“Too Clever by Half”

June 1, 2009 at 1:49 pm (By Maxwell James)

Is my initial reaction to this bit of enthusiasm at Mother Jones on architect Edward Mazria and his “14X plan.” What it involves is using stimulus funding to incentivize banks to incentivize homeowners to retrofit their homes for energy efficiency. But that said, I can’t figure out what’s wrong with it at first glance.

So have at it, folks. I’m sure there’s a bunch of unintentional consequences that I’m missing here.

~ Maxwell

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16 Comments

  1. Jason (the commenter) said,

    I’m sure there’s a bunch of unintentional consequences that I’m missing here.

    -If you care about conserving energy then having people live in apartments, close to where they work, should be the goal.

    -You would assume the least energy efficient homes would be old ones held by people who don’t have mortgages, who wouldn’t benefit from this plan.

    -We have too many houses in this country and not enough savings. This plan does nothing to fix either.

    -The government doesn’t have the money.

  2. PatHMV said,

    Oh, there’s plenty. The first that jumps out is that it requires refinancing. The basic plan calls for the government to make an up-front payment to the bank, basically paying points in return for a reduction in interest rate. You can’t do that without signing a new mortgage note, which means refinancing.

    The first overlooked cost is the cost of the refinancing. The title insurers, closing attorneys, and appraisers don’t work for free.

    Then how likely is it, in the current economy, that the borrower will qualify for the same rate he’s getting now? In all likelihood, his rate’s going to increase. Maybe he’d come out ahead on net after the government buys a 1% rate reduction, but that’s a lot of hassle. And what if the homeowner decides to take out some equity (some folks still do have some in their homes, you know!) while he’s at it? Then we’re encouraging bad practices again.

    From the homeowner’s perspective, do you have to up-front all the costs of retrofitting before you get the refinancing? Where does that come from? What if you buy and install a bunch of stuff, but it turns out not to bring your house down to quite the required level of efficiency? Is he hosed, then?

    Here’s a secret. Every single “job creation” number you’ve ever heard is a lie. It’s completely made up. To the extent they have any basis at all, they all depend on very generalized studies of how a dollar flows when introduced into an economy. You go to some table, punch in that you are inputting $X into the “building sector,” and the table gives you a number for jobs created. First of all, $X is 100% made-up, because you don’t know how many people will participate in the program or what ways they’ll find to abuse it. And the table result provided is, as I say, based on very generalized data. It’s not really possible to measure after the fact to see whether those jobs really were created (as we’ve seen with the Obama stimulus package, it’s always possible to claim that the program created 2,000 jobs despite the net loss in the area of 5,000 jobs, by arguing that 7,000 jobs would have been lost without the action.

    And then there’s the bottom line that WE ARE BROKE. Worse than broke, we are DEEP IN THE HOLE. We owe, collectively, way more than we can really afford to pay off, no matter how many lies we tell ourselves about “creating jobs.”

    Maxwell, it’s promising something for nothing, at no risk. There is no such thing, ever. Period. You don’t even have to waste time looking for what’s wrong with it, if the claim is that there’s no risk and a massive return on investment, it’s a lie and a scam. That’s all the analysis really needed.

  3. PatHMV said,

    Look at the helpful “template” provided for use by cities to implement this plan. Any time you see the word “partnering,” take a shot… um, I mean, that’s a clear sign of b.s. in the document. If you see “leverage” in the same paragraph as “partner,” well then hold on to your wallet, because government is about to waste some money!

    Oh, and a close reading of this template shows that they’re relying on the banks to swallow some of the re-fi costs, as well as the costs of the energy auditor to determine whether the home meets the terms. (The template calls for the bank to send out the energy auditor for a “nominal fee.”)

    Honestly, this whole scheme could have been cooked up by the Onion, so full of bureaucratic buzzwords.

