Retrofit Reset: Prioritize Low-Income Households

To reduce energy costs and climate risks faced by low-income households, the federal government should establish a new free retrofit program aimed at making about 100,000 homes per year more affordable, energy efficient and climate resilient.

Low-income households are more likely to live in older, drafty homes without air conditioning. Less efficient homes make homeowners vulnerable to high energy costs and growing risks from a changing climate. Without support for retrofits that reduce their dependence on fossil fuels and protect them from climate risks such as heat waves and flooding, these households could face financial, health, safety and housing-insecurity risks.

Existing federal retrofit programs miss the mark. They are primarily geared to higher–income homeowners who can more easily navigate complex administrative processes and cover costs while waiting for reimbursement. Households struggling to make ends meet need more support.

Landlords of small, affordable rental buildings are also falling through the cracks, resulting in missed opportunities for cost savings that can be passed on to tenants. The Canada Green Buildings Strategy, a federal initiative primarily aimed at reducing greenhouse-gas emissions, offers an opportunity for a retrofit reset.

The Affordability Action Council recommends the federal government take three key actions to reduce energy costs and climate risks faced by low-income households:

• Offer free and turnkey retrofits

Establish a new program — in co-operation with local partners — to provide free, turnkey, energy-efficient and climate–resilient retrofit solutions to low-income homeowners, prioritizing older homes, seniors and people with health conditions. Widespread installation of heat pumps, combined with energy-efficient home upgrades, can improve affordability, protect against heat waves and reduce emissions.

• Generate savings for renters

Allow private landlords with smaller, affordable buildings to access the retrofit program and require them to sign agreements to maintain or improve affordability.

• Pivot the retrofit strategy to start with low-income homes

The Green Buildings Strategy discussion paper proposes complete deep retrofits in 3 per cent to 5 per cent of buildings annually by 2025. The effort could start with a goal to retrofit around 100,000 low-income homes a year, prioritizing investments that also improve affordability and resilience.

Low-Income Households Are Vulnerable to Energy Costs and Climate Impacts

Low-income households spend a higher proportion of their income on energy (Natural Resources Canada, 2022a). A significant proportion of very low-income households live in energy poverty (between 30 per cent and 60 per cent, depending on the definition used; see figure 1). Low-income households are often required to make tough choices to meet their basic needs: cut back on heating to pay for food or cut back on food to pay the utility bill.

Although 62 per cent of low-income families are renters, a substantial number are homeowners (Randle et al., 2022). Moreover, two-thirds of households experiencing energy poverty own their homes (Rezaei, 2017). In 2021, 13 per cent of all homeowners were living in unaffordable housing (Statistics Canada, 2022a).

Low-income homeowners live in rural or urban areas, and in single family homes, co-ops, condos or townhouses. Many homeowners who live in urban areas stretched their budget to buy their first condo or home when housing prices were at their peak, only to see mortgage payments rise alongside interest rates. More than one-third of first-time homebuyers in Ontario, Saskatchewan, -Alberta and British Columbia live in housing that is unaffordable, too small for their family or in need of major repairs (Statistics Canada, 2023a).

Higher energy, food and housing prices are squeezing the budgets of low-income households. (Canada Mortgage and Housing Corporation, 2023; Uppal, 2023). Energy prices have grown faster than overall inflation for years, but the gap has widened since 2020 (figure 2).

Older buildings tend to use more energy than newer ones. For example, an older low-rise building constructed before 2005 may use as much as 200 per cent more energy than a similar new building (Kukadia et al., 2022). Rural homes are more likely to be older and larger; 54 per cent of rural homes were built before 1980 versus 47 per cent in urban areas (Riva et al., 2021; Statistics -Canada, 2023b). Since older homes are typically more affordable, they are more likely to be owned by people with low incomes, who as a result face higher energy costs than -higher-income households (Aviles, 2022).

Homeowners in rural or remote areas and those in Atlantic Canada often have no access to natural gas networks and pay more for oil and propane heating. Homes dependent on fuels like oil and propane are more exposed to global price shocks. Moreover, these homeowners usually deal directly with private companies that may not offer the same flexible payment options as utilities. Canadian energy expert Andrew Leach (2022) has argued that mismatches between the supply and demand of oil could grow as global climate action accelerates. More oil price volatility could expose oil-dependent homeowners to unexpected cost increases.

