analysis to 
assess increased efficiency of ASHRAE Standard 90.1.\153\ In addition 
to a quantitative and qualitative analysis of the new code, PNNL 
publishes a cost benefit analysis of each of the codes, which considers 
the added, or incremental cost for the new standard. In addition, PNNL 
has published its methodology for evaluating the cost-effectiveness of 
commercial energy code changes, including multifamily buildings, and 
that methodology is used by HUD and USDA for this determination.\154\ 
For more detail on the methodology developed by DOE for their cost-
benefit analysis, see PNNL's 2015 cost-effectiveness report.\155\
---------------------------------------------------------------------------

    \153\ 86 FR 40543 (July 28, 2021), Final Determination Regarding 
Energy Efficiency Improvements in ANSI/ASHRAE/IES Standard 90.1-
2019, https://www.govinfo.gov/content/pkg/FR-2021-07-28/pdf/2021-15971.pdf.
    \154\ PNNL, Methodology for Evaluating Cost-Effectiveness of 
Commercial Energy Code Changes, January 2015, https://www.pnnl.gov/main/publications/external/technical_reports/PNNL-23923.pdf.
    \155\ Ibid.
---------------------------------------------------------------------------

    Evaluating cost-effectiveness requires three primary steps: (1) 
evaluating the energy and energy cost savings of code changes, (2) 
evaluating the incremental and replacement costs related to the 
changes, and (3) determining the cost-effectiveness of energy code 
changes based on those costs and savings over time. The DOE methodology 
estimates the energy impact by simulating the effects of the code 
change(s) on typical new buildings, assuming both old and new code 
provisions are implemented fully and correctly. The methodology does 
not estimate rates of code adoption or compliance. Cost-effectiveness 
is defined primarily in terms of LCC evaluation, although the DOE 
methodology includes several metrics intended to assist states 
considering adoption of new codes.
2. Building Prototypes
    The basis for DOE's ASHRAE 90.1 cost-benefit analysis are16 
prototype building models representing different commercial sector 
building types. Of the 16 prototypes modeled by DOE, two are 
multifamily buildings-a 4-floor mid-rise apartment building and a 10-
floor high-rise apartment building. Table 25 provides detailed 
characteristics of the mid-rise prototype.

[[Page 33170]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.125

3. ASHRAE 90.1-2019 Incremental Costs
---------------------------------------------------------------------------

    \156\ PNNL, Impacts of Standard 90.1-2007 for Commercial 
Buildings at State Level, https://www.pnnl.gov/main/publications/exter00nal/technical_reports/PNNL-18544.pdf.
---------------------------------------------------------------------------

    Table 26 provides annual cost savings, added construction costs, 
and net LCC savings for the mid-rise multifamily prototype 
building.\157\ Cost estimates typically use current national average 
prices. Labor costs are based on estimated hours and current crew labor 
rates from RS Means. In some cases, cost estimates completed for a 
prior code cycle are still applicable and are adjusted for inflation 
rather than creating a new cost estimate or obtaining current unit 
prices throughout the cost estimate. Where cost estimates are updated, 
inflation factors specific to the equipment are used. These inflation 
factors are developed for each specific equipment or insulation type by 
comparing RS Means from the time of the estimate with the current RS 
Means.
---------------------------------------------------------------------------

    \157\ Special tabulation provided by DOE/PNNL to HUD of costs 
and savings for mid-rise multifamily buildings only, 9/2/21.

---------------------------------------------------------------------------

[[Page 33171]]

    Added construction costs average $574/building, or just $18/unit. 
This low average per-unit increase in cost is because in two of the 
climate zones analyzed, construction costs are expected to be lower for 
ASHRAE 90.1-2019 relative to the USDA-HUD 2007 baseline: construction 
costs for ASHRAE 90.1-2019 are projected to decrease by $257/unit in 
Climate Zone 2A, and by $142/unit in Climate Zone 4A. Conversely, the 
highest increase is projected to be $285/unit in Climate Zone 3B, 
followed by $274 per unit in Climate Zone 3A. Added or incremental 
construction cost can be negative for some building types for some of 
the following reasons:
     Fewer light fixtures are required when the allowed 
lighting power is reduced. Also, changes from fluorescent to LED 
technology result in reduced lighting costs in many cases and longer 
lamp lives, requiring fewer lamp replacements.
     Smaller heating, ventilating, and air-conditioning (HVAC) 
equipment sizes can result from the lowering of heating and cooling 
loads due to other efficiency measures, such as better building 
envelopes. For example, Standard 90.1-2019 has more stringent 
fenestration U-factors for some climate zones. This results in smaller 
equipment and distribution systems, resulting in a negative first 
cost.\158\
---------------------------------------------------------------------------

    \158\ See, for example, PNNL: https://www.energycodes.gov/sites/default/files/2021-07/Cost-effectiveness_of_ASHRAE_Standard_90-1-2019-NorthCarolina.pdf.
---------------------------------------------------------------------------

