How The Cap And Trade Bill Affects Real Estate

Cap and trade and its effect on home sales and housing values How The Cap And Trade Bill Affects Real Estate, Tallahassee Real EstateA good friend and client of mine asked me to give him a quick opinion on the American Clean Energy and Security Act of 2009 (Cap and Trade Bill) and to gauge its impact on the real estate market in the coming years. No big deal I figured, I’ll just grab a beer and see what this thing is all about …

What I found was disturbing. First of all, that beer needed to be a 12-pack, because the Cap and Trade Bill (American Clean Energy and Security Act of 2009) is a 1,428 page document written in typical political gobbledy-gook, with far too many words and noticeably void of any pictures. If you’re really bored, you can download a copy of the Cap and Trade Bill from here on the Tallahassee Real Estate Blog.

Specifically, here are the words found all over the internet that concerned my friend.

You won’t be able to sell your home unless you retrofit it to comply with the energy and water efficiency standards of this Act. H.R. 2454, the “Cap & Trade Bill” passed by the House of Representatives, if also passed by the Senate, will be the largest tax increase any of us has ever experienced.

Needless to say, this grabbed my attention and I began looking for more information on the Cap and Trade Bill.

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American Clean Energy And Security Act and Real Estate

An article in the Washington Post does a good job explaining the impact that the Cap And Trade Bill will have on new home construction and the housing market:

The bill would give the federal government power over local building codes. It requires that by 2012 codes must require that new buildings be 30 percent more efficient than they would have been under current regulations. By 2016, that figure rises to 50 percent, with increases scheduled for years after that. With those targets in mind, the bill expects organizations that develop model codes for states and localities to fill in the details, creating a national code. If they don’t, the bill commands the Energy Department to draft a national code itself.

States, meanwhile, would have to adopt the national code or one that achieves the same efficiency targets. Those that refuse will see their codes overwritten automatically, and they will be docked federal funds and carbon “allowances” — valuable securities created elsewhere in the bill that give the holder the right to pollute and can be sold. The Energy Department also could enforce its code itself. Among other things, the policy would demonstrate the new leverage of allocation of allowances as a sort of carbon currency — leverage this bill would be giving to Congress to direct state behavior.  washingtonpost.com.

Disinformation About The Cap And Trade Bill

Sometimes it is very hard to tell the “airbags” from the experts on the internet. People can write whatever they please and if they have a decent writing style, they will develop a following. I suspect that is what has occurred with the disinformation on the American Clean Energy and Security Act that we are reviewing.

This blog article started because my friend sent me a link to a forum where the following was posted (I have since found it verbatim on a number of forums…

Beginning 1 year after enactment of the Cap and Trade Bill, you won’t be able to sell your home unless you retrofit it to comply with the energy and water efficiency standards of this Act. H.R. 2454, the “Cap & Trade” bill passed by the House of Representatives, if also passed by the Senate, will be the largest tax increase any of us has ever experienced.

The Congressional Budget Office (supposedly non-partisan) estimates that in just a few years the average cost to every family of four will be $6,800 per year. No one is excluded. However, once the lower classes feel the pinch in their wallets, you can be sure these voters get a tax refund (even if they pay no taxes at all) to offset this new cost. Thus, you Mr. and Mrs. Middle Class America will have to pay even more since additional tax dollars will be needed to bail out everyone else.

But wait, there’s more …

A year from now you won’t be able to sell your house. Yes, you read that right. The caveat is (there always is a caveat) that if you have enough money to make required major upgrades to your home, then you can sell it. But, if not, then forget it. Even pre-fabricated homes (“mobile homes”) are included.

In effect, this Cap and Trade Bill prevents you from selling your home without the permission of the EPA administrator. To get this permission, you will have to have the energy efficiency of your home measured. Then the government will tell you what your new energy efficiency requirement is and you will be forced to make modifications to your home under the retrofit provisions of this Act to comply with the new energy and water efficiency requirements.

