Today’s multifamily industry faces many complex decision-making considerations, many of which touch on sustainability issues. Environmental, social, and governance (ESG) topics affect multifamily buildings in ways unique to the industry. Often, the impacts are interconnected.
From a broad perspective, multifamily properties are already more efficient than single-family homes due to higher efficiency. More people can be housed at a lower construction cost, and more compact living quarters have a lower carbon footprint. Designing new multifamily construction projects for connecting to a clean energy grid and relying on renewable energy resources can significantly lower a building’s GHG emissions.
Even with these clear sustainability advantages, multifamily building owners and developers may assume sustainability-focused features are not worth the cost. While costs are indeed considerations to consider, cost-benefit analyses have become more complex due to industry-wide dynamics. Beyond calculating energy-efficient equipment or building improvement costs, climate change is creating financial risks such as insurance rates and energy regulations, while also bringing opportunities related to incentives and tax rebates for energy efficiency improvements and renter demand for sustainability.
These combined influences shape how and why the multifamily building industry is increasingly focused on sustainability. Sustainability is becoming a differentiating factor that not only helps multifamily building owners lower their long-term risks, but also helps attract renters.
However, sustainability isn’t a one-size-fits-all approach. Tracking and monitoring sustainability data can help multifamily building owners choose an effective strategy for their portfolio. We explore these dynamics in more depth and explain how to use sustainability to gain a competitive advantage.
Finally, prospective tenants are looking for rental properties with healthy, attractive environments and values-aligned sustainability features. Renter interest is yet another factor making sustainability a stronger priority for multifamily building owners and developers.
Supply and demand shifts
Affordability and access by renters is an issue affecting most multifamily markets. Development of multifamily building projects expanded significantly in the aftermath of the COVID-19 pandemic, when there was a shortage of single-family homes. In 2022, multifamily building development in the U.S. reached a 10-year peak with nearly 300,000 new projects started that year.
Following rapid growth in 2021 and 2022, high interest rates slowed new development in 2023 and 2024. Yet, overall supply is expected to exceed demand in 2024. An expected delivery of 440,000 units is planned to come online in 2024, and another 900,000 units are under construction. This could ease rental prices, but it also creates the need for multifamily building properties to stand out from their competitors.
Insurance rates and availability
Another issue that can also affect rental market affordability is insurance costs if passed on to renters. This is especially true in regions where disasters related to climate change are impacting building stock and are projected to increase. Insurers are increasingly pricing flooding, wildfire, storm, and other climate-related risks into their insurance policies, contributing to higher costs for building owners and developers. Adapting to these risks or building in lower-risk areas helps minimize high insurance costs.
Regulatory drivers
Currently, buildings are responsible for approximately 40% of greenhouse gas emissions in the U.S. Many regions are addressing these emissions through regulations such as building codes, GHG emissions standards, and GHG performance standards. Washington, New York, and California are states that are frontrunners in adding new energy efficiency regulations, along with 60 municipalities in the U.S. These regulations create the need for more detailed building energy management strategies that include reporting at a minimum. Long-term planning, budgeting, and target setting are also best practices for managing energy performance to avoid regulatory fines and enforcement.
Incentives
The Inflation Reduction Act and local state and regional incentives provide multifamily building owners the chance to use direct incentives and tax rebates to lower building electrification and energy efficiency costs. These can help the multifamily building industry to electrify their buildings and add energy-efficient features, both of which support regulatory compliance.
Renters’ demand for sustainability
Various studies show renters are interested in sustainability. Sustainability-linked savings through efficiency improvements and healthy living are important factors renters prioritize.
Each year, AMLI Residential publishes its Sustainability Living Index, featuring sustainability insights from its extensive portfolio of multifamily residences. Key highlights from the 2024 survey show that almost half of residents considered green features in their decision to rent, while nearly 80% believe that sustainability in a living space contributes to health. Top priorities for residents seeking green building features included air filtration systems (92.6%), energy-efficient features to improve financial savings (87.3%), and recycling, composting, and waste diversion (83%).
Greystar, a leading multifamily operator based in South Carolina, has also collected survey data from its residents. More than half of respondents view sustainability as either important or extremely important.
