Solar Energy
Buying, Going Green

Solar Homes: The Effect of California’s Law on the Market

California has led the nation in promulgating residential energy standards to increase efficiency and reduce dependence on carbon-forming fuels like coal and oil. California law requires that at least 50 percent of the state’s electricity come from noncarbon-producing sources by 2030.

To meet that goal, the California Energy Commission is requiring that all new homes and smaller apartment buildings built after the end of this year to have improved insulation and require energy-efficient upgrades to lighting for non-residential buildings. The standards also encourage “demand-responsive technologies,” such as battery storage systems and heat pump-based water heaters which will allow residents to store electricity when they generate too much and use less energy on heating.

Solar Energy

To take effect next year, the commission is mandating another change that raises the bar for a solar-powered living and may be adopted by other states to reduce carbon created by burning fossil fuels.

California requires that all new homes and apartment buildings lower than three stories that are built after January 1, 2020 be “solar ready.” Builders will be required to include some form of solar power in every new home or apartment building. Builders and homeowners can create new power systems for all the homes in a neighborhood to share power. These homes will be hooked up to the traditional power grid for times when solar isn’t plentiful. The mandate also includes an exception for any home that simply can’t harness solar well, such as those that are completely in the shade.

Support for the new standard is strong in California. “The adoption of these standards represents a quantum leap,” Bob Raymer, senior engineer for the California Building Industry Association, said during the public comments before the vote. “You can bet every state will be watching to see what happens.”

However, some are worried about the wisdom of raising the price of new homes by an average of $10,000 at a time when the state is one of the least affordable in the nation. In the fourth quarter of last year, only 28 percent of prospective home buyers could afford to purchase a median-priced, existing single-family home in California, according to the California Association of Realtors.

Solar Costs and Affordability

California is one of the least affordable states in the nation for housing;  56.6 percent of new and existing homes sold between the beginning of October and end of December were affordable to families earning the U.S. median income of $71,900. But only 28 percent of California households could afford to purchase a $564,270 median-priced home in the fourth quarter of 2018, up from 27 percent in third-quarter 2018 but down from 29 percent a year ago.

“In California, we have very high home prices already, over $500,000. Buyers who cannot outright afford solar-spawned price spikes have alternatives such as leases and power-purchase agreements,” says Erin Stumpf, a Sacramento-based broker associate with Coldwell Banker Residential Brokerage, told the New York Times.

Even a modest $1,000 increase in the price of a median-priced new home will price 9,897 California households out of the market according to the National Association of Home Builders. The California Energy Commission estimates that the standards will add $9,500 to the price tag of a new home, which is raising concerns that the solar standard will contribute to the affordability crisis in many California markets.

However, solar powered homes will save homeowners $19,000 in energy bills and maintenance over the course of a 30-year mortgage. The $9,500 cost of adding solar to a new home would raise average monthly payments $40 a month on a 30-year mortgage while energy savings would total about $80 per month.

solar home

There are some other good reasons for building solar-powered homes. Energy rates will continue to increase, adding value to solar homes. As inventories of new and existing homes grow, prices will soften. As some of the hottest markets make the transition from sellers’ to buyers’ markets, prices are already leveling off in markets like San Francisco and San Jose. As energy costs grow and prices flatten, homeowners with solar will see the value of their homes increase. In two or three years, solar-powered homes will appraise at prices that are higher than homes powered by electricity generated by fossil fuels.

The economic advantages of solar will encourage developers, power companies and homeowners’ associations to go solar. The solar rule will motivate builders to purchase solar panels in bulk and incorporate solar construction in their standard business plans, pushing down costs and prices.

Some argue that the commission probably overestimated costs because the price of solar panels is already falling, and panels for new developments will likely be bought in bulk, meaning savings for solar customers will likely be even higher. Most solar panels come with a 25- to 30-year warranty, and while they will be less efficient at that age, they can still produce electricity. Plus, as technology improves, so does solar panel longevity.

Solar today will save California consumers $80 a month on heating, cooling, and lighting bills. Fossil fuel power will continue to grow costlier, and solar power will become an important amenity that adds value to appraisals. Higher energy costs will incentivize owners and developers to create shared power systems for a group of homes. These homes will still be hooked up to the traditional power grid, for times when solar isn’t plentiful, like at night.

Will California’s new requirement for solar panels on all roofs create a sea-change in the way we think about housing and energy?

“These provisions really are historic and will be a beacon of light for the rest of the country,” state energy commissioner Kent Sasaki to the San Jose Mercury News. “[It’s] the beginning of substantial improvement in how we produce energy and reduce the consumption of fossil fuels.”

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