Green Housing Finance A viable option for South Africas low income housing market? By Sue Bannister © IIEC

Housing that incorporates energy or water efficient considerations and technologies into its design and construction Green or eco-efficient housing:

Most green home improvements or technologies are more expensive than non-green alternatives They result in long term savings for the homeowner in service charges.

Using Green technology does not have to be based on environmental considerations: it can also simply be a matter of saving money

Green Housing Finance: Loan finance for making eco- efficient improvements to a house, based on the expectation that these interventions will reduce the running costs of the house.

Green finance gives credit to a homes energy efficiency. Allowing the borrower a greater debt-to-income ratio Giving the home buyer the ability to buy a higher quality home because of the lower monthly costs of heating and cooling the home

For example: a typical low income South African household Lights (3 x 100 watt incandescent bulbs) used 5 hours/day - R16/month Bar heater (used for 5 hours a day) – R70/month Electric geyser (assume 2500W) on for about 5 hours a day. R135.00/ month = R220 per month

The alternative: an eco-efficient house Lights (3 x 20 watt compact fluorescent light bulbs) used 5 hours/day - R3/ month Insulated ceiling and gas heater (used for 2 hours a day) – R50/ month for gas Solar water heater (no heating costs) = R53 per month

House # 2 uses 75% less energy Saves R 167 per month Capital costs of green improvements ± R 5000 Lifespan of improvements:10 – 20 years

Passive Solar Design Education and information on passive solar design to clients could mean more savings and a more comfortable home. Roof overhang Window placement Thermally efficient building materials

Examples of Green Housing Finance Initiatives USA: Energy Mortgages are provided by Federal Housing Administration, Fannie Mae and Freddie Mac

Federal Housing Administration Allows a 2% stretch: borrowers can access 2% more than their standard income to loan ratio would allow, if they purchase an energy efficient home An energy rating system is available to gauge and document the relative energy efficiency of the home.

Fannie Mae : Housing and Environment Initiative Energy Efficient Mortgage (EEM) allows borrowers to finance energy improvements for up to 15% of the value of their home or 5% of a new homes construction. Monthly energy savings are added to borrower income in the qualification calculation Value of the energy efficiency measures, (which is determined by a third party energy rater), is added to the home's appraised value. SmartCommute Mortgage - designed to promote homeownership in neighborhoods near public transport a Property Geo Coder, is used to determine the suitability of a homes location

Germany: KfW - Energy Conservation programme CO² Reduction Programme finances investments in climate protection in new residential buildings and construction of new energy-saving houses. CO² Building Rehabilitation Programme finances measures to reduce CO² emissions from old residential buildings. 100,000 Roofs Solar Power Programme provides loans for photovoltaic systems which can feed into the electricity network. 10 year loans where over the first two years borrowers only pay the interest and not capital on the loan. Subsidised interest rates.

South Africa FINESSE - Financing Energy Services for Small Scale Energy Users – Ivory Park Lwandle – Solar water heaters in Helderberg, Western Cape

Finesse Cost of purchasing and fitting an insulated ceiling for a 50m² house was approximately R Bulk material bought at a discount rate: 30% discount Ceilings sold at a 10% interest rate over a year period to homeowners

Lwandle Hostel upgrade for 3500 residents Cost R4.85m (R1m – Housing; R 3.85m - DBSA) DBSA Development Fund loan to local authority 383 solar waters installed Low running and maintenance costs (no electrical backup)

Green Housing Policy in SA Environmentally Sound Low Cost Housing Task Team (ESLCHTT)

Green Housing Policy in SA: DoH initiatives Guidelines for environmentally sound housing. The development of a strategy for promoting environmentally sound housing. Residential eco-rating system (a system for rating homes and eco-improvements). Review of the national Building Regulations to strengthen standards for energy efficiency. A report on the barriers to achieving energy efficiency in the housing sector.

DoH eco-efficient interventions 3 categories of interventions: Low cost Medium cost High cost

Low/ no cost green interventions eg house orientation, window placement, shared walls Regulations

Medium cost green interventions eg materials choice, ceiling overhang, cfl lights, water harvesting Incentives GEF/World Bank project Preference for green tenders

High Cost green interventions eg Solar Water Heaters, Solar Home Systems Finance

The attitude of the formal banking sector to green loans Low awareness levels Willingness to explore No new initiative since 2000 Need for guarantees Needs a champion

The attitude of the low income sector to green loans Low awareness levels of the benefits Limited interest Low motivation: cheap electricity Limited access/ exposure to green goods 1 st loans usually used to extend house, 2 nd loans often for ceilings and plastering (Kuyasas experience) Loans used to buy goods that can be seen Easy access to finance for furniture/ clothes

Barriers No demand Borrowers must be convinced of the benefits Information High cost, low availability Will be helped by more mainstream use Publicity and education

Barriers continued Low cost of electricity Spare capacity running out Price expected to rise (some estimates 50% increase) No energy rating system (external and verifiable method for lending institutions to quantify the potential returns) IIECs eco rating system

Conclusion Need for a champion Gathering and disseminating information Education Publicity Benchmarking

Conclusion: potential lending methodologies Project finance A package of green goods, combined with low/ no cost green design interventions Information and education in a concentrated area Show houses

Conclusion: potential lending methodologies Product finance RL identify suitable products for geographical area Finance via retailers for specific products (eg solar water heaters) or a package of products (where individual prices are too low)