U.S. government policy is a key driver for green real estate in numerous arenas, including the funding of research and development for building energy efficiency innovations [PDF], standards development (EPA developed Energy Star and the DOE funded some of the early development of LEED), and financing and tax policies that influence the health of the green building industry.
As of February 2011, federal real estate finance and tax policy are at the fore, with the release of President Barack Obama's 2012 federal budget. Over the past two weeks, the Obama Administration has unveiled policy proposals that have left me cheering in one case and gravely concerned in another.
Two enthusiastic thumbs up for the administration's proposed Better Buildings Initiative, announced on February 3. Better Buildings seeks a 20 percent improvement in commercial building energy efficiency by 2020, leading to an estimated $40 billion annual cost savings for property owners and tenants.
To this end, the administration would convert the current $1.80 per square foot deduction for commercial energy-saving improvements to a tax credit. A credit would allow building owners to reduce their income tax obligations dollar for dollar when they undertake an energy retrofit, a far more powerful financial incentive than the deduction currently in force. The administration estimates that the proposal could result in a ten-fold increase in energy efficiency retrofits for commercial buildings.
Better Buildings also proposes the creation of a Building Construction Technology Extension Partnership to provide workforce training in energy auditing and building operations; a pilot program for Department of Energy guarantees for energy efficiency upgrades at hospitals and schools and other commercial properties; and competitive grants to state and local governments for energy retrofit programs, an initiative tagged "Race to Green."
Unfortunately, the finance news is hardly so promising on the residential property front. The PACE controversy is still tied up in the courts with little hope of near term resolution, despite strong consumer interest in PACE programs. Another blow to the residential finance market came on February 11, with the administration's recommendation to wind down Fannie Mae and Freddie Mac, the two secondary housing finance giants now under federal conservatorship.