Low-income households are also more vulnerable to the impacts of a changing climate (Canadian Climate Institute, 2020; Tower Renewal Partnership, 2023). They are more likely to face risks to their health during heat waves and from wildfire smoke because they are unable to afford air conditioning, a heat pump or a high-quality air-filtration system (Beugin et. al., 2023; Ontario Ministry of the Environment, Conservation and Parks, 2023). This is particularly true of seniors and people with underlying health conditions.

Low-income households are more vulnerable to flooding and wildfires because they cannot afford investments to protect their homes and are more likely to live in areas at risk (Canadian Climate -Institute, 2020). Low-income households also suffer the most during storm-related power outages because they can least afford to replace spoiled food, eat outside the home or pay for temporary accommodation (Ramesh & Coutinho, 2022). Many low-income households also lack insurance coverage. Around 1.5 million households are vulnerable to flooding but do not have access to flood insurance (Stewart, 2023). Low-income renters often forgo tenant insurance to save money.

Challenges pertaining to housing resiliency and energy efficiency are even more pronounced for Indigenous Peoples, particularly in remote, rural and northern communities. Over 23 per cent of very low-income individuals in Canada are Indigenous, versus 13.8 per cent of non–Indigenous individuals (Uppal, 2023). In 2021, nearly one in six Indigenous people (16.4 per cent) in -Canada resided in dwellings in need of major repairs, almost three times as high as non-Indigenous populations (5.7 per cent) (Melvin & Anderson, 2022). Indigenous Clean Energy estimates that 65 per cent of First Nations, 46 per cent of Inuit, and 65 per cent of Métis households were in need of major energy-efficiency-related repairs in 2021, totalling 133,195 homes (Indigenous Clean Energy, 2021). Lower-income rural, remote and Indigenous communities are often on the front lines of climate impacts, a situation that was highlighted during the unprecedented wildfire season of 2023 (Webber & Berger, 2023).

Gaps in Existing Retrofit Programs

Reducing household dependency on energy and helping households avoid costs associated with growing climate risks is critical to addressing affordability. But the current suite of federal retrofit programs is leaving low-income households — both homeowners and renters — out in the cold.

Some promising federal retrofit programs are emerging, but they have gaps in coverage (see Appendix A). New programs such as Natural Resources Canada’s Deep Retrofit Accelerator and Greener Neighbourhoods Pilot Program have the potential to support retrofits in affordable rental buildings and community housing if they are scaled up and prioritize low-income housing, but they would need more funding.

The main programs aimed at homeowner retrofits involve high upfront costs and complex administrative processes. They also miss the big picture by focusing only on greenhouse-gas reductions, often overlooking opportunities to improve affordability or resilience.

Barrier #1: High upfront costs

While NRCan’s Greener Homes Grant program provides some assistance, it requires homeowners to pay up front, making it inaccessible for those struggling to put food on the table (Box 1). Programs are often designed to provide an incentive to nudge homeowners toward a more efficient version of a product, like choosing an LED light bulb over an incandescent one. They do not provide sufficient funding to drive more transformative investments, such as upgrading windows in a home. The Greener Homes Loan provides up to $40,000, but loans are often out of reach for a low-income household because of the need for a strong credit history. Many low-income households already have significant debt (Uppal, 2023).

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[Box 1] ELIGIBLE RETROFITS UNDER THE GREENER HOMES GRANT (select examples)

• Home insulation up to $5,000
• ENERGY STAR windows and doors, up to $5,000
• Smart thermostat, up to $50
• Heating, up to $5,000
• Solar panels, up to $5,000
• Resiliency measures such as foundation waterproofing, up to $2,625 (and must be combined with another retrofit)

(Natural Resources Canada, 2023b)

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The revised Oil to Heat Pump Affordability Program (Prime Minister of Canada, 2023) offers upfront payments that cover part of the cost of a new heat pump, with some provinces and territories offering additional funds that make the average heat pump free for lower-income households. However, most households across Canada rely on natural gas or electric heating and are unable to take advantage of the program (Statistics Canada, 2023c).

Barrier #2: Complex administration and gaps in eligibility

The Greener Homes Grant requires the homeowner to complete several steps and involves detailed criteria to confirm eligibility, long application forms that require personal information, and the challenge of booking pre- and post-retrofit EnerGuide evaluations. Homeowners are also expected to book contractors to do the retrofit and submit receipts to receive payment. If they do not qualify or decide to opt out of upgrades, homeowners bear the pre-assessment cost. The benefits of the program relative to the costs are often unclear, requiring homeowners to undertake their own research to determine potential monthly savings. The complexity of the program is a barrier for many low-income households, single-parent families, recent immigrants and seniors.

