- Last week, California became the first US state to require solar panels on all new homes.
- The regulation takes effect in 2020, and some economists warn that it could raise upfront purchase costs in one of America’s most expensive housing markets.
- Homebuilder trade organisations supported the move, but also worked to find ways that would cheapen the burden for their members and homeowners.
California’s decision last week to require solar panel installations on new homes could worsen the affordability crisis in one of America’s most expensive states, economists warn.
On Wednesday, the California Energy Commission approved a plan to require all new homes, condos, and apartments three stories and fewer to have solar panels installed. The regulation doesn’t kick in until 2020.
The energy commission calculated that this would add about $US40 to the average monthly mortgage payment, but be offset by $US80 in savings on monthly heating, cooling, and lighting bills.
“It’s clear that this will reduce the overall cost of maintenance and ownership through lower utility bills, but it comes at the price of a higher upfront cost to buy, making these homes less affordable,” Mark Fleming, the chief economist at First American, told Business Insider.
The median price of a single-family home in California was $US544,000 in March – the highest on record according to Zillow. Competition for the cheapest homes is fierce because there are many willing buyers. At the peak of the 2017 spring-selling season, homes listed on Zillow sold within 55 days, the quickest on record for any comparable period in California going back to 2010.
Nela Richardson, Redfin’s chief economist, questioned whether builders would take the higher upfront costs into account when deciding whether to build in the more affordable or luxury end of the market.
“I’m definitely pro regulations to help control climate change,” Richardson told Business Insider. “In this particular instance, the burden of regulation is going to be felt by consumers rather than the industry itself.”
Even before the regulation was approved, the California Building Industry Association (CBIA) had been looking for ways to lower costs and provide flexibility for homeowners, said Bob Raymer, its technical director.
For example, instead of folding solar costs into their mortgages, homeowners may have the option to lease solar panels from the companies that make them. He estimated that this second option would slash the cost to California homeowners, on average, from a range of $US8,000-$US12,000 to $US1,000.
Another option is solar panel-sharing for communities instead of installing on every home, Raymer said.
First American’s Fleming said Property Assessed Clean Energy (PACE) financing, which already helps homeowners with the costs of renewable-energy installations, may be able to offer some relief.
PACE exists in California partly because the state is already one of the most embracing of green technologies in the US. According to the Energy Information Administration, California’s energy-related carbon dioxide emissions in 2015 were the second lowest behind New York.
It’s all the more reason why some experts worry higher upfront costs for hopeful homeowners would pour more fuel on California’s scorching housing market.
“We are not looking for new regulations,” the CBIA’s Raymer told Business Insider.”But this is something the administration in California really wanted.”
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.