Monday, March 17, 2014
Renters, Utilities, and Moral Hazard
See, thanks to the low pitch of our roof, we do not have an attic. Depending on where you are in the house, there is only between eight and, maybe eighteen inches of clearance between the ceiling and the roof. There isn't a lot of room for insulation. And as there's no access to this space, there's no way for us to even tell if there is insulation up there (let alone install any) unless we cut through the ceiling, or through the soffits. (I'm hesitant to try the latter, as the old wood soffits are one of those little details I like so much.)
And those windows we fell in love with? They're single pane with an old painted steel frame and the crank set from my childhood, that you twist around and around to open and close. They look great and are legitimately nostalgic for me; but our windows are about as inefficient as you can imagine. In the summer, the light and heat from outside just pours into the room. It's the same issue with the cement blocks that build the outside walls of our home. They look cool, but they are hollow inside and, in the summer, you can feel the heat radiating through them as you walk by.
And like bizarro Rob Stark, I know that summer is coming. The days are pleasant now, and we can sleep with the windows open while the cool breeze blows over us. But make no mistake: summer is on its way, and none of us will escape its terrible wrath. This weekend we turned on the AC in our car for the first time, as my wife and I shared a knowing glance. It is starting. Soon, we will have to start using the AC in our house during the hottest part of the day. A few weeks later, we will hit triple digits every day. A few weeks after that, it will only get to a low in the mid-eighties at night. And the AC it will run all day, every day, until fall, pumping cool air into our old house as it pumps money out of our wallets.
So why don't we improve the energy efficiency of our home? We don't, because our renters pay half the utilities. Along with covering half the cost of our internet, television, water, sewer, and gas bills, our renters share the biggest one of the bunch: the electric bill. It runs about $100 a month throughout the year on an even payment plan, to avoid the ridiculously high bills in the summer. But $1,200 a year is nothing to sneeze at. Surely that could buy a few windows, and maybe even some spray-in insulation for the small space above the ceiling. So why don't we do it?
The rub is that we have a moral hazard. A moral hazard occurs when one party has an incentive to take risks or actions that they normally would not, because the costs or consequences would be felt by someone else. We have an incentive not to spend much money upgrading the house, because the costs of the upgrade would be borne by us alone. But the inefficient utility bills, they are split between us and our renters currently. So an upgrade that would normally show a break-even point of, say, two years, would be pushed out to four years in our situation. We probably won't be living in the house in four years.
Since we are planning on converting our home into a rental when we leave the state in a few years, at that point, the utility bills will be paid for entirely by our renters. That's the crux of our moral hazard. We have an incentive to do very little to improve the efficiency of the home now, and an incentive to do nothing for the efficiency of our home once we move out of it. The math says that, with an upgrade with any significant up-front costs, we should just kick the can down the road.
We try to be relatively green in the Done by Forty household though. We recycle. We use our canvas bags at the grocery store. We love Mother Gaia. So the idea of purposely using more electricity to save money isn't, you know, great. Plus, it's not entirely moral to avoid these upgrades just because we can ask future renters to foot the bill. When our great-grandchildren are dealing with the consequences of global warming, and swimming in the streets of downtown Los Angeles, I'm not sure they'll be that understanding when I plead, "But children, new windows did not have a positive ROI!"
I'm honestly a bit torn on the issue. We could afford to spend a few thousand dollars upgrading the house, even if we'd never recoup the costs. Still, I'd rather just invest the money and work towards financial independence, rather than let other people see the benefits of the upgrade. What would you do? Pay the money and save Mother Gaia, or tell that old broad that she's on her own?
*Photo is from mjtmail (tiggy) at Flickr Creative Commons.