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This article was written by Pamela Brookstein of Elevate. Elevate is a 501(c)(3) nonprofit organization that works nationally and is headquartered in Chicago. Elevate seeks to create a just and equitable world in which everyone has clean and affordable heat, cooling, power, and water in their homes and communities — prioritizing frontline communities.
The Inflation Reduction Act (IRA) rebate programs present an opportunity to help homeowners implement energy-efficient upgrades and subsequently boost the value of these homes. This potential premium can transform the market by showing homeowners that efficiency upgrades, like air-sealing and insulation, hold comparable value to traditional upgrades like kitchen remodels.
While higher home values and market transformation are good things, assessing the potential for unintended consequences, like gentrification and displacement in low-income and disinvested communities, is essential. States and program implementers should consider a few questions as they plan for IRA:
Are their IRA rebate programs likely to support the much-needed increase in home equity and wealth-building that have historically eluded BIPOC homeowners?
Or will they drive up property values and contribute to neighborhood displacement and gentrification?
To address these questions, Elevate, in partnership with Pearl Certification, recently interviewed professionals of diverse backgrounds who provided insights based on their knowledge of environmental justice, housing justice, community development, and real estate. Interviewees were selected based on their professional and personal experience with energy efficiency, real estate, and gentrification. Semi-structured interviews were conducted to get their perspective on the social and economic impacts, both positive and negative, of potential benefits provided by the IRA and selling high-performance homes in low-income and disinvested communities. Additionally, we discussed potential gentrification and displacement consequences in communities of color that could result from increased home value from energy upgrades.
The interviewees were passionate about the topics we discussed and thoughtful with their responses. Our full paper will be released towards the end of the summer of 2024, but our findings are summarized here.
Interviewees highlighted the positive impacts of home value increases. Historical and current policies and practices have limited access to disinvested communities, creating challenges and obstacles for loans or building wealth through homeownership. Interviewees agreed that the tangible improvements and value added by upgrading and certifying homes could help start correcting inequitable home quality and value issues.
As one housing professional put it:
If people can make their homes more energy-efficient and high-performing, that’s good. They’ll have lower operating costs and will be more likely to hold on to the home. And if they do want to sell it, that could help them build wealth. People want their homes to sell for more money. That’s why people invest in real estate — so that it can appreciate.
Additionally, several interviewees commented on the ripple effects of energy efficiency upgrades, including lower energy costs and a safer and healthier home.
Recommendation for States
Rather than shying away from energy efficiency programs that deliver home value, State Energy Officers should prioritize them, particularly in historically disinvested communities. By enhancing home energy performance, these initiatives can contribute to increased home values and lower operating costs, making homeownership more sustainable and equitable. This approach not only aids in building wealth for homeowners but also fosters healthier and safer living environments, addressing long-standing home quality and value disparities.
Interviewees agreed that to work towards restorative justice, the benefits of upgrades must be accessible to the residents of all communities while avoiding displacement.
The primary concern was increased property taxes, a critical factor in displacement and gentrification. All interviewees thought that federal, state, and local governments should utilize anti-displacement tools and policies to avoid the negative impacts of home value increases.
Said one community advocate:
If we’re providing people with good financial education, then it’s a good thing if my house value goes up and [there won’t be an immediate surge in] taxes that are going to push me out of the house…The idea is to help the homeowner and community build wealth; we don’t want to cut that off and tell them, “You can’t have the wealth.”
What might this look like? One example is property tax exemptions for efficiency upgrades. Exemptions already exist for residential solar installations. Energy efficiency exemptions would ensure that the appraised value associated with upgrades is not subjected to property tax.
Recommendation for States
State Energy Officers should implement and advocate for property tax exemptions on energy efficiency upgrades to ensure that increased home values do not lead to displacement or gentrification. Similar to exemptions for residential solar installations, this policy would allow homeowners to benefit from the increased value and reduced operating costs without the risk of unaffordable property tax hikes. Additionally, integrating financial education programs can help homeowners understand and maximize the long-term benefits of these upgrades, supporting wealth building within their communities.
While gentrification was undoubtedly a concern for interviewees, they spoke of more significant systemic issues — transportation, healthcare facilities, schools, and utilities — that need to be addressed in disinvested communities that are more pressing than gentrification. Moreover, they agreed that massive investment from outside sources is more likely to lead to gentrification than individual homeowners upgrading their homes.
As one community activist noted:
Gentrification happens because of developers who take up real estate, not from energy efficiency upgrades. Gentrification doesn’t occur from individual investment in homes, it comes from collective investment and city investment. This is especially true for Black and Brown neighborhoods because the disinvestment is so deep. Individual homeowners making energy improvements are not going to spur developers—it’s literally just doing good for the homeowner so they can possibly get a bit more than they spent.
Recommendation for States
State Energy Officers should actively support and expedite energy efficiency upgrades and home certification programs in disinvested communities, recognizing that these improvements primarily benefit individual homeowners and are unlikely to trigger gentrification. The focus should be on addressing broader systemic issues such as transportation, healthcare, schools, and utilities while implementing anti-displacement measures. By doing so, the state can ensure that energy upgrades enhance homeowner benefits without contributing to large-scale gentrification, fostering community stability and growth.
The importance of a shared vision and open dialogue with a community, rather than assumptions or impositions, cannot be overstated. In our discussions, interviewees from disinvested neighborhoods called for increased investment, particularly in the community’s residents through training and education.
As one community advocate pointed out:
Ninety-five percent of all wealth is in real estate. If we can prime our community with a path to do affordable housing and deep retrofits, if we can train our folks to put in new solar developments and all these wonderful things in their own community where they’re benefiting—then they’re getting rent money, they’re getting rebates, they’re not just a hired hand. Working as a hired hand doesn’t get us equity, ownership, or power. It doesn’t get us anything but the cycle continuing.
One particularly valuable engagement channel is the real estate community. Real estate professionals among our interviewees highlighted their local insights and connections. Agents are deeply involved in the neighborhoods, towns, and cities where they live and work. They are invested in their communities, often have excellent relational skills, and have pre-existing communication networks to reach others.
Recommendation for States
State Energy Officers should engage communities in dialogue and invest in resident training for affordable housing development and energy retrofits. Partnering with local real estate professionals can amplify these efforts. Initiate outreach to agents through workshops, emphasizing energy efficiency benefits and their role in promoting community projects. Encourage agents to champion initiatives within their networks, enhancing community involvement and support.
The IRA rebate programs promise to revolutionize the housing market by increasing home value in low-income communities through energy-efficient upgrades. Our interviews show consensus on the potential benefits of energy efficiency incentive programs, rather than concerns about gentrification and displacement — which most agreed were driven by systemic issues unrelated to investments in individual homes. Still, there are proactive measures states can take, including local outreach and property tax exemptions, that can ensure the wealth created by energy efficiency programs stays in the communities where the upgrades are being made.
The full findings from Elevate and Pearl Certification will be published in the summer of 2024. For comprehensive overviews and detailed insights into leveraging state energy rebate programs to increase home values and foster equity, visit Pearl’s Market Transformation Resource Center, or reach out to a member of Pearl’s Public Programs team.
Pearl is transforming the housing market by scoring, verifying, and certifying the performance of homes across the country.