Published by Joe Gillach under Energy Efficiency, Sustainability

Most days I truly love my job; but last Thursday was not one of them.

I am a partner in a real estate investment firm that buys and guides the renovation of large, garden-style apartment buildings—basic workforce housing for the majority of people in this country at some point in their lives. Oddly, the cause of my funk was the normally benign issue of laundry: specifically, washers and dryers.

Recently when I needed to replace an ancient pair in my northern California home, I went automatically for an Energy Star certified set. Use less energy, consume less water, get a quick payback…that’s a straightforward value proposition. The fact that my local utility, PG&E, was offering a generous rebate was simply icing on the cake. I would have bought the Energy Star washer and dryer regardless. I have an 8-year old, and I want her to have a future.

Last week’s work issue had a larger scope: 240 pairs of machines, one set for each unit in a suburban Houston apartment complex that our firm is helping renovate after major damage from Hurricane Ike. While the options are simple, the economic tradeoffs are far less so:

• A:  Purchase standard, non Energy Star certified, washer/dryers for $685 a pair, or;

• B:  Purchase Energy Star certified washer/dryers for $895 a pair, a $210 premium.  (The local Houston utility that provides service for our property offers no rebate incentives.)

Now a $210 difference might not seem like much in the context of global warming until you multiply it by 240 units. Then you are talking nearly $50,000.

In a robust economy, it’s a challenge to generate a reasonable profit in business while not contributing to the environmental catastrophe unfolding around us. In a recession, it seems nearly impossible.

In a rising market, an owner could tack on an extra $5 dollars per month in rent to offset the additional cost of the Energy Star machines. But in today’s economic freefall, people are losing jobs and struggling to pay their rent; a prudent landlord understands that even a small rent increase can severely impact tenants.

You might wonder why a landlord wouldn’t take the long view and factor in the cost savings in electricity and water to offset the higher price tag of the Energy Star appliances.

In a nutshell, the utility and water savings benefit the renter only, because they pay their own utility bills.

This largely explains why many homeowners are stepping up their conservation efforts, while multi-family apartments lag behind: the added cost of energy-saving appliances falls on the economic shoulders of the landlord, while the renter gets the savings.

As the academics tell us, rightly or wrongly, most people do what they are rewarded for doing. A landlord, who is the de facto financial steward for a property-owning investors’ group, has no direct incentive to invest money in improvements that show no promise of payback or a reasonable return. Therefore, a $210 added cost for a premium washer/dryer is a bad financial choice if it yields no increase in rent and generates benefits only for the renter.

Of course, this is environmentally short-sighted, as the true cost of the inefficient washer/dryer will ultimately be borne by society, if not directly by this landlord and renter.

And many renters can be equally myopic, focusing exclusively on their monthly outlay, not on the total housing cost per month. Renters’ utility expenses and the total monthly cost would fall if they were willing to pay a higher rent in exchange for energy-saving appliances. (This is the same argument that architect Michelle Kaufmann makes in her recent white paper on the real cost of home ownership—discussed in another blog on Green by Design.)

Psychologically, renters are resistant to paying more for the sake of machines they don’t own but merely use during the period of their tenancy.

This dysfunctional dynamic also covers other energy savers—light bulbs, for example. When landlords pay for bulbs located inside apartment units, the higher cost is their burden only, while the energy savings accrue to renters.  (Long ago, most landlords installed low-energy bulbs in the common areas of their buildings, as the lower utility costs benefited them directly).

The same logic applies across the green spectrum: solar panels, low-VOC paints, and environmentally sensitive carpets, for instance. Rhonda Dibachi, co-founder of the clean tech venture accelerator, Noribachi (an investor in Green by Design), believes that renters are largely disenfranchised from the green movement when it comes to their homes. Given that 87 million people in the US are renters—32% of our population—this is no small environmental matter.

So what did we decide in the case of our Houston apartment complex? So far, nothing.

We’re investigating the purchase of Energy Star appliances outside the Houston area—in places where appliance dealers who are more severely impacted by the recession may be more willing to sell at discount prices. We are also exploring bulk-purchase discounts with several manufacturers. In sum, we are trying to close the cost gap to make this work, so that we can do right by our investors, our renters, and the environment.

If you know of any deals, let me know. Seriously.