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Sensible Incentives: Enabling Energy Efficiency in Rental Housing

April 19, 2012 By Will Nissen, Fellow

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About this study: This report is an adoption of work done for Fresh Energy in 2011 by Will Nissen and John Mitchell at the Humphrey School of Public Affairs, University of Minnesota. The authors wish to thank Elizabeth Wilson, Ross Jackson, Linda Taylor, Kate Ellis and Annika Brink for their help.

In an age of climbing expenses, we all look for ways to save money. Energy efficiency is routinely highlighted as the most cost-effective way to save energy and expenses. However, if you are one of over 1 million Minnesotans who rent their living space, there are significant barriers to saving on energy bills: The appliances in the unit you rent.

Chances are your appliances are not energy efficient because there is no incentive for the owner of the property to upgrade an expensive appliance when the direct benefit from the savings won’t help the company bottom line. This is referred to as a split-incentive.

Most appliances in rental properties are electric and the cost of running them falls to the renter as an often hidden cost. For example, a refrigerator runs every moment of the lease and they are the largest single end-user of electricity in rental housing at 20 percent. Cost can add up quickly.

Sensible Incentives: Enabling Energy Efficiency in Rental Housing examines the potential energy and cost savings from the replacement of old, inefficient refrigerators with new, energy efficient refrigerators. Preliminary estimates suggest that replacing the nearly 88,000 refrigerators over 10 years of age in rental properties in the seven-county Metro Area would save renters well over a staggering $3.7 million a year.

This is a modest proposal. It isn’t political, or even urgent, but it is something we can start working on together to move Minnesota forward. Statistics reveal that many renters in the state are interested in energy saving appliances. Utility companies have money reserved to aid in creating programs for customers and property owners are interested in meeting the desires of existing and potential clients.

Sensible Incentives makes three recommendations for policy makers to improve the energy efficiency performance of rental housing in Minnesota:

  • Customized Conservation Improvement Programs targeting large rental property owners, including rebates for replacement of old, inefficient refrigerators.
  • Mandate public energy use disclosure for apartment buildings.
  • A pilot PAYS®-based On-Bill Financing Program for appliance upgrades serving rental housing. 


For appendix and methodology, please see the online supplement.

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  • Colleen O'Connor Toberman says:

    April 19, 2012 at 3:01 pm

    This is a great commentary. An important part of making rental housing affordable is keeping utility bills low. My partner owns a rental duplex and I can tell you that we haven’t invested in energy efficiency for that house nearly as much as we have for our own home. The financial payoff just isn’t there since the renters pay the utilities and the “profit margin” on the rent doesn’t cover expensive upgrades in addition to the regular maintenance.

    However, we care about the environment and would happily participate in energy audits, efficiency rebates, and other such programs if they were more accessible and affordable for landlords. This would actually be a wise investment on behalf of utility companies and municipalities because working with just one property owner could impact several households.

  • Ginny says:

    July 10, 2012 at 2:43 pm

    I own a duplex and I have replaced most of my appliances fairly recently. If I could afford it, I’d think about replacing several of them. But my energy bills are pretty low as they are, and I know my current wonderful renters are congnizant of the need for conservation.