New HVAC SEER and HSPF Standards Coming in 2015 will Increase System Replacement Costs for Landlords in Maryland, Virginia, and Delaware
Changes are coming for the HVAC industry that will have an impact on your choices in the area of home comfort. The US Department of Energy (DOE) set into place new energy efficiency standards for heating and air conditioning equipment, effective January 1, 2015. These updates require that all residential HVAC equipment manufactured on or after January 1, 2015 carry higher minimum Seasonal Energy Efficiency Ratio (SEER) and Heating Seasonal Performance Factor (HSPF) ratings.
While heat pumps will carry a national required standard of 14 SEER and 8.2 HSPF (8.0 HSPF for packaged heat pumps), the DOE will now differentiate SEER rating requirements for air conditioners based on region. The U.S. has been divided into North, South, and Southwest regions, respectively. Air conditioners installed in the North region after January 1st, 2015 will be required to perform at 13 SEER or higher, whereas the required standard for the South and Southwest regions will be 14 SEER. DOE regions may be somewhat counterintuitive, but note that MD, VA, and DE are all three captured in the region that will all have to comply with these higher standards (SEER 14 and 8.2 HSPF or higher) starting next year.
Why does this matter for landlords or property managers? While representing significant energy savings over the long run on both an individual and a national level, the first impact these requirements will have will likely be in the area of price increases for high efficiency equipment. So, the cost of unit replacement will increase almost immediately and the cost of older unit repairs will likely increase shortly thereafter. Therefore, residential investment property maintenance costs and rental rates may have to increase to offset these increasing prices. Whenever a standards regulation change of this magnitude is instituted, prices of higher efficiency equipment are always affected. Following the last major efficiency upgrade, there was a price increase for the new standard equipment of between 8-12%, and we can likely expect the same in 2015. Although we cannot know definitively how air conditioner and heat pump prices will be affected by the new standards, we do know that local distributors have predicted a "substantial price increase" in higher efficiency equipment next year.
Equally difficult to pinpoint is exactly how long the equipment that will be rendered obsolete by the new standards (but still held in the distributor's inventory) will be available to consumer. Although they will be allowed to continue to sell off their inventory of equipment produced prior to January 1, 2015, we know that no distributor will want to be stuck with shelves full of obsolete inventory. We expect that actual production was cut off far ahead of the January 1st deadline, and that a large portion of the available inventory will be acquired by large national home builders in order to delay the effects of the new DOE standards on their operations. This means that any available inventory of the cheaper equipment is probably almost gone.
We also agree with the industry prediction that federal and state energy efficiency rebates and tax credits will disappear next year now that these regulations will coerce replacement of worn out equipment with higher efficiency HVAC units. We also predict that local power companies and manufacturers will likely follow suit in their incentive programs.
As a landlord or property manager, what action should I take? First, start by considering the age of your current HVAC equipment. The standard warranty for an air conditioner is anywhere between 5 to 12 years, while the average effective life of an air conditioner is about 12 years. If your equipment is nearing the end of its service life or is already maintenance "needy," then immediately replacing it may enable you to purchase one of the still available, cheaper units (decreasing the amount of time required for the equipment's return on investment). Of course, if you're providing utilities as part of the lease, you may want to switch over to the more high efficiency units in order to reduce your reoccurring electrical costs. For example, upgrading a 9 SEER, 3 Ton air conditioner to a 14 SEER unit (the new minimum rating) can save you up to 36% per year in electricity costs. The yearly savings represented by upgrading to an even more efficient 20 SEER air conditioner would be up to 55%!
If you find that your air conditioner or heat pump is due for replacement, consider the following options:
Option 1: purchase a new system that meets the current (older) standard. If you act soon, while these products with a 13 SEER rating are still available, you will be able to put off the entire issue for about another decade or more. You'll also be eligible to receive any power company and manufacturer rebates and any available tax credits while reducing maintenance costs. We think this option has the greatest ROI potential for property owners not providing utilities w/in their lease.
Option 2: upgrade to the new 2015 DOE standards-compliant equipment now. Purchasing a more energy-efficient air conditioner or heat pump ahead of the January 1st deadline will allow you to avoid some of the imminent price increases on this type of equipment and the added benefits of reduced maintenance and energy costs. We think this is the best option for landlords providing utilities to tenants--particularly when coupled with a programable lock out feature on the new thermostat.
Option 3: wait to act until after January 1, 2015. This decision will give you the benefit of knowing for certain just what the efficiency upgrades will entail and allow you to purchase the latest products; however, you will no longer be able to opt for the currently-available lower cost equipment with a 13 SEER rating. You will be forced to purchase 2015 standard equipment, for higher prices, and with lower rebate and tax credit potential.