    Annual energy cost savings average $7,153 per building, or $224 per 
unit, yielding LCC savings of an estimated $188,337 per building or 
$5,886 per unit. Simple paybacks are immediate in two of the five 
climate zones analyzed, and 0.4 to 1.5 years in the remaining climate 
zones, resulting in an extremely fast average payback of just 0.1 
years.
[GRAPHIC] [TIFF OMITTED] TN26AP24.129

4. State-Level Results
    Table 27 provides multifamily added costs and savings for ASHRAE 
90.1-19 over the 2007 edition for individual states.\159\ Most states 
(38 states plus the District of Columbia) show lower per-unit added 
costs for adoption of ASHRAE 90.1-2019 compared to the 2007 standard. 
Incremental cost savings per unit range from a low of $44 in Illinois 
to a high of $347 in Delaware. Only 13 states show increased 
incremental costs: Alabama, Georgia, Mississippi, North Carolina, 
Nevada, Oklahoma, South Carolina, South Dakota, Tennessee, and 
Wisconsin. For these 10 states, increased costs average $169/unit, 
ranging from $22/unit in Nevada to $297/unit in South Dakota. The 
average incremental cost for all states is just -3/unit.
---------------------------------------------------------------------------

    \159\ Ibid., DOE/PNNL Special Tabulation provided to HUD 9/2/21. 
Note that many states have already adopted more recent versions of 
the code than ASHRAE 90.1-2007. As a result, actual costs and 
savings can both be expected to be lower for those states.

---------------------------------------------------------------------------

[[Page 33172]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.130

    All states show energy cost savings, both those with incremental 
cost increases and those that show lower incremental costs. Annual 
energy cost savings average $208/unit, ranging from $152/unit (North 
Carolina) to $328/unit

[[Page 33173]]

(Alabama). For the prototype 32-unit mid-rise building, this translates 
into an average annual cost savings of $6,670/building, ranging from 
$4,859 annual cost savings in North Carolina to $10,493 in Alabama.
    The annual energy cost savings relative to lower incremental costs 
in many states yield ``negative'' simple paybacks in these states; 
where that is the case, Table 27 shows these paybacks as ``immediate.'' 
Average simple payback for all states is immediate. The states showing 
lower incremental costs show immediate paybacks: For example, Ohio 
shows a decrease in first costs of $192 per unit, but annual energy 
cost savings of $218, in which case the payback on this investment is 
immediate.
    Table 27 also shows life cycle cost savings for this investment. 
Average Life Cycle Cost savings for privately owned buildings are 
$5,822/unit, with LCC savings estimated to be highest in Hawaii 
($10,357 per building) and lowest in Idaho ($4,698 per building).
5. Total Life Cycle Cost Savings
    Table 28 shows total estimated LCC Savings for ASHRAE 90.1-2019 
relative to ASHRAE 90.1-2007. For the total estimated units that could 
be impacted by the adoption of this code, incremental costs will be an 
estimated $1.49 million lower than the cost of construction to the 2007 
baseline. Annual energy cost savings are estimated to be $3.1 million, 
and national LCC savings $83.4 million for privately owned buildings. 
Costs and savings for states that have already adopted the 2019 
standard are excluded from these totals, on the assumption that housing 
will already be built to this standard, and no additional costs will be 
incurred or savings realized. Additionally, states that have adopted a 
more recent version than ASHRAE 90.1-2007 are expected to see reduced 
costs as well as reduced savings compared to the analysis that relies 
on ASHRAE 90.1-2007 as a baseline.

[[Page 33174]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.131


[[Page 33175]]


[GRAPHIC] [TIFF OMITTED] TN26AP24.132

    The Regulatory Impact Analysis at www.regulations.gov provides a 
more granular analysis of the estimated cost benefits associated with 
building to the ASHRAE 90.1-2019 standard, taking into account each 
state's current baseline code. Using current state baselines, Table 29 
(also RIA Figure 30) estimates a total incremental cost savings of $9.2 
million, and a LCC savings of $44.1 million (at a 3 percent discount 
rate).
[GRAPHIC] [TIFF OMITTED] TN26AP24.133

C. Final Affordability Determination--ASHRAE 90.1-2019

    In light of the significant estimated savings, both annual and LCC 
savings, and the nominal cost increase shown in Tables 27 and 28, HUD 
and USDA have determined that the adoption of ASHRAE 90.1-2019 will not 
negatively impact the affordability of the multifamily housing covered 
by this notice. As shown in Table 27, the national average incremental 
cost for adoption of this edition is -3/unit, while the annual energy 
cost savings per unit averages $208/unit. In all but 10 states, the 
incremental costs of building to this standard have in fact decreased, 
not increased, relative to the current HUD and USDA ASHRAE 90.1-2007 
standard: in none of these states is the added construction cost more 
than $297/unit, and in that state (South Dakota), annual energy cost 
savings are estimated to be $198/year, yielding a rapid Simple Payback 
of just 1.6 years. Average (unweighted) payback for all states is 
immediate, with 10 states having payback period of up to 1.6 years. 
Estimated first costs are also a nominal fraction of total construction 
costs: the weighted national average of 0.017 $/sf (less than two 
cents) in added costs represents just 0.16 percent of the estimated 
total building cost of $218/sf. Finally in every state analyzed, the 
net LCC savings are positive, with a weighted national average of 
$5,822 for privately owned buildings.