  4. PatHMV said,

    Want to encourage investment in energy-saving technology in the home? Impose a tax on consumption of electricity, natural gas, and fuel oil used by the house. Calculate the amount of tax based on the average energy efficiency of American homes. Now assume a theoretical maximum for energy efficiency. Now, for every percent increase in efficiency between the average level and the theoretical maximum, the homeowner gets 1% of that tax back. Hit the theoretical maximum, and 100% of the energy consumption tax is returned.

    Better yet, create a new SEER scale of 0 to 100. 0 would be a home with no doors, and only open space for windows… a hut on Gilligan’s Island. 100 would be the most energy efficient home imaginable. For every 1 point on the new SEER scale your house reaches, you get 1% of the energy consumption tax back.

    This lets homeowners decide which works better for them. They can pay the tax, or they can reduce the tax by cutting back on energy consumption (save money twice!), or they can reduce the tax by improving the efficiency of their homes. You also get to decide whether to let the government into your home or not. If you don’t want the home inspection required to measure the efficiency, you just choose to pay the whole tax.

    Your house is measured for SEER efficiency whenever you buy a new one, and every 5 years thereafter (to minimize administrative costs). Or you can pay $X for a new evaluation after you’ve done major renovations, before the 5 year period expires.

  5. Maxwell said,

    Let me issue a clarification: I’m taking the stimulus as fact, not as a proposal to be further debated. Cuz fact is, it is done and passed, whether you like it or not. So I’m really more interested in figuring out whether or not this proposal is better or worse than the things already in the stimulus (Though “equally bad” is a fair answer).

    Jason:
    If you care about conserving energy then having people live in apartments, close to where they work, should be the goal.
    The perfect is the enemy of the good.

    You would assume the least energy efficient homes would be old ones held by people who don’t have mortgages, who wouldn’t benefit from this plan.
    The perfect is the enemy of the good.

    We have too many houses in this country and not enough savings. This plan does nothing to fix either.
    No, but it’s goal is to help fix a different set of problems entirely

    The government doesn’t have the money.
    Irrelevant. The stimulus has been passed.

  6. PatHMV said,

    Maxwell, two points. If the stimulus money isn’t spent, then it isn’t spent. It’s been appropriated, but that doesn’t mean all the dollars have flowed out of it. So there’s still room to oppose the actual projects. Let the money go back (or never leave) the treasury. Please!

    Second, there’s not a lot of credit to go around right now. It’s not a real good time to refinance your house. This cock-a-mammy scheme requires every participating house to be refinanced. It assumes that people will be able to get a lower interest rate by doing so, when in reality most folks, if they refinanced today, would end up with a higher rate. It wouldn’t be able to stop people from taking out some equity at the same time, thus it would encourage greater levels of debt. It’s premise is: “Borrow MORE money, but use it on what we want you to use it on.”

    The economic stimulus would be the same if you just let the government buy points of everybody’s mortgage, so long as they spent it on some home improvement project… creating a larger house, building a pool, whatever.

    It’s a bullshit project, even as stimulus package projects go.

  7. PatHMV said,

    And, again, it promises something for nothing. Nowhere does it mention the slightest bit of risk, any possibility of failure. All projects can fail and have risk attached. If a project doesn’t disclose the risk, it’s probably because they are engaging in mis-direction, or the project designers just don’t care about the risk, because it’s going to be assumed by somebody else, somebody who they hope won’t bother to ask questions about risk. Not looking hard at risk is one of the things that got us into this mess.

    And I will continue to oppose any stimulus project on the grounds that we don’t have the money, because we don’t. The fact that Congress appropriated money we don’t have is immaterial. It doesn’t mean we actually have it.

    To quote Lincoln: “How many legs does a dog have, if you call the tail a leg? None. You can call a tail a leg all you want, but that doesn’t make it one.”

  8. Maxwell said,

    Pat:

    The first overlooked cost is the cost of the refinancing.
    OK. They seem to assume the banks will internalize this cost if sold on the returns. Good point.

    In all likelihood, his rate’s going to increase. Maybe he’d come out ahead on net after the government buys a 1% rate reduction, but that’s a lot of hassle.
    Eh – maybe. As others have pointed out, the distortions in the housing market are highly localized, but this program doesn’t have to be. In fact, it might work best in the areas where the housing market is still solid.

