Overcoming the Split-Incentive: Building Electrification, Tenant Protection, and Equitable Decarbonization

Replacing fossil-fuel equipment with electric alternatives, such as heat pumps and induction stoves, can reduce emissions and improve indoor air quality and comfort. In rental housing, achieving these benefits requires cooperation between property owners and tenants.

Landlords typically pay for building upgrades, while tenants who pay their own utility bills receive the energy savings. This “split incentive” can discourage landlords from investing, while tenants have little control over major building systems.

Rebates and no-cost installation programs reduce upfront expenses. Green leases, agreements that establish how owners and tenants share upgrade costs, energy data, and savings, can also make improvements more practical.

Without safeguards, retrofits can create risks of rent increases, construction disruption, or displacement. Limits on passing costs onto renters, enforceable protections, and early communication help ensure tenants benefit from improvements.

The review recommends directing support toward affordable housing and households with high energy costs relative to income. Involving renters in planning and coordinating upgrades with equipment replacement, renovations, or voluntary vacancies can reduce disruption and expense.

Next steps include fully subsidized upgrades, which are expensive, and available funding cannot reach every rental property. Expanding contractor training, standardizing retrofit approaches, and tracking energy bills, rents, and tenant stability can help programs grow while protecting affordability.