I recently moved into a new apartment in classic 1920s building. It’s well maintained, centrally located, and charming. But one of the building’s so-called selling points—it’s even on the manager’s business card—is that “all utilities are included.” Is this really a good idea? And who benefits?

“Free” energy probably appears like a huge benefit to renters. But to me it was actually a turn-off. Surely, allowing tenants to gobble up electricity, heat, and water at no additional cost leads to energy gluttony and waste. And in the end, that drives up rents. After all, tenants are still paying for utilities, it’s just that the costs are hidden in their rent checks rather than clearly stated in their utility bills. And under the “all you can heat” system I end up paying a portion of my profligate neighbor’s costs as well.

Since I moved in I’ve become accustomed to endless “free” hot water, toasty steam filled radiators, and never-ending electricity to power all my widgets. And wouldn’t you know, I’m beginning to see the energy hog creep out of me. My showers last just a little bit longer than they used to, my attention to turning off the lights is just a little more relaxed, and when I look in the refrigerator, I take more time perusing with the door ajar. I like to think of myself a frugal energy user—and if my discipline is slipping, then what’s to keep a less mindful tenant from air-conditioning their place by leaving the freezer door open?

But there is a potential upside to this story: the building owner assumes all responsibility for paying the energy bills for 140 people. At four to five thousand dollars a month, that creates a huge incentive for conservation—at least in theory.

  • For the building owner, putting in energy efficient appliances, airtight windows, and aerated faucets are financial opportunities of Mount Hood proportions. With 93 units, the building owner has economies of scale in purchasing and installation that just don’t exist for 93 individual renters. In addition, there are fewer actors are involved, so upgrades are simpler than if 93 renters made independent decisions. What’s more, the building owner likely has a much longer time window to recoup the energy savings on his investment costs than an average tenant—and time is where the returns on energy conservation investments really pile up.

    Just having the whole building on one system is reaping dividends. A mammoth central boiler in the basement that heats all the hot water and radiators is much more efficient than 93 separate heaters. It’s like my neighbors and I are all riding the bus together rather than driving alone.

    But unfortunately, the owners of my building haven’t responded to other incentives. The old wooden windows leak cold air shamelessly; if the radiators are running hot in winter, we’re advised to open the windows to control the temperature. Plus, tenants are responsible for replacing their own light bulbs. Even simple fixes, like caulking the windows and installing mini-fluorescents—or at least making up the difference in price from regular light bulbs—would be easy and cost effective.

    However, if the building managers did a comprehensive energy efficiency retrofit, there would still be the problem of split incentives. Renters who don’t pay for their utility bills still have no reason to be mindful of wasted energy.

    The ideal solution, perhaps, would be for the apartment building’s owners and its renters to share the cost of utilities. Perhaps it could work like a cell phone plan. A limited number of minutes (or kilowatts) would be included in your plan (or rental agreement). If you went over that limit, you’d be hit with serious overage fees. The apartment owner might pay all utilities for its most frugal tenants; but the most wasteful ones would pay the penalty for excess consumption.

    There are certainly wrinkles and obstacles here. Currently, my building isn’t set up for individual metering. I’m told it would require hundreds of thousands of dollars in retrofits to make it work. Still, if the metering were set up it would be a better system—a compromise that would create incentives for landlords to upgrade the efficiency of their buildings, while discouraging needless over-consumption by renters. Everyone would win.

    So while I wait for cell phone companies to start managing apartment buildings, I guess I’ll have to just resist the temptation to steam up my bathroom. And I’ll have to talk to my landlord about the little things he could do to save money and energy on a grand scale.