What Development Teams Can Learn From Asset Managers, Part 3: Water Submetering
How do decisions affordable housing development teams make, before a project is up and running, impact long-term property operations and resident quality of life? Three affordable housing asset management pros—Natalie Thornton, Brian Shelton-Kelley, and Holly Vander Schaaf—shared their perspectives in an HDC-hosted panel discussion at the Housing Oregon Industry Support Conference in September. We’re recapping their insights in this three-part series. Start at the beginning and learn more about the panelists here.
In today’s installment, we’ll zoom in on a topic that deserves special scrutiny: water submetering.
Our panelists offered a nuanced take on this topic. Carefully consider the operational impacts of installing water submetering systems in multifamily rental properties, they cautioned development teams. Make sure to understand the real benefits and costs. And submeter to understand water use, but not necessarily to bill for it.
Regarding the impacts of billing back for water, Natalie and Holly shared findings from an analysis they performed together on a sample set of properties. Key points:
Unlike with electrical service, water service is usually not submetered in multifamily housing. At properties where submetering systems are installed, the systems are usually designed to provide information to the owner, not to the water district. Thus, to bill residents for actual water use, an owner needs to set up its own billing and collections operation or use a third-party service. That’s an additional operation to track.
For residents of rent-restricted housing properties, combined rent and utility costs are capped at federally established affordability levels. When a household pays its own utility bills, the property must provide a utility allowance (UA)—in effect, a rent reduction equal to the household’s estimated utility payments. Standard UA amounts are set annually by the local housing authority. In some jurisdictions, such as the Portland metro area, UAs for water tend to exceed actual household water costs. In instances where a property’s aggregate water UAs exceed its actual water usage costs, income received by the property from resident-paid water charges cover only a portion of the property’s cost of providing water UAs; the property will experience a net income loss. (The larger the gap, the greater the loss.) Between water UAs that exceed actual water costs and inevitable delinquency issues, many owners are unlikely to capture the full costs of water through direct billing. The difference will be a financial loss to the property, which will add up significantly over months and years.
Affordable housing residents, by and large, are accustomed to conserving resources because of financial necessity. Billing for actual water use may encourage some residents to reduce their water consumption. But the resultant financial savings to the project may not justify the costs associated with billing.
In summary, billing residents for their actual water use may produce the desired effect of reducing water use and lowering the project’s monthly water bill. But it will create unintended consequences. In many cases, from a financial perspective, savings on water cost will be more than offset by the added costs of setting up a separate billing and collections operation, combined with losses from oversized utility allowances and delinquency. In short, think carefully before billing residents for water.
But should you submeter anyway? Maybe. Panelists and audience members had this to say:
Base your decision on good cost and usage data. Submetering may be a worthwhile investment, if the intent is to quickly identify leaks and/or to encourage water conservation through incentive programs that rely on sharing water usage data with residents. But before making the decision to submeter, consider the issues identified above and make sure your cost-benefit analysis is built on good data that’s specific to your project. Ideally, gather data on actual water costs and usage from a similar property in the same water district as the property you’re developing, as water rates differ greatly from district to district.
Compare alternate water conservation strategies. Weigh submetering against water conservation strategies that may be more effective, more cost-efficient, and easier to implement, compared to submetering. Resident education and incentive programs can have a big impact. Three strategies development teams can implement:
Integrate water-saving features such as low-flow faucets, showers, and toilets into the project design.
Take a hard look at the property’s landscape design and irrigation needs. Water bills can double or triple during the summer, depending on the local utility’s pricing structure and what type of irrigation system is being used. Xeriscaping—landscape design that reduces or eliminates the need for irrigation—can be a valuable asset to a property when done well.
Encourage property management to regularly inspect for running toilets and leaking sinks after the property is operational. The water-usage impact of just two or three running toilets can be surprisingly large.
Related posts
Check out the other two posts in this series. Part one addresses additional issues related to design and construction. Part two focuses on designing your project’s legal and financial structure.
Liz Winchester is a Senior Asset Management Project Manager at HDC. See her full bio here.