Then you will have to get your home measured again and get a license (called a “label” in the Cap and Trade Bill) that must be posted on your property to show what your efficiency rating is; sort of like the Energy Star efficiency rating label on your refrigerator or air conditioner. If you don’t get a high enough rating, you can’t sell. And, the EPA administrator is authorized to raise the standards every year, even above the automatic energy efficiency increases built into the Act.

OK, enough of the forums … what does the American Clean Energy and Security Act of 2009 really say?

I believe that if the American Clean Energy and Security Act of 2009 (Cap and Trade Bill) is enacted, new home construction costs will go up, and home affordability will decline. It appears as if a “national building code” will be created, thus usurping some of the rights of State’s to control building quality as they see fit.

A cursory examination of the 1,428-page bill, in its current form, finds it does not call for mandating an energy audit on existing homes. However, according to the House Committee on Energy and Commerce, Section 204 of the legislation does call for building an energy performance labeling program for new home and commercial properties.

With all the government people in and around Tallahassee, maybe we can get a few to drop a comment or two here to give us the real scoop on the Cap and Trade Bill.

Mary Lou And Trent Manausa Celebrate Their 49th Wedding Anniversary 300x262 How The Cap And Trade Bill Affects Real Estate, Tallahassee Real EstateHappy Anniversary Mom And Dad

Today is the 49th Wedding Anniversary for Mary Lou and Trent Manausa (or at least that’s the story they gave me). If you happen to see them, wish them the best. They deserve it ….

Topic: Cap and Trade Bill

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About Joe Manausa, MBA

Joe Manausa, MBA is a 23+ year veteran of real estate brokerage in the State of Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.

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Comments

  1. misanthropope says:

    energy-efficiency requirements are extremely likely to net out considerable savings over the lifetime of a typical house. the upfront cost is higher, but you might notice a distinct lack of complaining about the higher costs of fluorescent light bulbs?

    even the link between between the (nebulously-defined) up-front costs, and the cost of housing is tenuous. i as buyer don’t give a damn what the house cost you to build and/or retrofit. you’ll pass on your costs if you can, but you’d charge me that same higher price WITHOUT upgrading the house, if you could.

    efficiency standards are good things, and a necessary accompaniment to having 7 billion humans living on the earth, consuming resources at the highest per-capita rate in history.

  2. Thanks for commenting misanthropope,

    I agree that we have to start being smarter about how we consume resources on our planet. I suspect that moving towards a national building code though might make the cost of housing spiral out of control at a time when many homeowners are trapped in homes they cannot sell.

  3. Joe,

    In responding to your comments if homeowners are trapped in their homes and the prices of new homes go up across the board then it would be much easier to sell a cheaper existing home now then before. This would in effect reduce the inventory of existing homes qicker than if new home prices remained the same. From the sound of it this could actually help out existing home owners. The same cannot be said for builders until that existing inventory is consumed. Once that inventory is consumed then buyers will have to pay what a builder is asking if they want a home.

    • Hey Brad, welcome back! I think I’m going to have to disagree with your logic. You state if

      “the prices of new homes go up across the board then it would be much easier to sell a cheaper existing home now then before.”

      I don’t think this is true. I believe if the prices of new homes go up across the board, then it would be tougher to sell new homes. People will always be looking for value. Just because new homes are more expensive does not mean they will perceive a glut of resales as a steal. Supply and demand must come into balance before we see what you are talking about. Moreover, this market has already basically shut down new construction. We are seeing roughly 1/3rd the number of building permits as normal right now.

  4. John Underwood says:

    Joe, while I agree with your initial accessment, I feel as new, more expensive, homes are built, the effect will be to pull the prices of similar existing home upward…not as high, but upward. Also, right now is an excellent time for homeowners to take advantage of the federally funded “home energy improvements” such as attic insulation at an 80% savings, new energy efficient heat pump units with 50% rebates, etc. The list is long…and afforable. The improvements now will show up in lower utility bills, and will make your exixting home more attractive to buyers when the cap and tax homes start hitting the market.

