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The Green New Deal and Multifamily
The Moral Imperative of Conservation
To illustrate the impact that real estate has on the environment, consider: in the United States, buildings consume roughly 40% of the energy used and produce 30% of all carbon dioxide emissions. A combination of an increasing awareness of these figures along with emerging technologies that allow for more energy-efficient construction has led to an increasing belief that developers and building owners have not only an obligation to construct high-quality buildings but also have a moral imperative to be good stewards of our environment. The focus on environmentally friendly commercial buildings is not new. Up to now, however, governments have opted for a carrot-and-stick approach, à la the tax incentives available through LEED certification. But now an insurgent voice is growing that argues that this way does not go far enough, does not take seriously enough the threat we face if more radical action is not taken.
The “Green New Deal”
Enter Alexandria Ocasio-Cortez, commonly known simply as “AOC.” The first-term Congresswoman from New York’s 14th District (parts of Queens and the Bronx) won a stunning upset in the 2018 midterm Democratic primary, defeating longtime and high-ranking Rep. Joe Crowley, becoming the youngest woman ever to serve in Congress. What she lacks in experience she makes up for in sheer force of will, in many ways more of a passionate activist than a legislative representative. One of the targets on which she has set her fiery eye is the environment. This combination of environmental activism and legislative power have emboldened her to propose not only the most radical environmental policies the nation has ever seen, but the most significant intrusion of government into the private economy since President Franklin Delano Roosevelt’s New Deal. Her proposal, fittingly, is called simply “The Green New Deal”.
In response to the crisis of the Great Depression, Mr. Roosevelt authorized spending packages and passed a series of major reforms and new regulations known collectively as the “New Deal”. These programs focused on mitigating the effects of the Depression in the short term and establishing a regulatory framework to prevent a similar crisis from emerging in the future.
While the Green New Deal takes its name from the 1930s program and would likely trigger public works projects of a similar scale, its motivations and circumstances are quite different. Whereas Roosevelt’s New Deal was almost exclusively designed as an economic fix, the Green New Deal seeks to overhaul the economy in the service of the protection and recovery of the environment.
Since its proposal by Senator Ed Markey (D, MS) and Representative Alexandria Ocasio-Cortez (D, NY) on February 7, 2019, newspapers have churned out hundreds of articles and opinion pieces about the Green New Deal, and those on the ideological right and left have each criticized it, either for going too far or not far enough – this despite the fact that the proposal is only a non-binding resolution, not a law. It carries over some ideas from earlier suggested plans (angering conservatives) while departing from others in its scope and the specificity of its goals (to the dismay of liberals). The proposal aims to reduce pollution and greenhouse gas emissions by mandating that building owners upgrade all existing buildings to higher environmental standards. It also calls for massive infrastructure spending and ecosystem restoration projects (likely funded by taxpayer dollars). Opponents generally object based on questions about is utility, necessity, and cost, while proponents believe that not enacting the plan, or something similar, would mean incurring far greater costs in the long term.
No matter one’s perspective on the proposed Green New Deal, its passage would mean a massive alteration of both the American and the global economies during its implementation and would lead to permanent changes to the way the world conducts commerce after its programs conclude. Even before its formal introduction as the “Green New Deal Resolution” in February, however, it polled favorably with voters on both sides of the aisle.
The Green New Deal and Multifamily
Given the Green New Deal’s popularity with voters and the uncertainty of upcoming elections, real estate investors should be familiar with its potential implications. The way we construct and subsequently supply buildings with electricity, water, and other resources are a critical focus of the resolution. To the extent that current technology can feasibly do so, the bill calls for the retrofitting of all pollution-emitting buildings in the United States to increase their efficiency. Presumably, federal, state, and local governments would subsidize some portion of the effort. However, even in a reality where the upgrades are fully subsidized, real estate interests would bear considerable logistical and legal responsibility guaranteeing their buildings compliance with these new standards. Multifamily owners in particular would need to upgrade hundreds, or perhaps thousands, of apartments over a compressed timescale.
In its current form, the resolution fails to provide specific details about retrofitting and provides no concrete information about what standards will apply to new construction. Due to the declaratory nature of the document many of the implications to the multifamily industry are penumbral. Beyond upgrades to current buildings and holding new structures to higher standards, the document proposes the expansion of the nation’s supply of affordable housing, calling for the aforementioned upgrades to increase the “[…] safety, affordability, [and] comfort” of current residences. To an extent, this language exists to reassure homeowners and renters that they will not be priced out of their homes due to the cost of the upgrades. For multifamily owners in the affordable space, it also signals a potentially massive disruption to the way the country produces and conceives of affordable housing. Think of the implications that resulted after the recent overhaul of New York State’s rent control regulations, but on a national scale.
The Green New Deal Today and Takeaways
Even if the House were to pass the Green New Deal into law, it is DOA in a Republican led Senate or presidency – one more reason to pay close attention to the 2020 elections. At the state level, however, things are different. State and municipal governments continue to propose and pass similar legislation. New York and Maine lawmakers both passed bills in June aimed at reducing emissions. While neither has provisions that will affect private real estate owners or companies as explicitly as the federal equivalent, their passage and their popularity indicate that investors should be on the lookout for sweeping reforms even before any federal laws pass. Keeping an eye on a legislative pipeline could mean the difference between a well-timed disposition and a foreclosure.