V. Impact on Availability of Housing

    EISA requires that HUD and USDA assess both the affordability and 
availability of housing covered by the Act. This section of this notice 
addresses the impact that the EISA requirements would have on the 
``availability'' of housing covered by the Act. ``Affordability'' is 
assumed to be a measure of whether a home built to the updated energy 
code is affordable to potential homebuyers or renters, while 
``availability'' of housing is a measure associated with whether 
builders will make such housing available to consumers at the higher 
code level; i.e., whether the higher cost per unit as a result of 
complying with the revised code will impact whether that unit is

[[Page 33176]]

likely to be built or not. A key aspect of determining the impact on 
availability is the proportion of affected units in relation to total 
units funded by HUD and USDA or total for sale units. These issues are 
discussed below.

A. 2009 IECC--Single Family

    In its 2015 Final Determination adopting the 2009 IECC, HUD 
concluded ``[t]hough both higher construction costs and hedonic 
increases in demand for more energy-efficient housing are expected to 
contribute to an increase in housing prices or contract rents, HUD and 
USDA do not project such higher prices to decrease the quantity of 
affordable housing exchanged in the market.'' \160\
---------------------------------------------------------------------------

    \160\ 80 FR 25901 at 25918 (May 6, 2015).
---------------------------------------------------------------------------

    The current proposed update of IECC requirements constitutes a more 
expansive impact. The per unit cost is greater than for the previous 
rule. Revised estimate of the upfront cost of building to 2021 IECC is 
approximately $7,229, ranging from a low upfront incremental cost of 
$3,662 in Climate Zone 1 to a high of $8,845 in Climate Zone 8. 
Likewise, the geographic scope of the impact of the proposed rule is 
also more extensive than in 2015. In 2015, construction only in those 
16 states that had not yet adopted the 2009 IECC or its equivalent was 
directly affected. Conversely, only five jurisdictions have adopted a 
standard that meets or exceeds the 2021 IECC requirements. Under this 
notice, more than 100,000 newly built units would have to comply with 
the 2021 IECC standard, compared to an estimate of 11,500 annually for 
the 2015 notice that required IECC 2009 as a minimum standard. This 
merits a more detailed discussion of the potential impacts on the 
availability of housing to program participants as well as the housing 
market overall. As set forth in this section of this notice, HUD and 
USDA find that there would be no noticeable impact on the supply of 
housing covered by this notice; there are many ways for both homebuyers 
and builders to address the costs of the notice if buying or building 
to the 2021 IECC is not advantageous; but, under very specific 
conditions, availability could be constrained.
    The focus of this availability analysis is on the purchase of newly 
built homes by FHA-insured borrowers. While other covered programs are 
important, FHA-insured single family purchases represent the 
overwhelming majority of units that would be affected by final adoption 
of the proposed standards. Homebuyers and builders of single family 
homes will be more sensitive to the IECC requirement than renters and 
builders affected by the ASHRAE 90.1 update because the estimated 
incremental cost for single family homes is greater than the 
incremental cost of updating ASHRAE 90.1.
1. Builder Impacts
    Builders are required to build to the 2021 IECC standard only if 
they wish to sell the new home to a borrower who has a mortgage insured 
by FHA or guaranteed by USDA. If builders predict that the construction 
costs outweigh the expected private benefits of building to the 2021 
IECC standard, then the supply of newly built homes for FHA-financed 
borrowers could contract. However, one of several incentives for 
builders to build to the 2021 IECC standard is to preserve FHA-insured 
borrowers as potential customers.
    FHA-insured borrowers can be a large portion of potential buyers of 
new construction in some markets. As shown below, in 2020, FHA-insured 
loans financed just one percent of the purchases of newly built homes 
in the Northeast, 8.3 percent in the Midwest, 11.0 percent in the West, 
and a significantly higher market share of 24.5 percent of purchases in 
the South.
    The regions where construction activity is high (e.g., South and 
West) are also areas where a higher share of buyers of new construction 
are FHA-insured. In such markets, builders would be more inclined to 
build to the energy code required by this notice. Having more potential 
customers increases competition for a home and would reduce the 
opportunity costs of time on market.
[GRAPHIC] [TIFF OMITTED] TN26AP24.134

