Dyer: Split incentives: Renters vs. landlords

The landlord pays for upgrades to the house or apartment. The renter pays the electric and gas bill. This situation is politely described as “split incentives”. In order to improve energy efficiency in rental housing, the landlord would make an investment but only the renter would benefit from the lower utility bills.

Having been a renter all over North America and a landlord myself, I’m deeply familiar with how the relationship can break down. Landlords have mortgages to pay and updates to appliances or insulation projects eat into the bottom line. On the renter’s side I’ve experienced ignored repair requests and delayed repairs. I’ve rented places with appliances so old they qualify as antiques. Despite these issues, we still need to increase energy efficiency across the board. We cannot ignore the 30 per cent of Canadians who rent. Climate change is upon us, and energy efficiency is the most bang for the buck, so we have to face this problem.

The only way to deal with this efficiently is to place the financial incentive with the landlord. Landlords are business people: they purchase units with an eye on the investment and the rental market and they upgrade their stock to attract higher paying clients. The moment savings from energy efficiency becomes part of their bottom line, it will become a business priority.

There are two reasons tenants can’t be the pivot point for this problem: the first reason is that landlords don’t want tenants to do anything more than install LED bulbs. The idea of tenants replacing windows or upgrading insulation would put fear in the hearts of their parents….not to mention landlords. The second reason is that, while Canada does have 20 year tenants, many go into the situation with short term goals and stay just 2-3 years. That’s just not enough skin in the game to make investments.

Landlords will have to pay the utilities. Before everyone starts rolling their eyes, the rent should increase by the average utility payment over the last five years. This means that any money saved on energy efficiency goes directly into business profit. But if tenants know they don’t have to pay the electric bill, will they use a lot more energy? Will they leave the heat on and the window open?

If tenants know they don’t have to pay the electric bill, will they use a lot more energy?

There’s a shiny new piece of technology that could make this possible: Home energy monitors.

Because tenants generally pay for utilities, there is a metre for each and every apartment. This metre provides a single point where an inexpensive monitor can be installed. (There are also monitors that can be used for individual fuse boxes — these are ideal for business tenants.) The monitor provides data on energy-use to a website, available to both tenant and landlord. These monitors don’t just know how many kilowatts you use at any given time, they have “appliance tracking”.

These monitors can tell if a renter is using an oven as a source of warmth. They can tell if poor insulation means that baseboard heaters have to kick in twice as often. They can tell if you are using grow lamps…to grow herbs. Landlords can use the information to triage which appliances should be replaced first, schedule insulation work between tenants, and spot bizarre usage.

So let’s shift the burden of energy efficiency to the party who is most invested in the future. Let’s let the landlords make a profit off of energy efficiency. And let’s give Canadian renters the choice to live in an efficient and comfortable home.

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