Builders take legal action against energy-efficiency rule

The National Association of Home Builders, alongside attorneys general from 15 states, filed a lawsuit against two federal agencies for mandated adoption of energy-efficiency standards in new construction. 

In the complaint filed early in January, the plaintiffs alleged new rules implemented by the Department of Housing and Urban Development last year were unconstitutional and emphasized they would likely suppress production of lower-priced new units eligible for certain government-backed loans. The regulation would also increase costs for both builders and consumers, they said. Named as a defendant with HUD, the overseer of the Federal Housing Administration's loan programs, was the U.S. Department of Agriculture, which also guarantees mortgages.

"This ill-conceived policy will act as a deterrent to new construction at a time when the nation desperately needs to boost its housing supply to lower shelter inflation costs," said NAHB Chairman Carl Harris, who is also a custom homebuilder in Wichita, Kansas. 

"It is also in direct conflict with the current energy codes in the majority of jurisdictions around the country," he claimed in a press release. 

In introducing the rules, the departments used standards put forth by the 2021 International Energy Conservation Code and the American Society of Heating, Refrigerating and Air-Conditioning Engineers. NAHB previously estimated adoption would add as much as $31,000 to the cost of building a new home. 

The trade group also pointed out that the U.S. government's own analysis stated costs for a new-home buyer might increase by as much as $8,845. 

In its rollout of the new regulation, though, HUD and the USDA also underscored that over the life of a 30-year loan, the new standards would save the average single-family borrower approximately $25,100 in energy bills leading to a net savings of $15,000.

The plaintiffs found flaws in the departments' estimates, though. "HUD and USDA did not, however, revise their model to include real-world costs, real-world profit and overhead amounts, or typical real-world house designs," the filing stated, also describing the numbers offered by the government as "hedged and contingent speculation." 

Following implementation, NAHB had previously asked lawmakers last spring to consider co-sponsoring legislation to overturn the new rule. 

Spokespersons at both HUD and USDA said they could not comment on pending or active litigation. 

Signing on as plaintiffs alongside NAHB were state attorneys general from as far west as the Mountain region to the Eastern seaboard, many of which are seeing the most active growth in homebuilding nationwide. 

Supporters of this lawsuit also claimed that the energy-efficiency rules would serve to undermine the goals of certain federal home affordability programs, which provide grants to state agencies. States receiving funding through the HOME Investments Partnership Program and Housing Trust Fund might feel the impact through construction of fewer and/or more expensive units, the plaintiffs said. 

While the rules proved unpopular in the homebuilding industry, eight senators in September pushed for the Federal Housing Finance Agency to similarly adopt HUD's standards. The letter came after FHFA Director Sandra Thompson mentioned she would seek to introduce such a rule for conventional Fannie Mae- and Freddie Mac-backed loans during a congressional hearing earlier in 2024. 

Among the state plaintiffs in the new lawsuit, Tennessee also has a law in its books prohibiting "excessive" energy standards, the filing said. Any attempts to apply new rules stricter than current regulations would need to receive approval from state leaders, according to the lawsuit.