    The cost to a developer of adopting the standard includes the added 
building costs, loss of potential customers unwilling to pay the 
additional price, and any other distortions in design introduced by the 
regulation. The builder can reasonably be expected to build an 
affordable home to the 2021 IECC standard if: FHA-insured borrowers are 
a significant part of the market for newly built homes; there is a 
sufficient market return from energy efficiency; and the builder is 
able to pass on some of the cost to the buyer. Under these conditions, 
which will vary by climate zone and the state of the housing market, 
availability is not likely expected to be adversely affected. 
Conversely, builders may be discouraged from building to the higher 
standard if FHA-insured borrowers are a limited share of the market for 
new homes, e.g., in the Northeast, where only 1 percent of all new 
homes are

[[Page 33177]]

FHA-financed. However, the impact would be limited because the number 
of homes likely impacted would be close to zero and, more importantly, 
there are already states in the Northeast considering adoption of the 
2021 or 2024 IECC standards.
    A second possibility is that the builder continues to build 
affordable homes but not to the 2021 IECC. This would be the case when 
and where there are significant profits from building new homes for 
low-income homebuyers, even if not FHA-insured, FHA-insured borrowers 
are not a major part of the market, perhaps because conventional loans 
are relatively more affordable, the unlikely case that lower-income 
homebuyers do not place a significant premium on energy efficiency, or 
the builder is unable to pass on costs to the buyer. Under this 
scenario, the total supply of affordable housing would not necessarily 
be adversely affected, but new construction for FHA borrowers could 
decline. A third possibility is that the profit margin from building 
affordable housing is so slim that any change to the market could lead 
to different development decisions. One alternative may be for builders 
to build housing for higher-income buyers. This strategy could place 
the home out of reach of some FHA-insured borrowers and thus reduce the 
availability of some affordable housing. However, in both of these 
cases, the impact is expected to be limited: estimates of the impact on 
availability in the price elasticity model shown below indicate the 
impacts are likely to be limited to an extremely small share of housing 
supply (0.2 percent of all homes available to FHA-insured home buyers). 
For further and more detailed discussion of different availability 
scenarios, see the Regulatory Impact Analysis, Section 10.2 New 
Construction, Housing Supply, and Availability of Housing.
2. Single Family Market Impacts
    The change in market quantity depends not only on the decisions of 
builders and the real estate industry more broadly but also on the 
willingness of buyers to absorb a price change. The percentage 
reduction of quantity is greater as demand and supply are more 
responsive to price changes and as the incremental cost constitutes a 
larger portion of the sales price.
    The impact on availability, as measured by the quantity of housing, 
would be given by:
[GRAPHIC] [TIFF OMITTED] TN26AP24.135

    The percentage change in the quantity of housing, [Delta]Q/Q, 
depends on the price elasticity of demand ED (the percentage change in 
quantity demanded from a percentage change in price), the price 
elasticity of supply ES, and the incremental cost [Delta]C, as a 
fraction of the pre-regulation sales price P. The percentage reduction 
of quantity is greater as demand and supply are more responsive to 
price changes (more price elastic), and the incremental cost 
constitutes a larger portion of the sales price before the introduction 
of the cost.\161\
---------------------------------------------------------------------------

    \161\ The pass-through rate is the proportion of the cost paid 
by buyers, which is higher as demand is less price elastic and 
supply is more price elastic.
---------------------------------------------------------------------------

    Estimates from studies of the price elasticities of demand and 
supply vary due to differences in methods, data, and geographies and 
time periods examined. Generally, the estimate of the price elasticity 
of demand for housing is below -1, as low as -0.2 for low-income 
households, but has been estimated to be above -1. Generally, lower 
income households have a lower measured price elasticity of demand for 
housing. The positive association between income and the absolute value 
of price elasticity stems from shelter being a necessary good.\162\
---------------------------------------------------------------------------

    \162\ Mayo (1981) shows this to be the case when a household 
must consume a minimum amount of housing (a Stone-Geary utility 
function).
---------------------------------------------------------------------------

    The price elasticity of supply and demand has been estimated at a 
wide variety of levels for different housing markets, primarily due to 
differences in the ease of building additional units, depending on the 
metropolitan area, neighborhood and even type of housing.\163\ The 
incremental cost of adopting the 2021 IECC is expected to be 
approximately 2 percent of the pre-regulation sales price (a $7,229 
incremental cost and $363,000 sales price). Our most cautious estimate 
is that the approximately 2 percent increase in construction cost would 
reduce the production of homes for FHA-insured borrowers by 1.5 
percent, which represents a 0.2 percent reduction of all homes 
available to FHA-insured homebuyers.
---------------------------------------------------------------------------

    \163\ Gyourko and Saiz (2006) attribute the local variation in 
construction activity to more than the cost of materials but also to 
local wages, local topography, and the local regulatory environment.
---------------------------------------------------------------------------