The program is also designed for homeowners with a detached home. In 2021, 47 per cent of Canadians resided in a privately owned, single detached home (Statistics Canada, 2022b), which leaves a substantial proportion of Canadians who are not well served by the program. For example, condo owners living in small multi-unit residential buildings (MURBs) are only eligible if the building has three stories or less and a footprint smaller than 600 square metres. For those who are eligible, the entire building needs to have an EnerGuide evaluation, the condo board needs to approve the retrofit and each condo owner must apply individually to receive a grant for shared equipment such as a furnace or an entrance door. The $5,000 maximum is multiplied by the number of units, but the total is capped at $20,600 (Natural Resources -Canada, 2023a). For many condo owners, it is not worth the hassle.

Small rental buildings are also falling through the cracks of existing retrofit programs. This is a significant issue for affordability because 62 per cent of low-income Canadians rent, and 72 per cent of renters live in housing built before 1990, when energy efficiency was not included in Canada’s building codes (Kantamneni & Haley, 2023; Randle et al., 2022).

Most retrofit programs for rental buildings are aimed at community housing and large buildings. CMHC’s National Housing Co-Investment Fund (NHCF) for renovation projects, for example, limits funding to rentals with five or more units, and projects must meet extensive requirements for partnerships and accessibility (CMHC, n.d.).

Other programs such as the Canada Infrastructure Bank’s Building Retrofit Initiative may be available to privately owned MURBs but come with investment minimums that preclude small landlords with modest financial means (CIB, n.d.). Small landlords are also less likely to have the capacity to navigate complex program applications.

Grants and loans provided under the Greener Homes program are available to smaller landlords who live in their buildings, but the maximum amount of the grant is $5,000 if all other units are occupied by tenants. These programs also do not include tenant protection policies to maintain affordability. The U.S. Weatherization Assistance Program includes agreements (or covenants) with landlords to ensure that rents are maintained at affordable levels and energy cost savings are passed on to tenants (Department of Energy, n.d.).

Barrier #3: Missing the scope and scale of required retrofits

The narrow focus of retrofit programs on household greenhouse-gas emission reductions is missing the potential to achieve gains in affordability, adaptation and net-zero goals.

Done well, housing retrofits can help lower energy costs and improve indoor air quality while protecting people against heat waves, floods, wildfires and power outages (C40 Cities Climate Leadership Group, 2020; Canadian Climate Institute, 2023; Kantamneni & Haley, 2022). Low-income households may have few chances to undertake a significant retrofit. It is therefore vital not only to improve homes for current conditions, but to future-proof them for tomorrow’s power grid, climate and economy.

Heat pumps, for example, can reduce energy consumption, shrink monthly energy bills, and cool and filter air during extreme climate events (Canadian Climate Institute, 2023). But if they are installed without upgrades to old windows and doors, the installation could increase bills in the short term.

Energy storage solutions such as thermal storage in hot-water tanks can help utilities manage power demand while providing savings to households. This is already underway in Summerside, P.E.I., where smart grid technologies are connected to home-heating and hot-water systems (City of Summerside, n.d.). Newer technologies have the potential for even greater benefits.

Housing also has the potential to become part of the electricity system, with grid-integrated residential buildings acting as a distributed power plant that draws on household battery backup generators, thermal energy storage, smart thermostats, heat pumps and two-way vehicle charging to efficiently manage demand and generate additional power during heat waves or cold snaps. Avoiding the need to build additional electricity generation to cover demand peaks could help reduce everyone’s utility bill (Monie et al., 2021).  District energy systems also offer an opportunity to reduce costs and improve resilience (Quest Canada, n.d.).

However, the scope and scale of retrofits needed to bring about these large benefits are costly and complex. They can be highly technical projects that involve multiple contractors, varied construction timelines and interactions with several financial incentive programs. Most households will not be able to manage the retrofits on their own. And the scope and scale of the current suite of programs are insufficient to undertake retrofits that address affordability, adaptation and net-zero goals simultaneously. According to Haley and Torrie (2021), it would take 142 years to retrofit all low-rise residential buildings at the current rate of progress (less than 1 per cent of homes per year).

