Building Up to the 2020 Solar Mandate

Ali Wolf, Director of Economic Research for Meyers Research LLC, shares her insight after researching the solar mandate

 

Ali Wolf, Director of Economic Research for Meyers Research LLC, recently finished research on the 2020 mandate. This mandate has become a major topic of conversation for builders right now throughout the state of California.

“Starting January 1st of 2020, all homes permitted for sale of three stories or less will be required to include solar energy,” Wolf explained.

While this shift may seem drastic for builders, the more challenging part, Wolf believes, will be in the way builders market these products. This is because for builders to implement the for-sale option, it will initially increase the price of a home by $10,000. Paired with the affordability problems currently facing the California housing market, Wolf believes, the initial cost increase may be upsetting for some consumers.

“If you average that $10,000 over the life of the mortgage, it’s a $40 change in the mortgage payment,” Wolf explained. “So that’s the same as going out to a nice dinner. Estimated by the California Energy Commission, you actually save, on average, $80 a month because of the more efficient energy.”

For homebuyers, their monthly payment may even be more manageable, despite the initial increase in the home’s ticket price. The more difficult challenge, according to Wolf, will be the way builders communicate that knowledge to prospective buyers.

“Buyers will feel the effects on day one — when you get your first electric bill, you’ll feel it,” stated Wolf, emphasizing that the benefits are not just long-term benefits, although people may first assume that to be the case. There are a number of ways that builders can communicate these changes to prospective buyers in order to illustrate the benefits and savings more clearly. Wolf advises that they use real world examples to help show hesitant consumers that it is more than a marketing scheme; efficiency is good for everyone.

“There’s going to be a perception problem, and it’s just trying to find a way to communicate the benefits,” Wolf said. “Whether it’s using real-life examples of people that live in your community already, or whether it’s just going through the math and showing them how their monthly payment is going to change, it needs to not feel like a sales tactic. It needs to feel like this is actually going to benefit you.”

While solar is popping up across new rooftops in this state, many other states have no such mandate. Because climates are so different in different regions, the codes that work in California may not work in states with fewer sunny days.

One concern, according to Wolf, is that new homes in California make up only five percent of the overall housing market. Existing, inefficient homes from the 1980’s make up a bulk of the market. So, while it is a great first step, increasing efficiency of older homes could ultimately push efforts to combat climate change with the state’s built environment even further.

Another concern is the way this mandate may impact the state’s housing affordability. While sustainability plays a great role for consumers in California, research has shown that cost still remains a barrier for a number of consumers. However, this new solar mandate will allow for being altruistic and limiting spending at the same time.

“With this, you can do both,” Wolf said. “You can still do right by the environment, and you can save money.”

Although it may appear to some homebuyers that the builder is taking advantage or that the home is more expensive, the reality is that neither is true.

Still, those living in low-income households are likely to be impacted most severely. This is because the $40 monthly increase will be the same for any house bought. Wolf compared a $400,000 house in the Inland Empire to a $1.5 million house in the Bay Area, as both households would have to pay an additional $40 in their mortgage.

“So, the shock is going to be exaggerated in the more affordable parts of the state,” Wolf stated. “And, you’re probably not going to have as great of savings on a smaller house when you don’t use as much electricity, so the lower price points could be more vulnerable.”

The affordability problems still facing California’s housing market may make these changes seem hard to implement, but builders have been preparing for these changes for months — even years.

“Builders are aware of what’s coming down the pipeline,” Wolf added. “They’re trying to figure out the cost and plan.”

While builders work on moving forward with the changes, Wolf believes they should also focus on communicating the value of this mandate — financially and environmentally — to prospective homebuyers.

Wolf concluded, “For me, [education] is the most important part.”

Ali Wolf is the Director of Economic Research at Meyers Research LLC, Orange County. She may be reached at awolf@meyersresearch.com.

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