Residential PACE is expanding access to credit and capital for homeowners

November 1, 2022

Extreme weather is rapidly becoming the expected norm. The once annual fire season in the U.S. has become a year-round threat. Hurricane Ian underscores yet another deadly and destructive hurricane season. Also, there has been catastrophic flooding on the East Coast and extreme temperatures are common across the country.

As if the extreme weather was not enough of a concern, the current inflationary economic environment challenges homeowners in unprecedented ways. Electricity costs have increased by over 11 percent and the price of natural gas by over 21 percent from March 2021 to March 2022. These increases are particularly taxing on low-income households, with some families spending up to 30 percent of their income on energy costs.

Many communities lack the capacity to invest in basic infrastructure and their aging housing stocks, leaving homeowners vulnerable to high energy costs and the threat of increasingly severe weather conditions. Additionally, construction costs are up 19 percent from a year ago, resulting in higher project costs, making it difficult for homeowners to afford the home upgrades necessary to strengthen their homes and make them more energy efficient.

The disproportionate gap in access to financial services cannot be ignored

In August, President Biden signed into law the Inflation Reduction Act, which will lower the costs of some improvements and aid those suffering from the disproportionate impacts of climate change through tax credits, rebates, and grants. While this is a vital step, it will take time for homeowners to feel the effects of this legislation, and – even when the federal funds are available – many will still face a gap in covering the costs of making necessary and critical home improvements.

The Federal Reserve recognizes a notable gap in access to basic financial services among minorities and those with low income. Roughly 26.5 million Americans cannot qualify for traditional financing because they do not have credit reports or scores. As many as 60 million Americans have difficulty qualifying for favorable and affordable financing terms.

R-PACE expands access to credit and capital for eligible home improvements

Despite credit barriers holding millions of Americans back, the residential Property Assessed Clean Energy (R-PACE) program is designed to help homeowners from all walks of life access affordable financing for improvements that make their homes safer, stronger and more efficient. State and local governments can help expand access to credit and capital for eligible home improvements through the innovative and equitable R-PACE financing program and close the gap for millions of Americans.

The R-PACE program allows property owners to finance the upfront costs of energy, water conservation and resiliency improvements through a special, voluntary assessment on their property tax bill. R-PACE financing is secured by the property, enabling homeowners to access low, competitive rates, longer repayment terms and larger financing amounts.

The R-PACE program is primarily based on the property’s available equity and the homeowner’s ability to pay the assessment (among other factors) and not an applicant’s credit score. This enables R-PACE to apply more inclusive and equitable underwriting criteria to customers than traditional financing options and helps to make improvements within reach of more homeowners.

While R-PACE is an innovative policy tool for local governments, special district assessments models are hardly new – the model has been around for centuries. Local governments commonly rely on special assessments levied against land when installing sewer lines or paving streets. R-PACE uses the special assessment mechanism precisely as intended: as a means for local governments to leverage the capital markets to achieve important policy goals for their constituents without the use of public funds.

Man and woman holding a dog in front of their home

ANGEL & BRENDA CALDERON. HAPPY FLORIDA R-PACE CUSTOMERS. PROJECT COMPLETED: WIND RESISTANT ROOFING

The creation and evolution of R-PACE financing

The R-PACE model was first developed in 2007 in Berkeley, California, and its creator later went on to found Renew Financial, a leading R-PACE administrator. Subsequently, legislatures in states such as California, Florida and Missouri passed laws to make R-PACE available to their local governments, and hundreds of communities in these states have authorized R-PACE, providing homeowners in their jurisdictions another option for financing their critical home upgrades. In other states, work continues to launch programs where legislation has been passed and to pass new laws where needed.

R-PACE is evolving and today offers homeowners safe, affordable financing with consumer protections that go above and beyond what traditional home improvement financing alternatives commonly provide. These include equitable eligibility criteria, clear disclosures and a confirmation of terms phone call from a real person to each homeowner. Contractors are also screened and final payment is issued to contractors only when homeowners sign off that the work was completed to their satisfaction.

State and local governments must be bold enough to adopt the program

Few private financing tools serve a public purpose like R-PACE does – to empower American homeowners to make energy and resiliency improvements that strengthen their homes. Through 2021, over 320,000 homeowners have used R-PACE financing to complete critical home projects – transforming neighborhoods, making energy affordable and preventing damage from severe storms. R-PACE could be available to hundreds of thousands more communities and millions of homeowners, but only if state and local governments are bold enough to adopt the program in their communities.