Indigenous organizations such as the National Indigenous Housing Collaborative have called for dedicated funding, a revised National Housing Strategy, greater Indigenous representation and sustained federal investments in Indigenous housing (Indigenous Housing Caucus -Working Group, 2018). While Indigenous communities can access existing retrofit programs, the programs are not sufficient to meet the full scale of the need.

Opportunity for a Retrofit Reset

The federal government released in 2022 a discussion paper proposing elements of a Green Buildings Strategy (Natural Resources Canada, 2022b). Two of the eight principles proposed focus on affordability and equity, diversity and inclusion. However, the proposed actions fall short, and few proposals address affordability or resilience to climate risks.

The federal government could go further by taking action in three areas:

Recommendation 1: Offer free, turnkey retrofits

The federal government should establish a new program — in co-operation with community organizations, utilities and other levels of government — to provide free, turnkey, energy–efficient and climate-resilient retrofit solutions to low-income homeowners. Such a program would address affordability and administrative barriers while generating multiple societal benefits. For example, widespread installation of heat pumps, combined with energy-efficient home upgrades, can improve affordability, protect against heat waves and reduce emissions.

The program should focus on very low- and low-income homeowners (around two million households) and prioritize those who are most financially vulnerable and at risk of energy poverty, as well as those living in older homes, seniors, people with health conditions and Indigenous communities.

The new program can provide one-stop-shop service delivery that makes it easier for all types of low-income homeowners, including condo boards and co-ops, to apply for retrofit funding (Canadian Climate Institute, 2023). Allowing program administrators to combine funding and support from different federal, provincial and utility funding sources with unique objectives would leverage more funding while removing administrative barriers for participants. Program administrators with building science expertise should also be given the flexibility to address structural housing needs such as mould or asbestos removal, which can act as barriers to energy upgrades (Kantamneni & Haley, 2022).

Recommendation 2: Generate savings for renters

The proposed turnkey homeowner retrofit program should also include private landlords with smaller, affordable retrofit buildings who do not qualify or are not well served by other programs. Rental building retrofits should require landlords to pass along savings and maintain low rents following retrofits (Haley & Kantamneni, 2023). Older rental buildings with significant potential for energy savings, and high vulnerability to climate change, should be prioritized.

Recommendation 3: Start with low-income homes

The Green Buildings Strategy discussion paper includes a proposal to complete deep retrofits in 3 per cent to 5 per cent of buildings annually by 2025. With about 15 million residential buildings and 480,000 commercial buildings in Canada, the commitment equates to between 460,000 to 770,000 buildings per year (Government of Canada, 2021). This is a bold goal, and an ambitious timeline.

The goal should start with low-income households. Instead of generic retrofits, the effort could target investments that address affordability, improve resilience and help meet net-zero climate goals. Such a shift will bring low-income households to the front of the line for retrofits, better aligning the Green Buildings Strategy with the principles of affordability and equity, diversity and inclusion. If 20 per cent of the targeted deep retrofits focused on low-income households, Canada could retrofit around 100,000 homes per year (between 92,000 and 154,000).

Low-income programs that are managed from start to finish for participants are also able to scale quickly through bulk purchase contracting, strategic timing of retrofits, and training and employment of people from low-income communities.

To support the recommendations, the federal government should work with local community organizations, utilities and other levels of government to establish standards for energy–efficient, climate-resilient retrofits for low-income households, with adjustments for renters, rural and remote homes as well as for different geographies and climates.

An ambitious retrofit strategy is also an opportunity to develop a diverse local workforce that can offer high-quality, energy-efficient, climate-resilient retrofit solutions cost-effectively. The plan can create good jobs for equity-deserving groups through integrated on-the-job training, community-benefit agreements and inclusive workforce development approaches.

The federal government should also continue to work with provinces, territories, Indigenous governments and the insurance industry to ensure that low-income households are able to afford and access insurance to protect against growing climate risks. The National Flood Insurance Program announced in Budget 2023 is a good first step.

Connections To Other Affordability Priorities

The Affordability Action Council has prioritized housing, transportation and food as key areas where the federal government can take action to help low-income households meet their basic needs in ways that also support emission reduction and resilience to a changing climate. All areas of affordability are interconnected — actions in one area will benefit others.

Housing retrofits can help to preserve and protect affordable housing in Canada and limit the need for new housing. Existing housing is likely to provide better access to public transit, schools, medical care and other amenities, reducing transportation costs. Reducing housing and energy costs can also improve food security by freeing up money for groceries.

It’s time to bring low-income households to the front of the line for housing retrofits.