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Renter (Mis)perceptions | Enervee Blog

Written by Anne Arquit Niederberger | 6/28/22 7:00 AM

The share of U.S. households living in rental homes has grown in recent years, and renters currently occupy 36% of the 122 million dwellings in the United States [1]. Despite the fact that rental homes are 15% less energy-efficient than others, on average [2], they have proven hard to reach with utility energy efficiency programs. 

In this blog, we share how Enervee’s Online Retail Eco Financing program is engaging renters and what this tells us about our understanding of the renter segment and how to scale efficiency improvements in rented dwellings. 

Spoiler: There are some widely-held views about renters that may need updating. 

Renters may not be who we think they are.

Let’s begin by taking a look at the renter segment. The following data are derived primarily from two sources: 2020 census estimates [1] and a 2021 Smart Energy Consumer Collaborative (SECC) report on renters [3]. Did you know that:

  • Not all rental properties are multi-family; in fact, 42% of renters live in single-family homes – and renters occupy 19% of all single family homes.
  • Renters and low-income are not synonymous. While the share of renters with household incomes below $50,000 is twice as high as for owners, nearly 20% of households with incomes above $100,000 are renters. According to SECC, the demographics of rental markets are changing to include more affluent and educated participants, and a subset of affluent Green Innovators and Tech-Savvy Proteges are choosing to rent single-family houses, townhouses, and apartments, instead of buying their homes.
  • Some renters stay put. While the share of renters who have been living in the same property since 2014 is lower than for owners, nearly 19 million renters (42.7%) have been in the same home for 7 years or more. Only 9.2% of renters have been in their current home for less than two years.

Renters can be reached – with the right programs. Evidence from the Online Retail Eco Financing program.

Let’s begin with an example of Enervee’s Online Retail Eco Financing program, specifically a marketplace serving gas utility customers in Southern California. People can shop for efficient appliances on an online marketplace and have the option of paying by either credit card or with an instant Eco Financing loan. With Eco Financing, a $1,000 appliance can be purchased with affordable monthly payments of under $25. 

For this example, financing is available on four major domestic appliance categories (ranges, clothes washers, gas clothes dryers and dishwashers), with more to come. In Q3 2022, we’ll also be launching an all-electric Online Retail Eco Financing program featuring two dozen product categories.

The following chart shows that the share of California rental properties that have ranges (also known as market saturation) is roughly the same as for owner-occupied homes and approaches 100%, but renter-occupied units are less likely to have washers, gas dryers and dishwashers [5]. In the case of laundry appliances, only about half as many rentals have in-unit washers and gas dryers. 

Figure 1. Market saturation of selected plug load devices [5]

Despite the commonly held belief that tenants generally don’t purchase large appliances that cost hundreds to thousands of dollars themselves, the following chart shows that 26% of Eco Financing loans have gone to renters, on average, which is identical to the aggregate share of these four appliances in the installed base in rentals in California [5]. 

Figure 2. Share of appliance purchases paid for by renters using Eco Financing vs. share of appliances in rental properties in the installed base in California
Sources: Use of Eco Financing by renters (purchase transaction data); California installed base [5]

Eco Financing is over-proportionately serving renters buying gas dryers and clothes washers. There is a $70 rebate available on gas dryers, but we cannot explain why renters are so disproportionately financing gas dryer and clothes washer purchases. Even though only 17% of rental properties in California have gas dryers (and the share is 47% for owners), over 80% of financed gas dryers are going to renters. Note that the data on ranges cannot be directly compared, because the statewide data point includes all cooking appliances (cooktops, stovetops and ranges), while Eco Financing is ranges only. 

The fact that the Online Retail Eco Financing program is reaching renters roughly in proportion to the total share of these four appliances found in rented homes is a surprising, welcome and impressive result for an energy efficiency program that didn’t target the notoriously hard-to-reach renter segment.

These results suggest that some of the things that we’ve been assuming about the renter segment may need to be rethought. Here we highlight some of these myths:

Renters have no incentive to invest in efficient appliances. True or false?

Let’s begin with the fact that the case study data presented above disprove this assumption. In fact, renters are financing major appliance purchases with a cart value of just under $1,400 on average. One reason provided by the SECC report is that “In some markets, more affluent tenants don’t mind and might even try to find ways to improve energy efficiency in their own unit.” While that may contribute to the 15% of purchases made with credit cards, 70% of Eco Financed loans have gone to low- and moderate-income borrowers.

The data from our SoCal program in the following pie charts suggest that the availability of financing triples the rate of renter participation.

Figure 3. Share of purchases by tenure and payment method (Eco Financing, credit card)

One hypothesis is that many renters may not be able to afford the up-front cost of buying new energy efficient appliances, while Eco Financing – which results in affordable monthly payments – empowers them to make efficient purchases they otherwise would not be able to. 

The following chart shows that well over half of renters have household incomes below $50,000 per year, and 85% live on less than $100,000. Market research conducted by Enervee in California and New York, for example, revealed that 40% of low- and moderate-income consumers often buy used products.

Figure 4. Tenure by Household Income (2020 inflation-adjusted) [1]

Lack of access to other forms of capital can also be an explanation, such as having no credit history (typically younger consumers) or a credit score that is too low to obtain a credit card. Paying with a credit card may simply not be an option.

