Rolling back Idaho’s energy code requirements could impact some federal loans on new homes

A proposal to dramatically scale back Idaho’s energy code could impact a small portion of home sales backed with loans from the federal government. 

The U.S. Department of Housing and Urban Development told BoiseDev the federal government requires homes built in the last year before they are sold to someone with a loan backed by Federal Housing Administration, the USDA or the VA to meet minimum energy efficiency standards stricter than what Idaho is considering. This could mean denials, or more difficulty approving, up to 10% of FHA loans every year in Idaho and others guaranteed by the federal government. 

Throughout the summer, the Idaho Building Code Board has been discussing a proposal from the Department of Occupational and Professional Licenses to significantly pare down the state’s energy code regulations governing plumbing, HVAC, and electrical systems. Energy codes are building regulations governing a range of items in building construction related to energy efficiency, including insulation on hot water pipes, requirements for the sizing of heating and cooling systems, and tests measuring how well buildings keep inside air from going out. 

The idea has ignited a fierce debate in the contracting and engineering world, with some industry groups and contractors defending the energy code’s role in protecting consumers from high bills and shoddy building and others saying they restrict free market choice and drive up costs for buyers. The Idaho Building Code Board will continue to discuss the idea before making a final decision on the recommendation in November, which will then be sent to the Idaho Legislature for approval. 

If you would like to give feedback on the proposal, contact the board secretary through the information listed here

What homes have energy efficiency requirements?

Every home you try and buy with an FHA loan, which helps low-income Americans become homeowners, is not required to be energy efficient. 

In 2015, the federal government under President Barack Obama instituted a requirement for USDA and FHA-backed loans for both single-family homes and multifamily properties requiring newly built projects to comply with the 2009 International Energy Conservation Code. This means if a home was finished in the last year and you’d like to use a federally backed loan to buy it, it must meet certain specifications with its HVAC system, insulation and other upgrades. 

The current proposal on the table at the Idaho Building Code Board would bring make Idaho’s requirements less strict than the 2009 IECC. And because of a law passed by the Idaho Legislature earlier this year, the authority to determine Idaho’s energy codes lies with the legislature and local jurisdictions can’t adopt stricter codes if they choose. 

But, even though the federal government does have standards for these loans, it would not impact the vast majority of homes. Anyone who would like to use an FHA or USDA loan to buy a home constructed more than a year earlier would be able to do so, no matter if it complied with the energy code at all. 

A house under construction. Photo: Don Day/BoiseDev file

DOPL Operations Manager Michael Hyde told BoiseDev that DOPL is reviewing their proposal “with a fine-toothed comb” to ensure it won’t negatively impact federally backed loans. In an interview with BoiseDev, he acknowledged new homes built to the state’s newly deregulated standards could be ineligible for loans, but builders could work with potential homebuyers to ensure they are compliant. 

“It could impact the financing of these loans if the builder and owner rely just on these codes when they’re constructing these residences, but if they are looking at FHA funding for a new build they have to meet the parameters for the loans and that is something worked out between the builder and the owner,” Hyde said. 

A statement from DOPL spokesman Bob McLaughlin also posited removing regulatory burdens around energy codes “will assist first-time home buyers in the lower price tiers of the housing market to build a safe and affordable house, without the burden of additional code costs.”

What about other states without energy codes?

There are some states nationwide without an energy code at all that still have federally backed loans approved, but their laws are structured differently than Idaho’s. 

States are not required by the federal government to have an energy code, but just because they don’t have one doesn’t mean the requirement for newly constructed homes to adhere to the 2009 IECC guidelines doesn’t apply, HUD spokesperson Vanessa Krueger told BoiseDev. 

North Dakota, a largely rural state with a smaller population than Idaho, eliminated its energy code in 2009. Brandon J Dettlaff, the homeownership division director for the North Dakota Housing Finance Agency, said the energy code rules have not been an issue due to the low number of new construction homes people try to buy with the loans. 

Old Town Lofts Meridian
Old Town Lofts in Meridian under construction in February. Photo: Don Day/BoiseDev

“In North Dakota I’ve been involved in this issue for 15 years and we haven’t had any issues with (energy codes and FHA loans),” he said. “We get properties all over the state that aren’t in municipal areas (with building codes) and we haven’t seen any issues with it.”

But, unlike Idaho, states like North Dakota and Wyoming that don’t have an energy code allow cities to adopt stricter requirements if they choose. This means that while there isn’t a statewide energy code, most people who live in these states are in cities that have instituted at least the minimum 2018 IECC code requirements, according to Damon Woods, the interim director of the University of Idaho’s Integrated Design Lab at a recent panel about energy codes hosted by industry group ASHRAE. 