    This estimate is considered a ``worst-case'' scenario because it 
does not account for any of the positive effects of energy-efficiency. 
Any adverse impacts on availability would be diminished when there is a 
perceptible demand for energy-efficient homes.
    It is important to note that there would be no adverse effects on 
the broader availability of housing options for FHA-insured homebuyers 
if they are able to find close substitutes in other submarkets. Close 
substitutes may include, for example, relatively new existing housing 
or code-complaint new homes in adjacent or nearby communities with 
similar features or amenities. Finding a close substitute may be more 
difficult in rural areas where there is less available housing stock. 
USDA guaranteed and direct loans are limited to eligible areas as 
defined by USDA and exclude central cities. Thus, there could be a 
greater relative burden on Section 502 guaranteed loans: about half of 
USDA's guaranteed and direct home loans are to borrowers in rural areas 
as defined by the 2010 Census as compared to about one-fifth of FHA-
insured mortgages (AHS, 2019).
    However, adoption of the new code is not expected to have spillover 
impacts on other housing submarkets given the relatively small size of 
the directly affected FHA and USDA submarkets. The purchase of new 
homes by FHA-insured borrowers represents only 2.3 percent of all 
residential sales in 2020. As a portion of all home purchases (all 
homebuyers, new and existing homes), FHA-financed purchases of new 
construction range from slightly more than 0 percent in the Northeast 
to slightly less than 3.6 percent in the South.
    Energy efficiency has also been shown to impart an economic value 
to buildings. The willingness to pay for this benefit will vary among 
homebuyers. If there is a sufficient proportion who expect to realize 
those gains, then there will be a demand for housing built to the 2021 
IECC that could partially counteract any adverse impacts on 
availability. See the discussions in the Regulatory Impact Analysis at 
www.regulations.gov in the ``Capitalization of Energy Efficiency 
Standard'' section (p.86).

[[Page 33178]]

    Empirical studies cited in the RIA suggest there is a statistically 
significant and positive influence of energy efficiency on real estate 
values of energy efficient housing.\164\ One study examining the 
residential market in California found that a green label adds about 
2.1 percent to the value of a home. This premium is slightly above the 
costs of bringing a home in compliance with the green labels (Energy 
Star, LEED, and EnergyPoint).
---------------------------------------------------------------------------

    \164\ Laquatra, J., Housing Market Capitalization of Energy 
Efficiency Revisited, 2002.
---------------------------------------------------------------------------

    Another study examined the premium placed on the Energy Star 
certification on homes in Gainesville, Florida and found that there is 
a premium for these homes but that the premium diminishes when the home 
is resold; this finding could suggest that energy efficiency is a 
motivator for buying newly built homes.\165\ Another two studies 
examined the effects of a label, which would be a voluntary option for 
the builder, rather than a code, which is obligatory.\166\ In another 
study, researchers found that energy performance certificates do not 
play a role in determining market value but that energy efficiency 
itself is capitalized into housing sales prices (about 2 percent for 
every 10 percent reduction of energy consumption).\167\
---------------------------------------------------------------------------

    \165\ Bruegge, C., Deryugina, T. and Myers, E., 2019. The 
distributional effects of building energy codes. Journal of the 
Association of Environmental and Resource Economists, 6(S1), pp. 
S95-S127.
    \166\ Bruegge et al., 2016; Kahn, Matthew E., and Nils Kok. 
``The capitalization of green labels in the California housing 
market.'' Regional Science and Urban Economics 47 (2014): 25-34.
    \167\ Aydin, Erdal, Dirk Brounen, and Nils Kok. ``The 
capitalization of energy efficiency: Evidence from the housing 
market.'' Journal of Urban Economics 117 (2020): 103243.
---------------------------------------------------------------------------

    A survey by the National Association of Home Builders found that 
the median borrower was willing to pay an extra $5,000 upfront to save 
$1,000/year in utility bills.\168\ This tradeoff would be equivalent to 
the resident receiving 10 years of benefits at a 20 percent discount 
rate or 30 years of benefits at 25 percent discount rate. A recent 
survey of the National Association of Realtors found that sixty five 
percent of realtors believed that energy efficiency was valuable in 
promoting residential units. (However, the majority of realtors (57 
percent) were ``not sure'' as to the impact of energy efficiency on 
sales price.) \169\
---------------------------------------------------------------------------

    \168\ Ford, Carmel. ``How Much Are Buyers Willing to Pay for 
Energy Efficiency?'' Eye on Housing: National Association of Home 
Builders Discusses Economics and Housing Policy. April 12, 2019. 
https://eyeonhousing.org/2019/04/how-much-are-buyers-willing-to-pay-for-energy-efficiency/.
    \169\ National Association of Realtors, REALTORS and 
Sustainability Report--Residential, 2021, https://www.nar.realtor/sites/default/files/documents/2021-realtors-and-sustainability-report-04-20-2021.pdf.
---------------------------------------------------------------------------

    A study of commercial buildings showed that a studio with an Energy 
Star certification will rent for about 3 percent more per square foot 
and sell for as much as 16 percent more. The authors were able to 
disentangle the value of the label itself from the value of energy 
savings stemming from increased energy efficiency. Energy savings were 
important: a 10 percent decrease in energy consumption led to an 
increase in value of about one percent over and above the rent and 
value premium for a labeled building.\170\
---------------------------------------------------------------------------

