Bringing Down Barriers to Efficiency Building labeling also presents specific benefits that have the potential to bring down several key barriers that commonly obstruct the delivery of residential energy efficiency. The Landlord-Tenant Split Incentive One common barrier in trying to get homeowners to invest in home upgrades is the landlord-tenant split incentive in rental properties. Typically, landlords are not keen on investing in energy improvements when tenants are paying the utility bills. At the same time, tenants are unlikely to make improvements to a property they may not stay in long enough to recoup their investment. Even for efficiency improvements with a very short payback period, tenants may be reluctant to make investments in a property they isn’t theirs. As a result of this split incentive, the rental property often goes unimproved. Building labeling has the potential to mitigate this split incentive barrier (Dunsky et al. 2010): landlords of inefficient apartments must disclose the energy performance of their buildings, enabling prospective tenants to seek out more efficient housing. As a result, landlords have an incentive to invest in improvements that will save energy costs for their future tenants. The Builder-Buyer Split Incentive Paralleling the landlord-tenant split incentive, there is little incentive for a builder to install more efficient appliances or invest in a more efficient building envelope when the new homeowner will be paying utility bills. Indeed, the costs of these measures can drive up the builder’s selling price. Building labeling, however, provides an incentive for builders to construct energy efficient homes, and a disincentive to avoid building homes that will be rated poorly (IEA 2010).
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