It has also been stated that renters are not participating in energy efficiency programs, because they are not authorized to invest in efficiency upgrades, and owners have no incentive to do so. But these barriers largely apply to making physical upgrades or structural improvements to residences.

What people too often forget is that the largest electric efficiency opportunity is not with such major upgrades, but rather with efficient appliances and other devices that simply plug in to an electric outlet (refer to my blog on plug loads for data to back up this statement). According to a market characterization study performed for Marin Clean Energy, 72% of single-family renters said they did have authority for appliance purchases, along with 26% of multi-family renters [6]. Plug loads account for the majority of residential electricity consumption nationwide, so this is a large, untapped opportunity.

The SECC also made the point that financial incentives will be needed: “Since aging legacy units will likely remain the primary options for middle-income and low-income customers, programs that include subsidies, rebates, and free technology giveaways will be needed.” While this may be true for whole building approaches and certain customer segments, Online Retail Eco Financing program data show that financial incentives are not necessary to serve all renters, including low- and moderate income renters.

Finally, many believe that renters move too frequently to make it worth it for them to invest in energy efficiency. There are two things to consider when evaluating this blanket statement: 

  • Can the renter take the product with them when they move? Many appliances can move with the renter, as they are so-called “plug loads”, which aren’t hard-wired to the building. Everything from televisions to refrigerators. What can be taken, depends on the rental agreement, but if a renter makes an investment, it may be something they can continue to benefit from, even if they move.  
  • Not all renters move frequently. The survey conducted by SECC found that “more than half of renters (55%) reported they have lived in their residence more than four years, with 20% living at the same location for more than 11 years.” This is aligned with the census data quoted at the outset, which showed that 42.7% of renters have been in the same home for 7 years or more. 

The fact that renters are participating in Eco Financing suggests that an affordable loan with a term of 5 years can meet the needs of many renters, including those who are low- and moderate income. A full 70% of borrowers in the SoCal program meet the State’s LMI definition.

Delivering financing through the online retail channel also overcomes a number of barriers that have been identified for renters [6]:

  • Buying efficient appliances is something that only 14% of respondents had not considered. By tapping into natural replacement cycles and empowering renters to choose and pay for efficient appliances, they are able to follow through on their intentions.
  • Limited trust in program offerings. Customers may be skeptical of program offerings promising free services or rebates, and may be reluctant to share information or provide an unknown organization access to their homes. With online retail, the customer is in control and is likely familiar with retail fulfillment partners like Best Buy.
  • Renters are not always the ones making energy-related buying decisions. Landlords are particularly important decisionmakers for multi-family rentals, where tenants tend to have less influence and autonomy over large appliance and heating and cooling equipment buying decisions. An online marketplace can serve landlords making 1-off buying decisions, which is common for the 1- to 4-unit buildings housing the majority of renters.

What about multi-family property owners?

Another interesting and relevant point from the SECC report when thinking about how to better serve the rental market with energy efficiency programs is that individuals own the vast majority of single-family rentals (76%) and small apartment buildings with 2-4 units (77%), not institutional investors, partnerships or limited liability companies, which dominate large multi-family [4]. 

This means that those making appliance replacement decisions for all but the largest rental properties are individual consumers like you and me. And 60% of renters live in these individual-owned properties. Influencing individual buying decisions is therefore critical with respect to both the owner-occupied and rental residential building segments.

And, unlike major building upgrades, which may require tenants to be relocated and can be hard for an individual landlord to justify without raising the rent, these individual building owners do not necessarily have to pay more for the most efficient plug loads. Even if they do, financing can help. Lack of cash flow to cover the upfront cost of the upgrade was cited as a barrier for smaller, for-profit property managers, who were receptive to the idea of financing options [6].

The bottom line: We can empower renters to buy efficient 

Several conclusions can be drawn from this discussion:

  • A focus on plug loads is warranted, because they are responsible for over 50% of total residential electric consumption and renters can purchase and install most plug loads
  • Small multi-family owners who are individuals, and their property managers are a new opportunity. They are responsible for energy-related buying decisions affecting 60% of renters, have not been well served by existing energy efficiency programs and can benefit from the same programs designed to serve individuals living in the dwellings.
  • Program designs that eliminate barriers can drive renter and landlord participation in energy efficiency programs. It is wrong to assume that renters lack motivation and owners need a financial incentive to invest in efficiency, as long as we consider efficient plug load opportunities. Similarly, subsidizing the (full) cost of efficient products for all renters, low- and moderate-income and credit-challenged households to participate in energy efficiency programs is not necessary. For at least some, merely eliminating financial and other barriers results in energy-efficient purchases.

Renters are a diverse group and have different needs. While Eco Financing will not be right for all of them, it has proven effective at driving renter purchases of energy efficient products without incentives, including low-income renters. 

Notes

[1] Census 2020 ACS 5-Year Estimates

[2] ACEEE, Energy Equity for Renters

[3] Smart Energy Consumer Collaborative, Understanding the Needs and Wants of Renters

[4] Harvard Joint Center for Housing Studies, America’s Rental Housing 2020

[5] California Energy Commission, 2019 California Residential Appliance Saturation Study

[6] Apex Analytics, MCE Residential Market Assessment: Final Report