  5. 1) Now is not the time for this or any other legislation that will increase taxes / costs for individuals OR businesses. America needs lower taxes to free up money so that people can buy and invest and so that business can hire and expand.
    2) The whole cap and trade / global warming fiasco is nothing more than a global wealth redistribution scheme. It’s about power and money, not about YOU or the health of the planet. To assume otherwise is naive.
    3) Increasing the cost of energy will further destroy this already damaged and weakened economy.

  6. Idiots Abound says:

    @ MmmmmHmmm:

    Your points are ridiculous.

    Global warming is real. Read the science, not the rhetoric.

    Now IS the time to increase taxes on individuals who claim more than $500000 a year in personal income. Unchecked capitalism is failing; more buying and spending won’t improve things in the long term, the only way to improve things is to DECREASE the gap between the wealthiest and poorest people.

    The great majority of our energy sources currently in use are non-renewable; the cost of those non-renewable energy sources will increase whether you want it to or not. Finding a way to disentangle our economy from non-renewable energy sources is the ONLY solution to keeping costs down. It is simple supply and demand.

  7. A few things from my perspective:
    -There are too many empty homes now that are refurbish-able for less than the cost of a new building. We don’t need new buildings. A nice policy of, “You can’t build something new unless you tear down something old in the same spot” would be nice to see.
    -The actual build quality of new homes has reached an all time low. Terribly crappy engineering, terribly crappy materials, shoddy workmanship.
    -“The Builders” are one of the most crooked and over-subsidized group of entrepreneurs out there. The number of loopholes generated near a construction site is staggering. It’s really about time we forced some higher quality standards on new construction, nevermind even enforcing the old ones.
    -It’s about time US citizens actually got with the conservation program. We still continue to waste, waste, waste. Energy, Food, Time, Labor, Fuel, Land, all types of resources are casually exploited. My grandmother is spinning in her grave at all the inefficiency around the US these days, and all with the mark of “progress”! HA! No wonder the US is in a recession, we threw all of our money away!
    (goes off to clean up the endless stream of plastic packaging and cups littering his lawn that are blown off from the road litterers)

    • Thanks Rick.

      I agree with much of your perspective, as there are seriously too many houses out there.

      What I do not agree with is using the government (meaning adding more bureaucracy/costs/gov’t waste) to create policy’s that violate our property rights. Rather, I would like to see consumers quit buying the garbage out there and buy the quality homes that most of our builders provide.
      I do not agree that -“The Builders” are one of the most crooked and over-subsidized group of entrepreneurs out there. “ (though my experience is just in the Tallahassee market, where most of our builders work very hard and produce quality products).

  8. Jim Harris, M.F.A. says:

    Since when did we start judging a bill by its size? War and Peace is 1225 pages and it’s a classic. I mean, it’s not the size of the bill, it’s how you use, it – right??? :-)

  9. Do we not already have the Universal Building Codes? Are they not the standard for every state? Don’t most states and municipalities already add additional requirements for safety, and many for energy efficiency? These standards are already good. Really, short of super-insulated or subterranean, what other options are available?
    I build small. This works, and will surpass all these new demands. It’s easier to control costs, reduce material consumption and, in relative terms, reduce energy demand with smaller houses. What about quality? Easier again.
    There are many answers, some good, others not so. I’m not overjoyed with government intervention, and have little doubt this legislation will be corrupted along the way. But I prefer to keep an upbeat attitude and embrace the change, after all it’s really up to us to get the job done.

  10. This seems to me more a referendum on politics then on real estate. Since when is a safe, energy-efficient home a detriment for agents? Savings, as mentioned before, over the life of the home may well outweigh initial cost.

  11. Capitalism is the FRIEND of freedom, free enterprise, and innovation. It has created more prosperity for more people than any other system the world has known.

    Statist’s are the ENEMY of freedom, prosperity, and efficient markets. Statists lust for power- which is then concentrated among a small group of elitists who are convinced that they have the ONLY answer to any problem that might come up. It’s a “top down” system… with a few at the top Chavez and Castro find the Statist plan quite attractive for themselves and their small circle of “friends”.

    As we allow a government to build ever increasing and conflicting “rules” ( some which are good and common sense .. and more which are conflicting and excessive), we run into radical ideas that cost real people their standard of living. No one is against a clean environment- There are good stewards of the earth among our citizens.. who happen to also be captains of industry.

    This “cap and trade” fraud is simply an energy tax- and will do nothing to affect “global warming”.. but it will create massive transfers of income and wealth from free markets (that actually create terrific products and services) .. to 3rd world countries.. and we all can agree how well that works. Africa has received untold Billions.. and just exactly what has that done for the average person on the continent.

    The recent revelations of consipiracy to alter data in order to get to the desired “outcome” by leading “climate” scientists who suck off the teat of the public trough shows just how far Statist thinking will go to steal from the public. They almost got away with it. Cap and Trade is a scheme dependent on fraud to exist-

    Let free enterprise solve energy problems.. not some Elitist group that lusts for power and uses deception and fraud to support it’s abusive aims.

  12. Rick you speak like someone who has never built a home or created anything of value. You have opinions but no knowledge of what it takes to create a structure, deal with local authorities who care more about their power than whether you are building a quality product. There are many craftsman who design homes for living and focus on the needs and desires of their client. Yet you throw all builders together. Your intolerant ignorant attitude speaks volumes about your lack thoughtful consideration of reality. You speak of wasteful spending but don’t consider that many people do not want to pay for green building or even efficient building. When you grow up you may discover that consumers will only pay for what they can afford or in the case of green building what they value. The homes I build are green because that is the way I design, I hate waste but it actually costs me money/profit to build them. Most of the people who look at my homes do not want the high maintenance that green components require. They are willing to pay more money for less efficient systems that do not require their personal time. You need to understand that the consumer drives the building business not the other way around. When you get off from your government job, post office, you obviously are definitely not working in the real world do a little reading about economics or better yet do something productive beyond moving your mouth about things you know nothing about.

  13. Alain Saffel says:

    Bill, I wonder, did you get your talking points from FOX? Let’s be clear: no political or economic system is perfect, and we’ve had a pretty good example of the failings of virtually unregulated capitalism. Government should be there to provide a counterbalance and to regulate. Not suffocate. Regulate. I am pro-business, but more accurately, pro-honest and responsible business.

    I find it ironic that you talk about statists working for their friends. That’s exactly what Bush/Cheney were doing when they cut taxes, took a $250 billion surplus to a trillion dollar deficit and doubled your debt from $5 trillion to $10 trillion. These guys professed to be capitalists, but the evidence proves otherwise.

    Government, in this case, can contribute by giving incentives for energy efficiency and alternative energy (you don’t think the petroleum industry isn’t already subsidized? Not like they need them). It can actually mandate real reductions in GHGs instead of cap & trade.

    If building codes are going to be changed, there should be work on energy efficiency, but also to increase minimum code standards in other areas. This could also be viewed as consumer protection from shoddily built houses. In some cases energy efficiency is the least of a new homeowner’s worries.

  14. I find it amazing the ones that have money to buy a $9 million dollar home, who fly all over on his own
    plane, burns more fuel, than the everyday american citizen. Cap and trade is a tax on everyone.
    Did you ever realize the ones that have money, blame capitalism here U.S but invest in china, africa and
    other country. Taxes would not be that high if government would promises all these government programs, so government needs to collect money to support these programs.
    Lets start investing in America, stop knocking Capitalism, yes people abuse it, but investor who invest
    make money, that is why they invest. As long they don’t want to change America.

    GOD BLESS AMERICA

  15. dave kaplan says:

    The Cap and Trade is another form of Goverment control . How do you control people in 2010 by limiting their energy usage by giving them credits for energy that can be sold and by limiting their Health Care. This is a rip off by by Al because he will profit the most from trading energy credits.
    The free market will force companies to produce energy saving products because consumes will pay less in their electric and gas bills, this shift will happen with out Goverment intervention.
    America Wake Up to the scam run by Oboma and Gore

  16. joe prater says:

    i dont think global warming is real i think its just the earths rotation and for cap and trade that will never help this country it will only hurt the poor people in this country like nafta did .

  17. To all,

    MANMADE GLOBAL WARMING IS THE BIGGEST SCAM GOING!!! Even the proponents of this scam are now calling it “Climate Change”. Liberals lie through their teeth to get power any way they can. This is nothing more than another phase of a power grab for liberals. The liberals in Congress are now quietly changing the name of “Cap and Trade” to “The American Power Act” (or something to that effect). All you global warming theorists need to get your heads out of your @$$#$ and look at the facts. In the 70’s the same people were telling us we were entering another “Ice Age” and we were going to freeze to death.

    Now we are being told that cattle farms are a major cause of greenhouse gasses and that we need to stop eating meat. Ain’t gonna happen. We are also being told that trees generate too much greenhouse gasses from the fallen leaves every year decaying away and that we should deforest areas of the world, but wait, they then tell us that will cause the sun to heat the ground up to a higher temperature and that we should then plant more trees to keep the earth shaded (and cool). Could everyone just shut up and find another frivilous cause that doesn’t cost all of us everything we have in the name of a bunch of paranoid freaks? While your at it, GET A LIFE!!!!

  18. Bird-doggin-it says:

    Please learn to spell or use spell-check. It is “gobbledy-gook”.

  19. This part of the cap and trad bill will hurt many people – mostly homeowners. I am a real estate agent and I see how difficult it is for buyers to find something in decent shape at a decent price. It is also hard, in this market, for a seller to sell their home. If this passes sellers will have more difficulty selling their homes. About 85% of the housing stock in the northeast is older homes. If a seller has to put in new windows, new siding with extra insulation, new roof, energy star appliances, etc.. they may as well keep the home. Most sellers are selling because they need to move – smaller house, job move, needing a one story house – whatever their reason is. They cannot afford to sink a lot of money into the house in order to get the new license to sell their house. I think this will cause sellers who NEED to sell to just walk away from their homes. They will have no choice if they do not have money to invest in their homes. If this passes what will the banks do with an inventory of homes that need updating in order to receive their license to sell the home? In a perfect world all homes would be energy efficient and affordable but real life dictates sensible choices. If this bill passes it will not help buyers either. I work with a lot of buyers who are looking for their first home. Many can only spend $250,000 or less. In this area that doesn’t buy a house with all of the bells and whistles. It usually needs some work and some updating. Most plan on doing that work over time, as they can afford it. But for now they can still purchase a home. If prices go up due to the work required on the homes to make them saleable it will keep more buyers out of the market. This will not be good for sellers or buyers – or real estate agent – or banks. The negative effects will trickle into many businesses. It will be good for the government agency that is formed and the house energy inspectors. They may find the energy inspectors are not actually getting much work. I think it may amount to just another government agency that costs the taxpayers a lot of money.

    • Carol,

      Did you even read the post or did you just feel compelled to leave your thoughts on Cap and Trade without looking at the findings here?

      As I wrote in the post

      A cursory examination of the 1,428-page bill, in its current form, finds it does not call for mandating an energy audit on existing homes. However, according to the House Committee on Energy and Commerce, Section 204 of the legislation does call for building an energy performance labeling program for new home and commercial properties.

