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June 2018

Builders of California homes must include solar provisions starting in 2020

Most new housing built in California after 2020 will be required to have installed solar power under a mandate of the state's Energy Commission. The new energy efficiency standards, approved unanimously and developed with support from the California Building Industry Association, are the first in the nation to require solar.

"Adoption of these standards represents a quantum leap in statewide building standards," Bob Raymer, senior engineer of the California Building Industry Association, said before last month's vote.

"You can bet the other 49 states will be watching closely what happens," he added.

The new policy applies to single-family houses and multifamily units that are three stories or less, with some exceptions for homes that are too shady.

CBIA CEO and President Dan Dunmoyer praised commissioners and staff from the California Energy Commission for working with the building industry during the 18-month process to adopt a set of "cost-effective standards that ensures homebuyers will recoup their money over the life of the dwelling." He also described the measure as "a fair balance between reducing greenhouse gas emissions while simultaneously limiting increased construction costs."

The move is expected to cut energy use in new homes by more than 50 percent while reducing gas emissions by an amount equivalent to taking 115,000 fossil fuel cars off the road.

Although supported by a cross-section of organizations, the new mandate raised some concerns. Critics believe it could drive up the purchase price of a house by almost $10,000 to comply with solar and other energy-efficiency measures, an expense that would likely be passed on to homebuyers.

The Commission estimates residential buyers with a 30-year mortgage will pay an average of $40 more on their monthly payment, but these new homeowners will save around $80 monthly on heating, cooling, and lighting bills.

"It's a policy that very clearly is picking winners, and California would be better off focusing its efforts on the real source of the problem - greenhouse gases - rather than favoring one zero-emissions technology over others," stated Colleen Regan, Bloomberg New Energy Finance analyst. She called the decision "admirable but misguided."

CEC's lead commissioner for the energy efficiency policy area countered the critics by citing various benefits. "The buildings that Californians buy and live in will operate very efficiently while generating their own clean energy. They will cost less to operate, have healthy indoor air, and provide a platform for 'smart' technologies that will propel the state even further down the road to a low emissions future," stated Andrew McAllister of the state's primary energy policy and planning agency.

Brent Anderson, a spokesman for homebuilder Meritage Homes Corp., one of the country's largest builders, told reporters at Bloomberg News that home buyers might find it "a little distasteful to be forced to pay more for solar systems that they may not want or feel like they can't afford" with home prices having risen as much as they have, adding, "Even though, in the long term, it's the right answer."

Builders have some options for compliance by 2020. The solar energy could be developed in the form of a solar lease or a solar purchase, with the lease cutting down on up-front costs for buyers. Alternatively, builders could develop a nearby solar farm to supply an entire community rather than installing individual solar roofs, an option that might be much more cost-effective for the builder.

Over the past five years, California added 2.3 million jobs but permitted fewer than 480,000 new residential units, or about one home per every five new workers. Other sources indicate the state adds about 80,000 homes per year, with around 15,000 having solar power in some form.

California's energy commission started raising energy efficiency requirements annually in 1978. A requirement it enacted in 2013 called for solar-ready roofs on all residential buildings. The California Building Standards Commission will need to adopt the latest rules as a formality.

"This is massive," said Morten Lund, chair of an energy storage initiative at law firm Stoel Rives LLP, in reaction to news of the mandates. "Essentially, this could turn residential solar into an appliance, like a water heater. There has always been a certain inevitability about that outcome, but this is moving faster than most of us thought likely."

The news of the solar standards triggered mixed results for publicly traded companies. Solar-related stocks surged, while shares of homebuilding companies declined.