Nov 22, 2019

Housing Policy

Understanding California’s 2020 Solar Mandate 

Positioning and perception are everything for California homebuilders as we head into 2020. Starting January 1st, all homes permitted for-sale of three stories or less in the state will be required to include solar energy. How will this impact consumers and builders?

Blog-CA-Solar-Mandate-Hero

Affordability and lack of supply are two of the biggest issues in homebuilding today. These challenges are even more pronounced in California, with only small portions of the populations able to afford the median price of new homes, compared to the national average of approximately 50%:

 

% Households That Can Afford New Home Median-Price

8%

Los Angeles

19%

San Francisco

31%

Inland Empire

33%

Sacramento

 

With affordability already an issue, adding in $10,000 to the purchase price of a home for solar panels will inevitably cause some headaches for builders. For example, some consumers will see that, all else equal, the price spread between new and existing homes is higher and opt for the cheaper option. Others may decide to spend less on options and upgrades to offset the $10,000.

 

Costs vs. Savings

The focus, however, should really be on the monthly payment. We calculated that the change in the mortgage payment is just under $40.00 per month when considering median home prices and current mortgage rates. The $40.00 difference is the same whether one is buying a $200,000 home or $1.5 million, making lower-cost areas are more vulnerable. Here’s the cost breakout by select regions: 

  • California average: 2.0% increase in the monthly payment 
  • Central Valley: 3.0%+ 
  • Coastal Southern California: Roughly 1.0%
  • Bay Area markets: <1.0% difference 

The 2020 mandate looks costly on the surface, especially for consumers who don’t place a high value on the technology, but adding solar panels is estimated to be a net gain for households (see the graphic below). Furthermore, unlike some regulatory fees that raise home prices without an obvious benefit, consumers can enjoy the utility of the solar panels. 

One of the big challenges for builders will be highlighting the benefits of solar power without it feeling like just a sales pitch. That will be of particular concern in the markets with the most units in the pipeline**. Using Zonda, we determined that builders in Los Angeles/Orange County, Riverside/San Bernardino, San Diego, San Francisco, and Sacramento will feel the most immediate impact of the new mandate. 

California has 40% more sunny days than the national average, which supports the early push to embrace solar power. While the new mandate will not get close to making green energy pervasive (the new home market comprises only 5% of overall housing transactions in California), the effort could lead other states to follow, especially if consumers realize the benefits as promised.

*For solar panels, there’s an option to buy or lease. The article focuses exclusively on the purchase option
**Based on total units remaining of actively selling projects and the units planned we can count for upcoming projects

Zonda can help tackle rising costs

Ali Wolf

Director, Economic Research

Ali Wolf

Director, Economic Research


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