REMI
New green buildings strategy mostly a rehash

New green buildings strategy mostly a rehash

One new incentive program introduced for affordable housing providers
Monday, July 29, 2024

The Canadian government’s newly released green buildings strategy contains little that is actually new for commercial real estate or public sector facilities. Rather, it’s an after-the-fact summary of programs and policies that have already been announced and funding initiatives that are mostly in progress. This fulfills the 2022 federal budget promise for an overarching masterplan, and parses out where various envelopes of funds have been channelled or will be directed.

The strategy reiterates three key federal intentions to reduce greenhouse gas (GHG) emissions in line with national targets to achieve net-zero emissions by 2050, and to bolster the built environment’s resilience to climate change. That entails: accelerating the pace of retrofits for existing buildings; ensuring that new construction meets low-carbon, high-performance criteria; and nurturing skills, technologies and financing mechanisms to make both those outcomes possible.

“It is a challenging sector to decarbonize because we must all do it, together. To succeed, close collaboration is needed between the federal government, provinces, municipalities, Indigenous groups, businesses, financial institutions and industry,” maintains the joint introductory statement from Jonathan Wilkinson, Minister of Energy and Natural Resources, Steven Guilbeault, Minister of Environment and Climate Change and Sean Fraser, Minister of Housing, Infrastructure and Communities. “There are 16 million homes and half a million other buildings standing in Canada today and most of these are expected to still be standing in 2050. Each home and building owner has a role to play in this sector to upgrade and retrofit these spaces to significantly reduce emissions in that time.”

Perhaps indicative of the staleness of the messaging, a junior minister with nebulous ties to those three portfolios — Soraya Martinez Ferrada, Minister of Tourism and Minister responsible for the Economic Development Agency of Canada for the Regions of Quebec — represented the government when the strategy was officially unveiled earlier this month. That’s more than 12 months behind the originally envisioned spring 2023 schedule, which was announced with the government’s consultative discussion paper two summers ago.

Third-party project managers deemed more effective for reaching low-income tenants

The strategy’s regurgitation of existing initiatives does come with one new incentive program for affordable housing providers. Canada Mortgage and Housing Corporation (CMHC) has been assigned to deliver the program, which underwrites deep retrofits that can reduce energy consumption by at least 70 per cent and greenhouse gas (GHG) emissions by at least 80 per cent compared to pre-retrofit performance.

Non-profit housing corporations, public housing agencies, rental cooperatives, Indigenous governments and organizations, and provincial/territorial and municipal governments are eligible for up to $130,000 per project for pre-retrofit preparatory studies and up to $170,000 per unit in combined low-interest repayable and forgivable loans for retrofit measures. The forgivable portion will max out at $85,000 per unit or 80 per cent of eligible costs, whichever is the lesser amount.

This could apply for community and social housing, Indigenous cultural spaces, mixed-income rental housing or mixed-used developments with an affordable rental housing component, shelters, transitional and supportive housing or single-room occupancy buildings. Qualifying buildings must have at least five dwelling units or single-room occupancies and be at least 20 years old, with some exceptions for newer vintage housing in Nunavut, Yukon and Northwest Territories.

In total, $19.5 million has been earmarked to fund pre-retrofit studies and $1.1 billion will available to bankroll retrofit measures. Recipients are expected to repay 20 to 50 per cent of their share of the latter amount over a period of up to 40 years, but will be required to cover only the interest on loans until the energy retrofit components of their projects are completed and they begin to realize those cost savings.

This new program replaces previously fully subscribed (and thus terminated) grants for homeowners to undertake energy and emissions-reducing improvements, and is presented in the federal government’s announcement as a more effective instrument for reaching targeted economically stressed households. Project proponents working with qualified energy services companies will handle the administrative, technical and financial aspects and there will be no costs for unit occupants.

“Using a direct-install model, where the retrofits are managed and delivered by third parties, this program could provide participating households with support up to four times more valuable than the former grant program. Recommended retrofits will be determined by experienced energy efficiency professionals, enabling each participant to receive what their home needs and making their homes more affordable and comfortable,” the government release states.

Existing programs promoted for commercial and institutional buildings

Turning to commercial and institutional buildings, the green buildings strategy tallies the programs through which the government is investing in energy retrofits and other improvements to reduce GHG emissions. Funds for the private sector are largely channelled through Canada Infrastructure Bank’s buildings retrofit initiative, which provides low-cost financing either directly to large players that can bring a minimum of $25 million in equity to the deal or to aggregators that are tasked with managing retrofit programs for a slate of smaller property owners. The deep retrofit accelerator initiative is a complementary program, underwritten through a $200 million 2022 federal budget allocation, which also tasks designated organizations (chosen through a competitive process) to “build capacity” for deep retrofits in the commercial, multi-residential and institutional property sectors.

Meanwhile, $1.5 billion is rolling out for upgrades and construction for a range of buildings that serve a community purpose and the Federation of Canadian Municipalities oversees the green municipal infrastructure fund, which subsidizes larger scale retrofits of public facilities. As well, $100 million has been made available for provincial/territorial, municipal and Indigenous governments and national and non-governmental organization to promote the adoption and implementation of the highest tier of national energy code performance criteria or other high-performance building codes.

The Canadian government has also made a commitment to reduce GHG emissions and demonstrate leadership on promoting climate change resilience within its own portfolio of buildings. Most recently, it has introduced new policies to target net-zero emissions in office space leased from private sector landlords and introduce conditions related to climate risk analysis and life cycle assessment for contractors bidding on public contracts.

Private sector participation called crucial for success

Building owners/managers, developers, investors and financiers, industry associations, organized labour and clean tech advocates are tapped to be drivers of the green buildings strategy. It’s envisioned that they will see and respond to economic opportunities and collectively support the demand for and scale of activities that lead to new industry norms.

“The private sector and civil society have a critical role to play in developing awareness of — and adopting and investing in — green buildings,” the text of the strategy urges. “Creating demand by raising awareness of heat loss in buildings, fuel switching technologies and resiliency options will help spur the green buildings transition from the ground up.”

In that vein, almost one quarter of respondents to Altus Group’s most recent quarterly survey of commercial real estate conditions and sentiment predict that environmental and sustainability requirements will be a high priority in their professional endeavours over the next 12 months. That’s a significant gain from the approximately 15 per cent of respondents who identified those issues as important during the first quarter of 2024, but still lags well behind the top concerns revolving around the cost of capital and interest rates (prioritized by 58 per cent of respondents), development/construction costs (55 per cent), inflation (41 per cent) and operating costs (39 per cent).

A more detailed breakdown suggests that a larger share of the players with greater economic clout are on board. In total, 50 per cent of respondents report that ESG considerations significantly or moderately influence their investment or credit decisions, but that jumps to 76 per cent of firms that have more than $5 billion worth of real estate under management. Conversely, 12 per cent of survey respondents say ESG is a negligible factor in their decision-making, but none of them are with firms that have more than $5 billion worth of real estate under management.

Firms with $500 million to $1 billion worth of real estate under management are most likely to report that ESG considerations are integral to decision-making — 33 per cent versus 18 per cent across the total survey base.

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