Affordable and Energy Efficient

Affordable and Energy Efficient

Changes in the FHA’s insurance rates foster
sustainability in multifamily housing.


By Bryan Howard

For decades the Federal Housing Administration (FHA) has been helping individuals and families be part of the American dream of owning a home or property. FHA’s role of insuring loans has helped millions of borrowers get better interest rates for both the purchase and refinancing of homes. Recently, the FHA multifamily lending program has taken a monumental step in signaling to the market the value of LEED-certified buildings.

U.S. Housing and Urban Development Secretary Julián Castro.

In April the FHA Office of Multifamily Housing Programs announced a change that will benefit certain FHA-insured loans through reduced upfront and annual insurance rates. For new or renovated LEED-certified multifamily properties, annual rates will drop to some of the lowest levels that FHA is allowed to offer.

“By reducing our rates, this Administration is taking a significant step to encourage the preservation and development of affordable and energy-efficient housing in communities large and small. This way, hard-working families won’t have to make the false choice between quality or affordable housing,” said U.S. Housing and Urban Development (HUD) Secretary Julián Castro in announcing the changes.

This change is extremely beneficial to LEED-certified (and other green-certified) apartments and co-ops. Specifically, properties that certify with LEED and use FHA multifamily financing will have their insurance rates reduced from between 45 and 70 basis points to 25. Similar moves from Fannie Mae demonstrate that reducing insurance rates for green certified properties can save projects hundreds of thousands of dollars over the life of a loan.

The scale of this change holds the promise of rapidly altering the landscape for new and rehabilitated apartments. The Office of Public Engagement at HUD estimates that in 2015, FHA originated nearly 1,000 multifamily loans, totaling $10 billion and over 100,000 apartment units around the country. They expect to replicate similar numbers for 2016.

Families and individuals stand to benefit the most from these changes. Oftentimes residents of limited means spend a disproportionate amount of their monthly income on utility expenses. In 2014 the United States Bureau of Labor Statistics reported that families with incomes in the lowest 20 percent spent nearly double the percentage of their income on heating and electricity than families in the highest 20 percent.1 Building and renovating housing to be more energy- and water-efficient lowers monthly utility bills with the effective result of families retaining more take-home pay for discretionary expenses.

By incentivizing certification, HUD and FHA recognize the value third-party certification has in yielding quality places to call home that reduce operating costs, improve indoor air quality, and reduce overall impact on the environment.

For more information on the new financing options, please visit the websites of the Office of Multifamily at HUD and the Federal Register.

Top Left: Avena Bella incorporates solar power, energy-efficient heat pumps for heating and cooling, and a continuously running energy recovery ventilation system brings in fresh, filtered outside air. Residents have access to a community center, community garden, play area, technology lounge, swimming pool, and landscaped walkways between buildings. Top Right: Built by EAH Housing with sustainability in mind, Avena Bella is an 80-unit affordable housing community in Turlock, California.

1. Quintiles of income before taxes: Annual expenditure means, shares, standard errors, and coefficients of variation, Consumer Expenditure Survey, 2014 available at: