Controversy surrounds Ontario Energy Minister George Smitherman’s recent introduction of Bill 150, the Green Energy and Green Economy Act 2009. In a nutshell, prior to selling, a homeowner would be required by law to pay for an energy audit that reports on the “energy consumption and efficiency” of their home. Most residential properties in the province would fall under this requirement including: owners of low-rise residential properties, single detached and attached homes (e.g. row housing, duplexes and triplexes), small multi-unit residential buildings including some small apartment buildings of three storeys; mobile homes on a permanent foundation and floating homes permanently moored. Condo owners are currently exempt under the current proposed bill.
Lets examine some of the implications of Bill 150. Is this a good thing for buyers? First, according to real estate lawyer Bob Aaron ” …I find it strange that the government wants to impose energy audits, but not mandatory inspections of house components, which can be matters of life and death, such as propane storage tanks, carbon monoxide leaks from furnaces, significant non-compliance with building codes, or dangerous electrical panels. Frankly, it makes me question the government’s motives in all this. At present, energy audits are optional and I have yet to have a client perform one on his or her house purchase…”
According to the Ontario Real Estate Association: Home energy auditing is far from an exact science. Like home inspectors, different firms will arrive at different energy ratings. An investigative report prepared by the Toronto Star on home energy audits, received three different lists of recommended retrofit renovations, ranging from $5,000 – $25,000 on the same home. Similarly, home energy audits rely on the skill of the auditor to ensure that the finished report is an accurate description of the energy efficiency of the home. With a significant portion of the audit based on a “visual inspection” of the home, the accuracy of the final audit report is largely based on the standard of training administered to the auditor.
The majority of homes owned in the province of Ontario are over 25 years old. According to the Canada Mortgage and Housing Corporation (CMHC), 61% of Ontario’s occupied dwellings were built before 1980, with 15% overall built before 1945.. Mandatory energy audits would force 2,785,425 Ontario home owners to conduct audits on properties that were constructed well before energy conservation, environmental protection and other efficiency principles were ingrained in our modern building code. As a result, owners of older homes will be at a disadvantage as buyers look for newer, more energy efficient homes.
Residential home owners stand to bear the brunt of yet another government imposed transactional cost. At present, voluntary energy audits range from $250 to $400, plus taxes. If Bill 150 becomes law, there is no guarantee that costs will remain in that range. At current, an estimated 453 federally licensed energy auditors are employed across the province of Ontario. Demand for their services would sore significantly, outstripping the current supply and creating a backlog which in turn would drive up fees, and negatively affect the efficiency of the selling process. Moreover, the potential narrow time frame available to train and license these quasi-technicians (currently the job of Natural Resources Canada) would raise serious ethical concerns about overall quality standards and competencies.
In a period of declining home equity values, declining stock market wealth, declining commodity markets, higher unemployment rates, higher personal bankruptcies, hunkered in by a global recession the likes of which many of us alive today have never seen, imposing an additional compulsory cost on the back of homeowners is, to say the least, baffling! It’s worth noting that the provincial government seems convinced energy consumption is the domain of residential property owners alone. Note the exemptions from this proposed law: commercial, agricultural, institutional, educational and industrial properties. Why not impose this across the entire real estate gamut if indeed the goal is to promote a platform of efficient energy use?
Lawyer, Bob Aaron, quoted earlier, also describes: “…the scary inspection powers contained in Bill 150. It says that the deputy minister may designate anyone to be an inspector under the legislation. At any reasonable time, an inspector may, without a search warrant, enter any place where he or she believes that there are documents relating to an offer to sell or to lease a residence. This would include a lawyer’s office, a real estate office, and – with a search warrant – even a private home. The inspector has the right to demand to see any documents that are relevant to the home energy audit and take them away for the purpose of making copies. The inspector may also require any person to assist with an inspection. A contravention of the act, including a failure to co-operate with a search, is punishable by a penalty of up to $10,000. Corporations can be fined up to $25,000.”
Other concerns voiced by OREA:
(1) Mandatory home energy audits will adversely affect first time home buyers. The majority of homes that will not score well on home energy audits are resale homes. Resale homes, on average, are more affordable for first time home buyers. If homeowners decide that energy retrofits are necessary in order to sell their home, how will first time home buyers, who statistically have smaller than average down payments, be able to pay the increased sale price?
Seniors will also be disadvantaged by mandatory home energy audits. Most Ontario seniors rely on the equity they have built in their homes for retirement. Mandatory home energy audits will force homeowners who are seniors to complete energy retrofits at a tremendous cost to their retirement savings or lower the value of their home in order to compete with newer ones.
(2) How long are audits good for? How long will home energy audits be recognized as providing an accurate description of the energy efficiency of a home? For example, if a consumer buys a residential property with an energy audit completed by the seller, will they be required to have another audit completed if they sell the property six months later? If not, then how long are energy audits good for? One answer might be that the accuracy of an energy audit depends on the property itself and not on a uniform standard.
(3) Are new homeowners eligible to use old audits? Currently, homeowners are only eligible for one energy audit rebate per property. According to Service Ontario, once ownership of the property changes hands, the new owner must complete another energy audit in order to take advantage of any corresponding retrofit rebates. Even if the audit completed by the original owner is only one month was completed just prior to the sale of the home and now major renovations had taken place, a new owner under the existing program would be forced to complete another audit.
(4.) There is concern that once home energy audits become mandatory, insurance companies will demand to see the results prior to offering insurance on the property. This could result in higher insurance premiums for homeowners whose residence receives a low energy audit rating making the net carrying cost of home ownership more expensive.
In my mind, the credible alternatives are quite clear. First, provide a mechanism of expanded tax breaks to encourage better energy efficiency use by homeowners. In this period of tragic economic decline, additional spending and further government scrutiny in the market place is not welcome. Second, closely linked to the first, allow the market to decide the relevance of an energy adviser in the buying and selling process. We have witness the proliferation of home inspections as a concrete example of a voluntary system of home evaluation that has gained the market’s acceptance without intervention by government. In the words of Richard Bach, “the simplest things are often the truest.”
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