Principal, interest, taxes, and insurance – but not utilities?
This is a green policy question.
The housing market in this country is driven by financing. Financing is driven by government-created markets in mortgages and government-backed insurance. Under those policies, the principal measure used to assess a borrower’s suitability for a loan is their ability to make the monthly house payment: principal, interest, taxes and insurance. Yet the monthly payment doesn’t include utilities, which can be more than taxes or insurance, and can certainly vary much more dramatically.
Including utilities in the monthly payment would encourage conservation. More efficient houses would have lower monthly costs and would command higher prices. It’s already true that high taxes or insurance costs depress home values. People talk about payback periods for energy improvements, but the payback would come when you sell the house, whether that’s decades down the road or you’re fixing up a house to flip it.
I don’t think it would be cumbersome to implement. Here in DC the permit office requires a stamped Manual J for every new home or major renovation. Existing homes have a usage history. Lenders could require sellers to provide either a Manual J or a usage history. It would be in the banks’ interest as well, since their monthly payment calculator would more accurately reflect what the borrower was getting into.
It’s an oft-repeated refrain that 99% of buyers don’t care about efficiency. This is a simple way of making them care, that’s in their own interest and good for the environment.
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