As regional war in the Middle East rattles global energy markets, sending the price of crude oil over $100 a barrel and yields on 10-year U.S. Treasury bonds sharply higher, U.S. home builders and attorneys general from 15 states are celebrating a recent court ruling that stops federal agencies from implementing more stringent energy efficiency standards for newly built single-family and multifamily homes they insure.
In what the nation’s largest home building association has called a “major victory” for housing affordability, a U.S. district court in Texas ruled last week to stop the Department of Housing and Urban Development (HUD) and U.S. Department of Agriculture (USDA) from mandating the stricter codes.
Arguing that the new standards could amplify housing access challenges by raising new-home prices by $10,000 to $20,000, while also delaying already lengthy production and permitting timelines, the National Association of Home Builders (NAHB) joined 15 state attorneys general in suing the federal agencies on Jan. 2, 2025, to stop the new standards from taking effect. HUD and the USDA have extended implementation timelines repeatedly.
The states involved in the lawsuit are Alabama, Arkansas, Idaho, Indiana, Iowa, Kansas, Louisiana, Missouri, Montana, Nebraska, South Carolina, Tennessee, Texas, Utah and West Virginia.
U.S. District Judge Jeremy Kernodle agreed in part with the states and the NAHB, however, granting summary judgment in a March 5 memorandum and order. The judge’s ruling prevents HUD and USDA from proceeding with final implementation of the new energy efficiency standards, which would have only allowed them to insure borrowers — for example, through Federal Housing Administration (FHA) programs administered by HUD — on residences built to the updated codes.
“This ruling means that HUD and USDA cannot impose new energy code mandates that will raise construction costs and limit access to federal mortgage programs at a time when many American families are already struggling to afford a home,” said Bill Owens, chairman of the NAHB and a remodeler and home builder from Ohio, in a statement issued by NAHB.
HUD and USDA did not immediately respond to requests for comment.
How the ruling impacts builders
Plaintiffs specifically sought to scrap implementation of the 2021 International Energy Conservation Code (IECC) and 2019 American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) 90.1 standard, approved by HUD and the USDA in coordination with the Department of Energy during the summer of 2024.
HUD has said that the upgraded standards would improve health outcomes, reduce energy costs, strengthen “passive survivability” during extreme weather and power outages and eliminate an estimated 6.35 million metric tons of carbon emissions over 30 years, the equivalent of sweeping 46,000 cars off the road every year.
The federal housing agencies further calculated that the upgrades would produce an average savings of around $15,000 per household, which balances an approximate 2.2% of home value premium to buyers purchasing new HUD-insured homes with the efficiency upgrades against about $25,100 in estimated lifetime energy savings.
“The impacts will vary across climate zones, states and localities depending on changes in market conditions,” HUD’s fact sheet on the efficiency benefits says. “However, HUD found the standards to be affordable and cost effective within each state.”
The Texas district court found HUD and USDA had made its final determination in violation of the Cranston-Gonzalez National Affordable Housing Act, passed in 1990, which permitted federal housing agencies to adopt just one new energy standard after the 2006 IECC — which they did in 2015 by adopting the 2009 IECC standard.
Though attorneys for HUD and the USDA argued that including the IECC and ASHRAE 90.1 standards was designed to establish a “floor” and not a “ceiling” for energy codes in newly built homes the federal government should insure against, the court granted summary judgment because HUD and USDA “lacked the statutory authority to promulgate the 2024 Final Determination,” wrote Kernoble.
Not potential monthly savings, but rather how the standards could shrink the amount of affordable housing supply was a second key point of issue for the judge in ruling against HUD and USDA.
Legally, HUD and USDA can only implement those new codes after they have formally determined that the revised codes “do not negatively affect the availability or affordability of new construction of assisted housing and single-family and multifamily residential housing,” for mortgages they insure under the National Housing Act.
However, in the regulatory impact analysis conducted prior to the agencies’ final decision to move forward with the new standards, court documents indicate that the scope of potential supply disruptions would exceed previously mandated energy efficiency updates. That’s because the last time such an action was taken in 2015, a larger portion of states were already building new homes that exceeded the new regulatory threshold.
Court documents cite figures from the Pacific Northwest National Laboratory showing that enforcement of the 2021 IECC standard would impact 43 states and Washington, D.C., compared to 15 states impacted in the 2015 energy-code update. The impact analysis found that “the approximately 2% increase in construction cost would reduce the production of homes for FHA-insured borrowers by 1.5%.”
“The rest of the analysis appears to be wishful thinking that the ‘demand for energy-efficient homes’ will surpass the higher cost and thereby ‘counteract any adverse impacts on availability,’” wrote Kernoble, exhibiting skepticism regarding the agencies’ impact analysis.
The states and NAHB had also claimed that the implementation of the new energy codes violated portions of the Administrative Procedures Act. Judge Kernodle disagreed.