      This means that Cap and Trade imposes change for new construction and commercial properties, not existing homes.

      Isn’t your comment addressing existing homes?

  20. I don’t really know about the science of global warming – or even if I would agree if I did. However, a couple of thoughts come to mind when I hear discussions on it. First off, I generally think that most people are thoughtfully and truthfully trying to lead their lives – both personal and professional. I can’t imagine a reason why so many scientists would come together to make up a lie and start a global conspiracy. I just can’t think of a reason, or, even how they would do it. And if you says it’s for the money to be gained for further research, the amount of funds allocated to these endeavors are a pittance of any government’s budget or the national GDP. These aren’t guys who ride around in ferrari’s lighting cigars with $500 bills. If you’ve ever known a scientist who relies on government funding you’d know they have a very modest lifestyle.
    Secondly, as I’ve said the science is beyond me, but, I think about throwing a match into an airtight container. A little smoke is in there. Then if you throw 10 million matches in, there’s a lot of smoke. I know it’s hugely more complicated than this but I would think the same basic principles would apply and if you have all that smoke in there then wouldn’t stand to reason that it somehow would change the environment in that container?
    Lastly, I think about Pascal’s quote about not knowing if God exists, but, isn’t it better to live as if He did and be proved wrong that to live as if He did not, and be proved wrong? Is it better to as if we had an effect on global climate and be proved wrong that to live as if we did not and be proved wrong?

  21. I have not really been following the Cap and Trade discussions very closely, but how does this relate to insurance companies when they valuate homes for structure replacement? If replacement structures are going to have to meet the new energy standards, then there is no such thing as replacement, we are now talking upgrade. It could mean higher premiums and possibly deductibles for the consumer.

  22. I’m curious do they increase property taxes if you do not match their standards? Or do they simply jack the rates up on you?

  23. Darkitec says:

    The author of this article needs to go back and reread the bill. It does state just as the pundits say, that a home energy audit will be required, and meeting the current energy standards as proscribed by the government must occur, before selling your house old or new.

  24. To the Naysayers of Global Warming just look at our weather patterns.

    In regards to Real Estate one must look at the cycle. During the boom = Sellers Market and During the bust = Buyers Market.

    Maybe someone who agrees would like to have RealEstateBuyers Market.com

  25. Benito Rakel says:

    I find the talk about Cap And Trade Bill all a bit meaningless. Political leaders and central bankers round the world have done everything they can to preserve failed banking institutions, and loans that was risky from the onset. We will not have a real sustainable recovery without an end to deficit spending and lots of financial institutions going bust. I find discussion about asset finance and loans a bit meaningless. I also think the house costs have to reduce a lot even now. I mean why would you want to own a home in the US or France? Isn’t it much cheaper to rent? Regards, Benito Rakel

    • Benito, you make a lot of fine points. As far as home ownership in the US … it is cyclical. Some markets right now are cheaper to rent, others to own. The key is knowing the state of the market where you want to live.

  26. Jessica Cisneros says:

    Darin, I dont know where you’re getting your information from but you sound confused my friend. it is verry simple as consumers we do not need to use energy that pollutes. Technology is advance enough today that we can use energy that does not come from foreign oil or fossil fuels. Global warming and pollution is not a scam is real. Climate change is considered by many sientists to be one of the most serious threats facing the world today.
    And the government, they make it so complicated. Taxing home owners seriously!!!!…. let me give you an idea Why dont you tax power plans that generate electricity by burning fossil fuels???? That way they can invest or buy energy that is 100% pollution free.

    I am not against their plan regarding the new homes been energy efficient, but we need to look at the problem here. The problem is not how much electricity the house uses. The problem is… where is the electricity coming from? is it coming from renewable sources or is it coming from fossil fuels? Power plants generate electricity by burning oil and coal, which is one of the largest causes of air pollution. Investing in green energy such as wind farms and solar pannels in my opinion is the way to go!!

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