    \170\ Eichholz, P., N. Kok and J. Quigley, ``Doing Well by Doing 
Good? Green Office Buildings,'' American Economic Review 100:5 
(2010): 2492-2509.
---------------------------------------------------------------------------

    All of this empirical research shows that there are profit 
incentives to providing energy efficiency. Such a price gain would 
diminish any adverse effects on the supply of housing, although it is 
also evidence that bidding for energy efficiency could reduce 
affordability.
3. Evidence From Prior (2009 IECC) Code Adoption
    Examining FHA new construction loans by the level of a state's 
energy-efficiency standards can provide a rough indicator of the 
potential impact of the IECC on availability. Having required a minimum 
standard equal to the 2009 IECC (in 2015), the purchase of a new FHA-
insured or USDA-guaranteed home could depend on the strictness of the 
state-wide code relative to the 2009 IECC. However, as shown in Table 
19, in states where the state-wide standard is lower than that required 
by HUD and USDA, the proportion of FHA loans for new construction 
appears similar to states that have adopted stricter codes. For the 
group where the state-wide code is at least as stringent as the 2009 
IECC, the proportion of FHA-insured new construction loans is 16.9 
percent, which is slightly higher than the 15.1 percent for the states 
where energy codes are below IECC 2009. Despite the cyclical nature of 
new construction, there is no compelling evidence that the availability 
of newly built owner-occupied housing will be adversely affected.

[[Page 33179]]

[GRAPHIC] [TIFF OMITTED] TN26AP24.136

    There is some regional variation. In the South, the proportion of 
new construction is much higher in states above the IECC 2009 (32.7 
percent) than in states below (16.6 percent). In the West, the 
proportion of FHA new construction is lower in states with energy codes 
above the IECC 2009 (12.3 percent) than in states below (19.1 percent). 
A clear pattern is not identifiable in either the Northeast or Midwest. 
Diverse climate zones and housing markets could explain why different 
regions appear to respond differently to the energy standard.
4. Variability in Building Practices in Relation to Energy Codes
    Note that there is wide variability in enforcement of, or 
compliance with, building codes in general. Some states do not adopt 
statewide building codes, others adopt for only certain building types 
that may exclude single family housing, some states adopt codes with 
amendments, while others that have adopted building codes may not 
enforce them, either in their entirety or only for certain building 
types.\171\
---------------------------------------------------------------------------

    \171\ Lawrence Berkeley National Laboratory, The Cost of 
Enforcing Building Codes, Phase I, April 2013. Table 1 shows varying 
compliance rates: https://www.researchgate.net/publication/282136731_The_Cost_of_Enforcing_Building_Energy_Codes_Phase_1.
---------------------------------------------------------------------------

    Conversely, a growing number of builders are incorporating above-
code energy efficiency or green building standards that meet or exceed 
the 2021 IECC as standard building practice. Nearly 2.5 million Energy 
Star certified single family, multifamily, and manufactured new homes 
and apartments have been built to date, including more than 140,000 in 
2022, representing nearly 10 percent of all U.S. homes built. Homes and 
apartments that earn Energy Star certification are at least 10 percent 
more efficient than those built to code. Since 2023, in most states, 
Version 3.1 of the Energy Star program is the minimum Energy Star 
standard for single family homes, which is designed to deliver at least 
10 percent savings relative to all code versions up to the 2018 IECC. 
Energy Star Version 3.2 will be implemented in states that adopt the 
2021 IECC; Version 3.2 is designed to

[[Page 33180]]

deliver at least 10 percent energy savings relative to the 2021 IECC.
    There are also a smaller number built to the DOE's Zero Energy 
Ready Home (ZERH) standards. In addition, certain green building 
standards set Energy Star as a minimum requirement. With the energy 
efficient new homes tax credit (45L) of up to $2,500 now available for 
Energy Star Certified Homes and up to $5,000 for DOE Zero Energy Ready 
Homes for single family homes and, with prevailing wage requirements, 
up to $2,500 per unit for Energy Star Multifamily New Construction and 
up to $5,000 per unit for DOE Zero Energy Ready Homes for multifamily 
homes, the market share for these above-code standards is likely to 
increase.\172\
---------------------------------------------------------------------------

    \172\ For multifamily homes, the amounts of the 45L tax credit 
change to up to $500 per unit for Energy Star Multifamily New 
Construction and up to $1,000 per unit for DOE Zero Energy Ready 
Homes if prevailing wage requirements are not met.
---------------------------------------------------------------------------

    There is widespread regional variation in adoption of these 
standards because they are not typically mandated by municipalities for 
single family home construction. There are regional variations in 
above-code standards among builders as well. For example, for Energy 
Star New Homes, adoption rates in most states are below five percent, 
with very little in the northeast, while in the southwest the share of 
Energy Star new homes is much higher, e.g., adoption in Arizona is 
around 40 percent.\173\
---------------------------------------------------------------------------