Past research from the National Multifamily Housing Council (NMHC)/Kingsley Associates Apartment Resident Preferences Report conducted in 2019 also highlights renters’ interest in technology such as on-site renewable energy and the Internet of Things as features that also attract renters alongside recycling programs and community-wide green initiatives.
Ways to drive sustainability in multifamily buildings
With the increasing importance of sustainability, multifamily building owners may want to adopt a management approach to strategically enhancing sustainability over time. Here are some ways to do so:
1. Bring sustainability data into decision-making
“Sustainable planning and energy modeling for multifamily homes truly requires alignment among the developer and design team stakeholders. Because of the high level of integration and collaboration, the stakeholders must be especially adept at listening to and incorporating a wide range of perspectives. The team needs to align the priorities of integrated design and the bottom line of the project. The entire team must have a clear and measurable objective that will ultimately drive choices and trade-offs.
All of these sustainable features have proven to be practical and affordable in the design and construction process, and also continue to pay off in lower energy and water costs for both owners and renters.” https://www.ashb.com/wp-content/uploads/2023/03/IS-2023-075.pdf
2. Improve energy efficiency
Energy efficiency strategies are available for almost every part of the building: the building shell, windows, lighting, equipment, and appliances can all be optimized for energy efficiency. Some common strategies include adding insulation, closing air leaks, installing air-tight windows and reflective paint on the rooftop, and installing energy-efficient lighting fixtures, appliances, and HVAC equipment such as heat pumps for low-emissions water and space heating.
After considering what to change, building owners can also apply strategies to minimize unnecessary use of on-site equipment, appliances, and lighting. Routine maintenance of equipment and appliances can ensure optimal use. To identify any issues, routinely monitoring building energy use data for anomalies and seasonal trends is necessary. Encouraging better tenant behaviors to save energy in their residences with signage or an energy-saving checklist can also support better whole-building performance.
3. Conserve water
Water conservation is another important way to improve the sustainability of a multi-family building, especially in areas facing drought and water scarcity. Water-saving fixtures such as faucets, toilets, and sprinklers can lower water consumption. Choosing plants and landscaping that don’t require extensive watering can also conserve water.
4. Divert waste
Waste diversion through on-site collection bins supports more substantial community incentives to lower waste in buildings. Composting bins, e-waste collection drives, and donation bins for reusable goods are all ways to go the extra mile toward building awareness of sustainability in your building and lowering waste.
5. Invest in renewable energy and electric vehicle charging
Renewable energy, like rooftop solar, can lower energy costs and greenhouse gas emissions by supplying energy directly to a building.
Electric vehicle chargers and bicycle storage space are additional features that provide tenants flexibility in choosing low-carbon emissions transportation. EV chargers can also provide backup energy storage for renewable energy.
6. Optimize building use with IoT
IoT automations using cloud-based technology supports more effective management of diverse building systems, all of which require energy. Aligning security systems, energy and water meters and sub-meter readings, waste management, and temperature control all in one main central control environment can greatly improve a sustainability-focused building management strategy.
7. Enhance green space and biodiversity
Eco-friendly landscaping with native plants, pollinator-friendly flowers, and edible plants can promote biodiversity and create aesthetically enjoyable outdoor spaces for residents. Prioritizing green space doesn’t require significant land area, using vertical gardens or rooftop gardens.
Ways to showcase sustainability progress
Publish an annual sustainability report
Companies that publish their sustainability performance in an annual report can address diverse audiences, from investors to tenants, and their commitments and progress related to sustainability.
Green building certifications
Certifications for construction and in-use operations help communicate to the public your commitment to ensuring healthy environments and a high standard of sustainability. Seventy-five percent of renters show an interest in green building certifications. Popular certifications include Leadership in Energy and Environmental Design (LEED), Building Research Establishment Environmental Assessment Methodology (BREEAM), the National Green Building Standard, and the Fitwell Building Standard for healthy buildings.
Report progress to GRESB
GRESB (the Global Real Estate Sustainability Benchmark) is a leading organization that benchmarks sustainability performance in real estate. By partnering with GRESB and reporting performance annually, multifamily property owners and developers can gain industry knowledge linked to sustainability.
While juggling multiple sets of expectations for insurers, regulators, renters, and investors can be challenging, sustainability is a common concern across the board. It makes sense to include sustainability considerations in planning and budgeting for long-term success.
