Green Housing Finance A viable option for South

Africa’s 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 monthCapital costs of green

improvements ± R 5000Lifespan 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 overhangWindow placementThermally 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 R2 000.

Bulk material bought at a discount rate: 30% discount

Ceilings sold at a 10% interest rate over a 15 - 20 year period to homeowners

Lwandle

Hostel upgrade for 3500 residentsCost R4.85m (R1m – Housing; R 3.85m - DBSA)

DBSA Development Fund loan to local authority

383 solar waters installedLow 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 initiativesGuidelines 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 costMedium costHigh 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

IncentivesGEF/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 levelsWillingness to exploreNo new initiative since 2000Need for guaranteesNeeds a champion

The attitude of the low income sector to green loansLow awareness levels of the benefitsLimited interestLow motivation: cheap electricityLimited access/ exposure to green goods 1st loans usually used to extend house,

2nd loans often for ceilings and plastering (Kuyasa’s experience)

Loans used to buy goods that can be seen

Easy access to finance for furniture/ clothes

Barriers

No demandBorrowers must be convinced of

the benefitsInformation

High cost, low availabilityWill be helped by more mainstream

usePublicity and education

Barriers continued

Low cost of electricitySpare capacity running outPrice expected to rise (some

estimates 50% increase)No energy rating system

(external and verifiable method for lending institutions to quantify the potential returns)IIEC’s eco rating system

Conclusion

Need for a championGathering and disseminating information

EducationPublicity Benchmarking

Conclusion: potential lending methodologies

Project financeA 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 financeRL 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)