    \173\ https://www.energystar.gov/newhomes/energy_star_certified_new_homes_market_share.
---------------------------------------------------------------------------

    In the multifamily sector, builders frequently build to above code 
standards such as LEED, Enterprise Green Communities, ICC 700 National 
Green Building Standard, PHIUS, the Living Building Challenge, or 
regional programs like Earthcraft. Most of these programs embed Energy 
Star New Construction within their standards while also addressing 
other areas of health and disaster resilience requirements. Some 
municipalities may require one of these above-code standards for new 
construction of multifamily housing. In the affordable housing sector, 
each state may also drive the choice of compliance with above-code 
standards through their Low-Income Housing Tax Credit Qualified 
Allocation Plans (QAPs). State QAPs may call out these above-code 
standards specifically or may allocate points to other matching funding 
streams that incentivize or require specific above-code standards.

B. ASHRAE 90.1-2019--Rental Housing

    USDA and HUD have determined that in light of the extremely small 
incremental first costs, or, in many cases, negative first costs, 
adoption of ASHRAE 90.1-2019 will not negatively impact the 
availability of multifamily units financed or insured through these 
programs. Simple paybacks times are extremely low for the small number 
of states that will see an increase in first costs, in most cases less 
than one year. The estimate of the direct cost of construction of 
moving to this code is not greater than zero. Even if there were a 
slight increase in construction costs, the estimates of energy savings 
are sizeable enough such that the benefits would offset the costs for 
property managers. There could be some builders of multi-family 
properties who are doubtful of the return and so view the ASHRAE 90.1-
2019 requirement as a net burden. For the hesitant developer, there 
remain other incentives to comply: FHA multifamily loans allow a higher 
LTV than is common and Low-Income Housing Tax Credits that are 
frequently used by developers in conjunction with HUD financing often 
carry a requirement or incentive for energy efficiency. In addition, 
FHA's lower multifamily Green Mortgage Insurance Premium provides a 
strong incentive for developers to adopt an above-code standard.

VI. Implementation

    Under Section 109(d) of Cranston-Gonzalez (42 U.S.C. 12709), the 
2021 IECC and ASHRAE 90.1-2019 standards automatically apply to all 
covered programs upon the effective date of the specified affordability 
and availability determinations by HUD and USDA. Accordingly, once a 
Final Determination has been made by HUD and USDA under section 109(d) 
(42 U.S.C. 12709(d)) and published, additional notice and comment 
rulemaking will not be required for the covered programs.
    Based on DOE findings on improvements in energy efficiency and 
energy savings and a subsequent HUD and USDA Final Determination with 
respect to both housing affordability and availability, HUD and USDA 
programs specified under EISA will implement procedures to ensure that 
recipients of HUD and USDA funding, assistance, or insurance comply 
with the 2021 IECC and ASHRAE 90.1-2019 code requirements, commencing 
no later than 30 days after the date of publication of a notice of 
Final Determination. HUD and USDA will take such administrative actions 
as are necessary to ensure timely implementation of and compliance with 
the energy codes, to include Mortgagee Letters, notices, notices of 
Funding Opportunity (NOFOs), Builder's Certification Form HUD-92541, 
and amendments to relevant handbooks.
    In addition, conforming rulemaking will be required to update FHA's 
single family minimum property standards at 24 CFR 200.926d, Public 
Housing Capital Fund energy standards at 24 CFR part 905, and HOME 
property standards at 24 CFR 92.251, although as noted above, this 
would not entail further notice and comment rulemaking. Similarly, USDA 
will update minimum energy requirements at 7 CFR part 1924 to conform 
with the requirements of this notice.
    To enable these administrative and conforming rulemaking procedures 
to be implemented and to provide the industry with adequate time to 
prepare for these requirements and incorporate them in project plans 
and specifications, proposals, or applications, adoption of the new 
construction standards described in this notice will be required as 
described in Table 32.
    In response to public comment and to better enable builders to 
adapt to these code requirements, the compliance deadlines are extended 
beyond the dates in the preliminary determination, as shown in Table 
32. As discussed in this notice, rural persistent poverty areas, where 
capacity to adopt above-code standards may be challenging, have a 
longer compliance timeline. Due to differing administrative procedures 
associated with each program, compliance dates vary. The compliance 
dates differ for example, for competitive grant programs that have 
notices of funds availability or programs, such as FHA-insured 
multifamily, that provide for pre-applications before firm commitments, 
compared to application for building permits for single family 
construction. The compliance dates are as follows:
    (1) For FHA-insured multifamily programs, the standards set forth 
by this notice are applicable to those properties for which mortgage 
insurance pre-applications are received by HUD 12 months after the 
effective date of this determination;
    (2) For FHA-insured and USDA-guaranteed single family loan 
programs, the standards set forth by this notice are applicable to new 
construction where building permits applications will be or have been 
submitted on or after18 months after the effective date of this 
determination;
    (3) For the HOME and Housing Trust Fund (HTF) programs, the 
standards set forth by this notice are applicable to residential new 
construction projects for which HOME or HTF funds are committed by HOME 
Participating Jurisdictions or HTF grantees on or after

