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California Makes New Homes Even More Expensive

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California Makes New Homes Even More Expensive

May 14, 2018

The median list price for a house in California is almost $700,000, the highest in the nation aside from Washington D.C. and Hawaii. This compares to a median list price of $328,000 for the United States as a whole. Prices have been surging in many areas of the state in recent years, and housing costs are putting a serious strain on Californians budgets, and hindering opportunities for growth in the state. To make matters worse, officials on the California Energy Commission voted unanimously this week to require new homes in the state to have solar panels, which they estimate will add more than $10,500 in initial costs for single-family houses.  

The new mandate, effective January 2020, requires all new single-family homes and multi-family buildings of three stories or fewer to have solar panels installed, with some exemptions for shade and other considerations.

The Commission’s report points to the astronomical housing prices and growing inflation in recent years to make the case that the additional costs would only be a proverbial drop in the bucket. According to the Commission, the additional costs would have a comparable effect on prices of four to six months of normal median home price inflation. This would be small comfort to would-be homebuyers who are priced out.

Furthermore, these additional costs will fall disproportionately on lower-income residents who live in less-affluent parts of the state. The additional $10,500 might not be quite as noticeable in San Francisco where the median list price is $1.2 million, but it would comprise a much larger share of the total home price in Fresno, where the median list price is $256,000.

The Commission report only estimates initial costs. In addition, The Wall Street Journal reports that annual cleaning and inspection of the panels could cost homeowners anywhere from $300 to $500, and repair costs average $650. These additional operational costs would further burden homeowners year after year, and reduce any potential benefits from lower energy costs.

As Peter R. Hartley of the Baker Institute has pointed out, households with solar panels generally have higher incomes than other households, which rely on the grid for their electricity. In the coming years as more households have solar panels as a result of the requirement, more network costs will be borne by the remaining households. This leads to “growing cost inequality to the detriment of lower-income households.”

If the proposition is such a clear net positive for the new homebuyers, it prompts the question of why only 15 to 20 percent of the owners of new single-family homes in the state choose to have solar panels installed. Prices may continue to decline in the future, which would likely lead to more people choosing solar panels, but it gives Californians short shrift to assume that they are incapable of seeing the potential benefits of solar panels.

While solar companies and installers lauded the move, and will almost certainly benefit from the new requirement, businesses in other industries such as home building might be adversely affected. Have no fear, the Commission’s study assures us that both jobs and businesses “will not be eliminated.” It is possible that the aggregate effects on employment or companies will not be substantial. However, it strains credulity for the Commission to assert with so much certainty, and a lack of further analysis or explanation, that the requirement will not have any adverse effects at all along these channels.

The report emphasizes that over the 30-year window analyzed, individuals would see net benefits from the regulation in the form of monthly energy bills about $80 lower, but the underlying motive is to help the state reduce emissions and meet the Energy Commission’s goal of having new homes require zero net electricity.

Even for the goal related to the environment, focusing more on fostering competition, rather than a series of rules and requirements, might be more effective. Former Orange County Republican Assemblyman Chuck DeVore, now with the Texas Public Policy Foundation, notes that California’s record regarding renewable energy is not impressive, despite, or perhaps because of, the panoply of associated laws and regulations. Texas produced about five times the amount of wind power as did California in 2017, and 29 percent more non-hydroelectric renewable power. Meanwhile, California’s retail electric rates were 89 percent higher.

Californians are being squeezed by high and rising housing costs, in addition to high electricity rates. The new solar panel requirements will do nothing to solve either of these problems and will make new homes even more expensive. Instead of layering on ever more rules and requirements, policymakers in California should consider increasing the role for competition and markets for energy. 

Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes.

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