California is set to require solar panels on all newly built single-family houses, the first statewide mandate in the nation. That's expected to save buyers money in the long run, but will raise their upfront costs at a time many are already struggling to afford a mortgage.
The state's Energy Commission is scheduled to vote Wednesday on the rules, which are expected to pass and take effect in 2020. The rules, which would also apply to new multifamily buildings of three stories or less, don't need the approval of the Legislature.
The package follows other code updates that have already made new homes and commercial buildings greener in recent years, including when regulators in 2012 required roofs be built so that solar panels could easily be added.
The mandates, which have gained support from the construction industry, also include new insulation and air filter requirements and are part of a larger effort to update building standards in order to use new structures as a weapon against climate change.
Currently, about a fifth of new homes come with solar panels, one business group estimates.
"Going to 100 percent is a really big, big jump," said Stuart Waldman, president of the Valley Industry & Commerce Assn., which represents San Fernando Valley businesses and opposes the mandate.
This latest requirement seems to address one of the state's most pressing issues – reducing greenhouse gas emissions – while exacerbating, at least in the short run, another: the increasingly high cost of housing.
Residential and commercial buildings are estimated to contribute about 40 percent of the state's greenhouse gas emissions, said Andrew McAllister, a state energy commissioner.
Some affordable-housing proponents have criticized the role that state and local mandates play in driving housing costs higher. In California's coastal communities, at least, research has found that the sharp rise in housing costs is mostly driven by rising land costs, said Issi Romem, chief economist at BuildZoom, a permit and contractor data analysis website.
"Home prices have detached from construction costs," Romem wrote in a recent blog post. He placed the blame on local zoning that limits how many homes can be built in highly sought-after neighborhoods.
But construction costs and government impact fees have been rising as well. And the latest California rules are expected to make a single family house $9,500 more expensive to build on average, which includes impact from the Trump administration's tariffs on imported solar panels, according to the Energy Commission.
"It all adds up," Waldman said. "Ten thousand dollars is the difference in getting a home and not getting a home for some home buyers. There is only so much the banks will finance."
The California Building Industry Assn. said increased construction costs will be passed along to the consumer, though it and the commission say buyers would save in the long run by using the essentially free energy to power lights and appliances or by selling unused power back to the grid.
A spokeswoman for the Energy Commission, Amber Beck, said buyers of new homes on average would see monthly mortgage payments rise by $40, while their monthly utility bills would decline by $80.
Over time, such savings would more than make up for an increased down payment – even if builders passed along every cent in costs, something that isn't a certainty. The commission put average total utility savings at $19,000 in today's dollars over a 30-year period, taking inflation into account.
"The cash-flow position of the homeowners is actually improved in these homes," McAllister said.
The California Building Industry Assn. supports passage of the rules, although the trade group wanted them rolled out more slowly. "We can look the home buyer in the eye and say 'You are going to get your money back,'" said Robert Raymer, technical director for the group.
The new regulations still must be approved by another state body, the California Building Standards Commission, later this year. But Beck said she couldn't recall an instance in which that commission overruled what was put forth by energy officials.
The rules won't be much of a change for some builders: Solar panels are already proving popular among their customers. A recent survey from John Burns Real Estate Consulting found that 81 percent of new-home shoppers nationwide would be willing to see their total purchase price rise by $100 for every $1 that energy-efficient upgrades saved them each month.
Even so, Raymer said the new standards will have some impact in a state where, according to CoreLogic, the median price of a new home was just over $530,000 in the first quarter of this year.
If the new rules added $9,500 to the sales price of an otherwise $530,000 home, a buyer putting 20 percent down would need to cough up an additional $1,900 for their down payment, according to a mortgage calculator from online brokerage Redfin.
Monthly mortgage payments would rise by $50 if the buyer took out a 30-year mortgage at 4.39 percent interest.
Raymer said such added costs shouldn't be much of an issue in coastal Southern California and the San Francisco Bay Area, but that may not be the case in markets with lower incomes and home prices.
"Ten thousand dollars to $12,000 of increased costs does have an impact in the Central Valley, it does have an impact in Sacramento," he said.
The California Solar & Storage Assn., a solar industry trade group, wanted the commission to go further and require all homes to be "net zero" by 2020 – meaning the energy they use is equal or less than what is produced on-site.
The new rules don't achieve that, in large part because the commission found doing so wouldn't be cost-effective in the long run – something it must assure when passing new building rules, Beck said.
Jacob Atalla, vice president of sustainability at KB Home of Los Angeles, said builders have been preparing for the mandate for years and can keep upfront costs down by using solar lease agreements and buying panels at scale. Already, about 35 percent of KB Home's new houses have solar panels.
"It didn't come as a surprise to us," Atalla said.