Green mortgages: Homes need to catch up to climate change

When we think of tackling the problem of climate change we might think of smoke-belching power plants, or gas-guzzling trucks, or the guilty pleasure of a last-minute flight to Cancun.  

But a huge part of the climate problem is generated by us, simply living our daily lives, at home or at work. Twenty percent of total emissions in the U.S. originate in energy consumption in the home. No doubt, we could do better in turning off the lights and setting the thermostat to more moderate temperatures, but a big part of the problem is beyond our control. Most people don’t deliberately waste electricity. You can’t help it. America’s buildings; its homes, its offices, its stores and its warehouses, leak. They leak heat in the winter and cool in the summer. 

Bigger houses lived in by the most affluent, leak most. But it is those on low incomes, in poor quality housing who pay proportionally the highest bills. The pain is evident in the alarming figures for energy poverty amongst Black and Latinx Americans (more than one in three.) The energy crisis is wrapped up in a broader housing crisis. In Baltimore, 42 percent of the homes are so severely afflicted by mold and decay that they are unsafe for the basic insulation work needed to fix their energy leaks. In Atlanta the percentage may be as high as 64 percent.

Fixing this isn’t rocket science. It isn’t like figuring out how to make steel with hydrogen, or power passenger jets with biofuel. The solutions are easy. The trick is to figure out how to make those fixes in 118 million homes and tens of millions of offices and commercial buildings. New builds are relatively easy. The problem is upgrades to the vast stock of existing buildings. 

The good news is that solving it promises to offer millions of meaningful and well-paid jobs for energy efficiency specialists, electricians, contractors and builders in communities up and down the country. But how do you get it done? The first, and most important, step is a massive mobilization of housing finance. That we have done before.   

After the Great Depression, America decided to put government money behind the American Dream of homeownership. It didn’t do that for all Americans. But for the white majority, the so-called government-sponsored enterprise (GSEs) provided a backstop, securing the affordable 30-year mortgage as one of the privileges of the American way of life. In due course what emerged were Fannie Mae, Freddie Mac, Ginnie Mae and their regulator the Federal Housing Finance Agency (FHFA), which underwrite a huge slice of the U.S. real estate market. These so-called “conforming mortgages” set the standard for the entire market. 

In 2021, we need to define a new standard, this time for all Americans. By 2050, all Americans, whether homeowners or tenants, should be able to live in homes that are efficient, clean and healthy, that do not burden them with excessive utility bills and do not contribute to the climate crisis. Every property that benefits from a GSE guarantee should meet the highest energy standards. Every single mortgage should be a green mortgage. 

We know it can be done. Freddie Mac has a host of green lending programs and multiple teams supporting them. At Fannie Mae green mortgages surged from nothing to 25 percent of its multifamily mortgage business over the last decade. America’s government-sponsored mortgage giant has quietly become the largest issuer of green bonds in the world. 

It was an initiative launched by entrepreneurial activists at Fannie Mae. But its growth was powered by the encouragement of the FHFA and by the appetite of global capital markets. Investors worldwide snapped up safe and green assets. Trump-appointed leadership at the FHFA sought to dial back the program. That can easily be fixed. Fannie Mae has already launched a single-family program which saw explosive growth in 2020. 

What’s needed now is decisive leadership by the FHFA — to take charge of these disparate and disjointed programs, unify, regulate, empower and expand them. The FHFA is the logical choice to set much-needed standards and criteria and act as a screener to mobilize the massive investment needed to rehabilitate our housing inventory; the incentives are aligned for them to balance prudence with urgency.   

With regulatory support and incentives this is a triple win for the climate, for social justice and for jobs. Making the energy transition is going to be hard. It may be divisive. We should seize the easy wins where we can.

Adam Tooze is the Shelby Cullom Davis chair of History at Columbia University and serves as director of the European Institute. In 2019, Foreign Policy Magazine named him one of the top Global Thinkers of the decade. His upcoming book is “Shutdown: How Covid Shook the World’s Economy,” available September 2021. Follow him on Twitter: @adam_tooze.