California regulators voted in August to improve energy efficiency and require solar power and battery storage options in both new commercial and residential projects. Although not yet incorporated into the California building code, the California Building Standards Commission (CBSC) will consider the proposal in December 2021; if approved, it will take effect Jan. 1, 2023.
Every three years, the California Energy Commission (CEC) updates building standards to help structures increase their energy efficiency while lowering their carbon footprints, all as cost-effectively as possible. It's a difficult balance to strike in California, as the housing shortage persists and prices continue to rise.
Proposed changes jump-start controversy
The CEC's proposal will apply to commercial and multifamily residential properties. A previous set of code modifications covered single-family homes; those requirements took effect in 2020.
Homes and businesses use almost 70% of California's electricity and create a quarter of its greenhouse gas emissions. The state has long tried to tackle these issues by imposing additional requirements on new structures.
The most recent changes target multifamily homes of up to three stories and commercial buildings. The provisions include requiring these structures to have solar panels and batteries, outlets for charging electric vehicles (EVs), and wiring for electric heat pumps, furnaces, and stoves.
It's estimated that, over the next 30 years, the 2022 Energy Code changes (remember, this does not include the existing solar panel requirements for new single-family homes) will reduce 10 million metric tons of greenhouse gases -- the equivalent of removing 2.2 million cars from the road for a year. Consumers should realize $1.5 billion in benefits, including the excess solar-generated electricity each owner can sell back to the grid.
However, despite electricity-saving solutions and environmental protection moves, the CEC is courting a fair amount of controversy. This new proposal, along with the 2018 mandate to add solar panels to all single-family new-construction homes, represents some of the biggest changes to the California building code in a while.
Naysayers criticized the 2018 move, fearing that adding solar panels to new homes would make them unaffordable by tacking approximately $9,500 to the cost of the average structure (*laughs in 2021 real estate market*). The new proposal is seeing much the same argument rehashed for the commercial and multifamily markets.
Construction on a lot of new homes has been delayed due to the pandemic, with the result that few houses currently under construction fall under the single-family solar mandate. But it's clear that no one is deterred from buying anything in California at the moment. The bigger problems are the housing shortage and the scarcity of building materials.
The Millionacres bottom line
Ultimately, the market in California is already so red-hot that adding even $20,000 to the cost of a home or commercial structure means almost nothing in the grand scheme of things.
According to the latest numbers from the California Association of Realtors, existing homes hit an all-time high price of $827,940 in August 2021. And we've all heard the stories, even those of us far from California -- those houses are often caught in bidding wars with offers $20,000, $40,000, or even $60,000 over the asking price. The story for new construction is no different.
Multifamily units are also still in huge demand, both from renters who want to rent and from investors who want to buy them, so adding a small percentage increase to the price tag on any sort of investment property isn't likely to be much of a big deal.
Climate change is serious. It has to be addressed now, or investors and homeowners alike stand to lose a lot more than the cost of solar panels. Since real estate is a long-term investment, it doesn't make sense to think about it in terms of today's acquisition price alone. There's a long road between purchase and eventual divestment, including many, many years of earned rent and depreciation.
These updates to California's building code represent only a very small increase in the cost of new structures, but they are the start of a wave of change that will help Californians reduce their reliance on fossil fuels. More has to be done, like getting older homes into sync with these changes, but starting from scratch is always easier than retrofitting anything, so it makes perfect sense to tackle new construction first.
Investors might not be thrilled with the slightly higher acquisition costs, but keeping California habitable for the long term is good for everyone.