[[Page 33181]]

180 days after the effective date of this notice;
    (4) For Public Housing Capital Fund, the standards set forth by 
this notice are applicable to HUD approvals of development proposals 
for new Capital Fund or mixed financed projects on or after12 months 
after the effective date of this determination;
    (5) For new construction occurring in higher needs rural areas 
across all covered programs, the standards set forth by this notice are 
applicable on or after 24 months after the effective date of this 
determination. For the purposes of this notice, these are defined as 
persistent poverty rural areas, as defined by USDA Economic Research 
Service. This will include persistent poverty counties coterminous with 
or persistent poverty census tracts located in rural counties as 
defined by USDA. USDA will publish a map of rural areas covered by this 
extension no later than 30 days after the effective date of this 
notice.
[GRAPHIC] [TIFF OMITTED] TN26AP24.137

Compliance Paths
    HUD and USDA interpret EISA/Cranston-Gonzalez to mean that any 
energy code that is determined by a DOE or EPA analysis to have an 
energy efficiency standard that is equal to or more efficient than what 
is required under the 2021 IECC or ASHRAE 90.1-2019, is deemed to meet 
the requirements of the 2021 IECC or ASHRAE 90.1-2019, respectively:
    (1) EPA's Energy Star Version 3.2 certification for single family 
and low-rise multifamily buildings, Energy Star Version 1.2 for 
multifamily new construction, and DOE's Zero Energy Ready Homes Single 
Family Version 2 certification or Multifamily Version 2, once it is 
released on January 1, 2025, certification for multifamily buildings 
will be accepted as evidence of compliance with the standards addressed 
in this notice:
    (2) Certain energy and green building certifications, provided that 
they require and provide evidence of energy efficiency levels that meet 
or exceed the 2021 IECC or ASHRAE 90.1-2019 or include certification 
through EPA's Energy Star Version 3.2 certification for single family 
and low-rise multifamily buildings, Energy Star Version 1.2 for 
multifamily new construction, and DOE's Zero Energy Ready Homes Single 
Family Version 2 certification or Multifamily Version 2 once released, 
certification for multifamily buildings. These may include standards 
referenced in one or more HUD or USDA programs,

[[Page 33182]]

such as the ICC-700 National Green Building Standard, Enterprise Green 
Communities, Energy Star Certified New Homes, Energy Star Indoor Air 
Plus, Leadership in Energy and Environmental Design (LEED), Living 
Building Challenge, or Passive House, as well as one or more regional 
or local standards such as Earthcraft, Earth Advantage, or Greenpoint 
Rated New Home.\174\ HUD and USDA will publish a list, to be updated 
annually, of those standards that comply with the minimum energy 
efficiency requirements of this notice. HUD and USDA will also accept 
certifications of compliance of state or local codes or standards for 
which credible third-party documentation exists that these meet or 
exceed the 2021 IECC and ASHRAE 90.1-2019.
---------------------------------------------------------------------------

    \174\ Energy Star Certified New Homes Version 3.2 and DOE's Zero 
Energy Ready Homes set the 2021 IECC as the baseline standard.
---------------------------------------------------------------------------

    (3) 2024 IECC (pending publication). The 2024 IECC has 
preliminarily been estimated by DOE to be at least 6.66 percent more 
efficient than the 2021 IECC. Adoption of the prescriptive or 
performance paths of the 2024 IECC will be an allowable compliance 
pathway, upon publication of a final efficiency determination by DOE 
that this edition is more energy efficient than the prior code.

VII. Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made in connection with the preliminary determination, in 
accordance with HUD regulations at 24 CFR part 50 and USDA Rural 
Development regulations at 7 CFR part 1970, which implement section 
102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 
4332(2)(C)), and remains applicable to this final determination. That 
finding is posted at www.regulations.gov and is also available for 
public inspection between the hours of 8 a.m. and 5 p.m. weekdays in 
the Regulations Division, Office of General Counsel, Department of 
Housing and Urban Development, 451 7th Street SW, Room 10276, 
Washington, DC 20410-0500. Due to security measures at the HUD 
Headquarters building, please schedule an appointment to review the 
finding by calling the Regulations Division at 202-402-3055 (this is 
not a toll-free number). HUD welcomes and is prepared to receive calls 
from individuals who are deaf or hard of hearing, as well as 
individuals with speech or communication disabilities. To learn more 
about how to make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

Damon Smith,
General Counsel, U.S. Department of Housing and Urban Development.

Xochitl Torres Small,
Deputy Secretary, U.S. Department of Agriculture.
[FR Doc. 2024-08793 Filed 4-25-24; 8:45 am]
BILLING CODE 4210-67-P