Within the market there is a massive, untapped opportunity to leverage smart technology, which is especially important to consider if you are a property or portfolio manager, developer, owner or another professional associated with or interested in the multi-family space. But, when it comes to technology like smart thermostats, real estate stakeholders must first overcome long-standing barriers to adoption, such as the split incentive on energy bills, lack of data and misconceptions about the demographics most interested in smart technology.
Facility managers, property owners, developers and other stakeholders currently have the unique opportunity to overcome these barriers as more residents begin to desire, and even demand, access to the latest smart technology. Installing more energy efficient devices in multi-housing buildings will save money and energy, attract new residents, provide more desirable amenities and improve owner economics.
Multi-housing energy use
There are a wide range of factors that impact the amount of energy an apartment or multi-housing unit consumes, but reporting from the NMHC has found that, “residents in multifamily rentals spend considerably more on energy per square foot than do multifamily owners or especially single-family owners or renters,” and the sector can consume up to twice as much energy as single family homes.
Perhaps in response to this energy-use pattern in the sector, there is a clear demand for “smart apartments” as the high-tech trend expands beyond the single-family home, creating the opportunity to bring smart technology deeper into the multi-housing market. A recent survey found 86 percent of millennials are willing to pay an additional 20 percent in rent for these types of amenities. Smart technology is appealing because it makes life easier. Since millennials and Gen-Zers are also more sustainably-minded consumers, the potential energy savings are a major draw because they deliver lower monthly bills and a smaller carbon footprint.
Challenges of implementing smart technology in multi-housing units
According to ACEEE’s Multifamily Energy Savings Project, the sector could save $3.4 billion in energy costs with energy efficiency improvements. Yet historically, there have been significant market barriers that have prevented stakeholders, including the real estate industry, from implementing smart technologies and energy-saving programs in the multi-housing market. The top challenges have included:
The split incentive: The person or party responsible for energy costs in a multi-family facility varies. The split incentive refers to the fact that tenants or owners who do not pay for energy costs are less likely to seek out opportunities to save energy. And, residents may be reluctant to make capital upgrades to a home they do not own. Finally, energy efficiency improvement projects often require a series of approvals from building owners, property managers, building staff and residents.
Lack of Data: The U.S. Department of Housing and Urban Development (HUD) has cited the systemic lack of data on multifamily energy performance as, “one of the most significant flaws affecting the market.” While barriers to data collection and analysis exist across the real estate industry as a whole, the multi-housing sector is particularly impacted because most properties have individual tenant energy meters, and data privacy expectations are typically higher for these residents than for commercial tenants.
Misconceptions about who can benefit
While many multi-housing dwellers are now seeking smarter features, these high-tech devices have historically been marketed to wealthier residents. As Navigant shared in a recent blog post, “Smart devices have traditionally been targeted at high-income, single family households. According to a survey by PwC, groups showing the most interest in interacting with smart home devices are consumers with a household income of $100,000 or more. This is because smart devices are considered premium products and are priced at a relatively high level.” But device prices are decreasing and many technology companies are now reaching out to a much broader customer base. Utilities like ComEd and Ameren in Illinois are helping to overcome these misconceptions by providing multi-housing building owners with direct purchase access to smart thermostats. As more multi-housing facilities begin to implement smart technologies, the assumption of limited access will continue to be debunked.
There is no single solution to these challenges, but smart thermostats are a strategically smart starting point because they automate savings, deliver incentives and rebates through familiar interfaces and capture valuable data. According to the latest data from Parks Associates, smart thermostats are being adopted at higher rates than any other home automation product and purchase intentions continue to climb.
Case studies show implementation is possible, with benefits
Everywhere you look, there is evidence that the real estate market is paying attention to the importance of including smart technology in new multi-housing construction. Industry leaders like PMG are developing X Social Communities — a new “social living” trend that combines residences with co-working spaces and offers technology amenities like smart thermostats. The target markets for these PMG Communities are densely populated urban areas with high rent burdens, and they are being developed at an accessible price point. HFF closed a deal this summer for a housing development project in California including “an array of smart technology features”.
But what about existing apartments and facilities? One pilot project in particular showcases the bottom line benefits of smart technology retrofits. When Avalon Communities installed Nest thermostats in its AVA Ballston property, users saw cooling costs decrease by 5 percent, while a control group without installed smart thermostats saw usage increase by 14 percent during July and August. Following an adjustment for the control group, AVA residents with Nest thermostats saved an average of 17 percent on cooling.
Tenants living in smart apartments that include smart thermostats get energy and cost savings, the ability to remotely control their home climate and smaller carbon footprints, all while multi-housing developers and owners increase the desirability of apartments, lower energy costs and ensure happier tenants. As we continue to learn more about the multi-housing space and how to address historical barriers to smart technology adoption, it is clear there is significant untapped opportunity for the real estate industry to play a critical role in reducing carbon emissions through reduced energy use while shoring up its own bottom line, saving tenants’ money and meeting the increasing desire for a more connected home.