Idaho used to allow any local jurisdiction to adopt any code they chose up until earlier in 2022 when the state legislature passed HB 660. Along with turning over all of the authority on energy codes to the Idaho Legislature, the bill also capped any locality from adopting any energy code requirements stricter than the 2018 IECC. However, the bill does open the door for the Idaho Legislature to make further changes to the code, or do away with it altogether, if they so choose. 

‘There has to be a floor’

The Idaho Bankers Association is continuing to monitor the potential impact on FHA-backed loans, but they haven’t announced whether they’re for the proposal, concerned about it or neutral yet. 

Trent Wright, the CEO and President of the industry association, said even though federally backed loans are done through the government, they are what’s known as “partnership loans.” This means a portion of the loan is backed by a private bank and the other portion is from public funds in order to help low to moderate-income earners qualify for a property. 

Because of the involvement of the private sector in these loans, his organization has been talking to legislators about it and trying to educate them on the minimum energy code requirements for homes to qualify for an FHA, VA or USDA loan. He said the codes don’t have to be the most strict and current standards, but there has to be some sort of minimum work done on energy efficiency. 

“You don’t have to take the division of building safety’s every recommendation to upgrade efficiency or building codes to qualify for FHA loans, but what there has to be is a floor,” Wright said. “…We’ve been optimistic that those senators or legislators will understand that and won’t just wipe the slate clean. But, we don’t necessarily know how much trouble that will put on the population that can least afford it.”

A partially finished home in Nampa. Photo: Margaret Carmel/BoiseDev

Being able to pay utility bills is a concern for low-income or moderate-income homebuyers. Because of the impacts of these costs on buyers, Wright said he believes there will be a lot of work from lenders to help guide people who qualify for these federally backed loans to developers or projects that will qualify, even if they won’t be required by state law. Even though a home built to the 2009 IECC standard will be more expensive, he said the electricity inefficiencies over time would be more expensive for the buyer. 

He said there is a little bit of concern with how potentially eliminating large sections of the state’s energy code could play out, but because the exact impacts on potential homebuyers is unknown he is hesitant to “walk over to the statehouse with our hair on fire.”

“We are neither supportive or in opposition,” he said.”We are just trying to be a source of information. This might be a very threatening concern for a department or individually, but industry wide we don’t have the level of concern some people out there are saying we should have.”

Federal funding could also be in question

As Idaho considers a step away from more energy code regulations, the Biden administration is leaning in. 

The City of Boise’s building official Jason Blaise has spoken in opposition to the proposed cutbacks of the energy code and signed a letter with Boise’s Government Affairs Director Kathy Greismeyer raising concerns about the idea. One of the items of concern the city raised is the potential to lose out on funding from both the Bipartisan Infrastructure Law and the newly passed Inflation Reduction Act to help localities implement more efficient building codes. 

Their letter notes $225 million in available funding to states and possibly local governments to implement “resilient and efficient building energy code implementation” as well as another $1 billion for states and local governments nationwide in the IRA, including $670 to help with the implementation of “net zero” energy codes, according to the Washington Post. The detailed rules on how these funds will be distributed, who can qualify and what they can be used for are still under development by the federal government, so few concrete details are available. 

The City of Boise feels missing out on this opportunity for funds and allowing Idaho, or cities around the state, to go after these federal funds will hurt consumers who want more energy-efficient places to live as energy costs rise. 

“Ultimately, the rollback of these provisions will create confusion among building and construction stakeholders – whether its local governments and building code officials, homebuilders, or contractors,” the letter said. “Even more so, when consumer trends are aligned with energy efficiencies as a cost-savings measure given rising home and utility costs, our shared constituents and residents will most certainly be at a greater loss.”

McLaughlin, DOPL spokesperson, said after reviewing the City of Boise’s concerns, the agency does not think the funds are at risk because the building code board’s proposal wouldn’t remove the energy code in its entirety.

“Based on what has been submitted to the board it is not a concern because the proposed amendments to the 2018 IECC, do not prevent the State, local jurisdictions or any Idahoan from applying for the funding or rebates related to the Bipartisan Infrastructure Act funding as the proposed amendments are not removing the energy code as a whole or the enforcement of such,” he wrote. “To date information has not been received by the board that details the risk where such funding would not be granted due to the proposed amendments.”

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