Financing programs offer lower-interest loans to homeowners to undertake specific energy efficiency upgrades in their homes. They are important for achieving our climate goals through residential home retrofits by reducing greenhouse gases, household energy use and costs. Yet while low and moderate-income (LMI) households are most in need of retrofit support (due to their lower income and higher relative energy costs, they experience increased barriers and risks for program participation.

With a large population of LMI households renting, there is often a split incentive problem that limits energy efficiency investments in the rental market. Landlords who do not pay the energy bill have little incentive to pay to upgrade units where their tenants will receive the benefits, leaving renters who pay the utility bills with little ability to significantly reduce the amount of energy their homes consume. (REEP Guide).

1. What are you trying to achieve with this action?

• The four principles of an equitable financing program:
  • Consumer protections: Develop processes and program design to ensure that stakeholders have confidence that participants in the program can afford to repay the loan.
  • Late and non-payment processes: Ensure all stakeholders are aware of and comfortable with processes for late and non-payment.
  • Reduce financial risk: Embed protections and processes to reduce financial risk to participants.
  • Equity-based KPI's: Develop appropriate equity-based KPIs to ensure the program is equitable in practice.

• Decrease greenhouse gas emissions and energy consumption in rental properties to reduce climate change emissions and reduce people's vulnerability to energy cost increases over time.
• Make energy bills more affordable (particularly for low-income tenants) to reduce their energy costs and improve living conditions for tenants.
• Enhance safety, indoor air quality, and overall health in rental properties to create healthier living environments while contributing to environmental sustainability.

2. Who has traditionally participated in/benefited from this action?

• Landlords who can afford the up-front capital costs of energy retrofits or those that can pass on improvement costs to tenants.
  
• Traditional retrofit programs have often relied on incentives to drive uptake, which requires that property owners approve the retrofit measures; landlords lacking the cash flow that can enable them to pay for the upgrades and receive the incentive later are unlikely to participate in retrofit programs.
  
• Landlords who do not pay for the energy costs of their units are less likely to participate in retrofit programs.
• Retrofit incentives have often favoured larger entities such as Real Estate Investment Trusts (REITs) and pension-backed property owners, accentuating a trend where significant financial resources determine access to these programs. Larger entities can afford the upfront capital as well as the resources to apply for incentives, but also benefit from the retrofits afterwards via operational energy savings.
  

3. What groups are most in need of this action?

• Tenants in energy-inefficient/uncomfortable homes.
  
• Lower-income landlords/residents and those experiencing energy poverty who do not have the cash flow capacity to participate in incentive programs.
• Non-English speaking residents who may not know what retrofit opportunities exist and are excluded from educational/awareness initiatives via language barriers.
• Vulnerable communities with more pressing priorities (e.g., people with disabilities, single-parent households, multi-generational families).

4. What has prevented these groups from participating in the past?

• Lack of financing options
  
• Split incentive issues regarding who pays for the energy costs (tenant) and who pays for the upgrades (landlord).
• Barriers that prevent LMI residents from receiving low-interest loans.
• Resistance from Tenants: Certain landlords, especially those providing homes to low-income families, have a long history of mistreating their tenants and not addressing repair issues, resulting in tenants' doubts that the construction will not be done responsibly and/or that the inconvenience and costs of retrofit will be more significant than stated. This results in fear of tenant relocation, excessive noise, and hazardous structural conditions that can occur when major rehabilitation work is undertaken.
• Retrofit market barriers (e.g., lack of supply, lack of labour), alongside other barriers related to the general retrofit market

5. What design can address barriers from those most in need of action or to increase participation? Barriers can be physical or perceived (perceptual/psychological)

• LMI households have little discretionary spending; programs should not only consider financing needs but also consider the short-term cash flow challenges experienced by LMI participants.
• LMI households have a lower tolerance for financial risk, and, therefore more to lose if the energy savings promised through the upgrades are not realized.
  
• Allocating [increased] incentives to LMI clients can help offset past incentive program gaps in reaching this market; incentives reduce the financial burden of loan repayments and can also be of significant value in advancing a "free" retrofit (where financial savings from energy efficiency cover loan repayments), thereby not adding any financial burden to occupants/owners.
• Eligibility re: financial verification requirements should consider the needs of LMI clients and ensure that the requirements do not exclude their participation in the retrofit program.
• Implement requirements for landlords to disclose past or average energy costs for the building/unit during rental listings to enhance operational expense transparency.
• More involvement from CMHC to support energy efficiency/decarbonization in rental property programs. Increasing resilience benefits and introducing agreements that reduce the likelihood of rental cost increase and/or penalties for landlords who raise rents after receiving low-interest loans for retrofits.
• Building performance standards, with financial penalty for not achieving performance standard for LMI.
• Updates and improvements to the Residential Tenancies Act to remove barriers to retrofits and ensure transparency between retrofit cost and rental increases.

6. Can you identify any negative impacts that this action may cause? Are there measures that can help to proactively prevent that harm?

• Due to financial circumstances, some households should not participate in a financing program that increases their household debt.
• Equitably designed programs ensure participants receive the appropriate support they need, rather than offering the same blanket program to everyone.
• Reducing energy costs is critical for those experiencing energy poverty; the goal should be ensuring their participation results in a cash flow positive position (but aim for, at a minimum, cash flow neutral).
• Tenants may be at risk of renoviction, if landlords raise the rent and renters can no longer afford to live there; addressing renoviction risks is important to take into design considerations during a rental property retrofit program.

7. Who hasn't yet been engaged that would be good to engage? Why would they be good to engage? What may limit their engagement interest/ability

• Consultation with LMI residents to better understand their barriers.
• Collaborating with rental advocacy organizations and groups to advocate for policies that support energy-efficient retrofits in private rental properties.
• Engaging with CMHC, Canada Infrastructure Bank and local utilities to address the gap in energy efficiency supports in the rental market.
• Collaborate with local distribution companies (LDCs), independent electricity system operators (IESO), and Ontario Energy Board (OEB) to strategize on incorporating demand management programs that benefit rental properties.
• Engaging with organizations such as the Ontario Real Estate Association (OREA), condominium boards, property manager associations, and the Canadian Condominium Institute to design and implement effective retrofit programs for their particular sector.
• Collaborate with associations like the Greater Toronto Apartment Association (GTAA) and the Federation of Rental-House Providers of Ontario (FRHPO) to ensure voluntary programs encourage owner participation.
• Engaging with the National Research Council, primarily through their Resilient Residential Retrofit (R^3) program, to leverage research and development for effective retrofit strategies.
• Partnering with companies providing retrofit solutions, realtors, and public health units to ensure a comprehensive approach to promoting energy efficiency in the rental sector. Thereby, speaking to the multitude of benefits that energy efficiency programs can provide.

Do you have additional suggestions for climate and equity synergies related to the rental retrofit market? Add them here.