    From the homeowner’s perspective, do you have to up-front all the costs of retrofitting before you get the refinancing? Where does that come from?What if you buy and install a bunch of stuff, but it turns out not to bring your house down to quite the required level of efficiency? Is he hosed, then?
    Good questions. I assumed financing was included as part of the refinancing deal, but a closer inspection indicates maybe not. At the very least, there’s a lot of details to work out here.

    Here’s a secret. Every single “job creation” number you’ve ever heard is a lie. Sure. I understand the level of bullshit that goes into these numbers (along with most other ROI projections). But there’s a point here worth noting: energy efficiency measures are generally speaking a pretty reliable investment. The reason most people don’t invest more in them is not because the returns aren’t reliable, but because the breakeven point tends to be too distant for most people. That’s why government, which is willing to invest in very long-term projects, is arguably capable of bridging this particular chasm.

    And then there’s the bottom line that WE ARE BROKE
    No, we’re not. And again, my assumption is that this is included as part of already-committed monies, not a new commitment. As a separate commitment I agree I would be very reluctant to endorse it.

  9. Maxwell said,

    Now as for your tax plan – consider me intrigued.

  10. Maxwell said,

    If the stimulus money isn’t spent, then it isn’t spent. It’s been appropriated, but that doesn’t mean all the dollars have flowed out of it. So there’s still room to oppose the actual projects. Let the money go back (or never leave) the treasury. Please!

    Won’t happen. Sorry, dude. I live in DC – this isn’t like the bailouts where there’s actually (limited) incentives to not dole out the cash. It’s done.

  11. PatHMV said,

    We’re still broke, and don’t actually have the money we’re spending, and really can’t afford to repay it, either. That we’ve already agreed to spend this money may mean it’s going to be spent, but it doesn’t mean we’re not broke.

    Energy measures are indeed a decent investment, and it makes sense to put them into new houses, and to buy energy-efficient products on the front end. But retrofitting, I’m not sure that is always that sound of an investment. At any rate, we already have plenty of tax credits available for such things, and that’s a much better, more direct way to accomplish subsidizing that investment, if it is determined that government should subsidize it. I don’t particularly think it should, myself, but that’s another topic entirely.

  12. PatHMV said,

    Me, I’d use this program to re-finance (I’m in a stable real estate market), take some money out, and increase the size of my home while doing the retro-fit. I’d likely wind up consuming more energy, due to the larger size of the home, even while making the home itself more efficient. Probably be a wash, or at best a very small savings.

    That this is the best use they can come up with for the stimulus funds shows just what a massive waste of money they are.

  13. Jason (the commenter) said,

    The perfect is the enemy of the good.

    So is the better, and if I have a choice between the good and the better I’ll generally pick the better.

    No, but it’s goal is to help fix a different set of problems entirely

    Just pay construction workers to take down all the extra homes that people can’t afford anymore. Let the land turn back into farms or go wild. Sustainable jobs will be created, the value of the remaining homes will increase, and nature will benefit.

  14. Icepick said,

    -If you care about conserving energy then having people live in apartments, close to where they work, should be the goal.

    My wife and I have regularly worked more than 20 miles apart. So, should we get divorced, or be forced to work closer together?

  15. Jason (the commenter) said,

    Icepick : My wife and I have regularly worked more than 20 miles apart. So, should we get divorced, or be forced to work closer together?

    Maxwell says we have to spend the stimulus money somehow. As long as we think of something more “green” than the policy he posted about that also creates jobs he should be happy.

    Any nice homes between where you and your wife work? Maybe we could give you a government subsidy.

  16. Randy said,

    Just a thought/not an argument: I live in an theoretically “overbuilt” area but there aren’t too many empty houses around here, except ones going through some phase of foreclosure. Once they go through that, someone occupies them.

    As to the stimulus idea: Whatever. Because whatever is done will be a massive waste of money no matter what they choose to do.

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