Electrification mandates for new homes take a long time to reduce carbon dioxide emissions.
This is a challenge for electrification mandates which target new homes. From natural gas bans to “electric preferred” building codes, there is a growing set of electrification mandates aimed at reducing carbon dioxide emissions from new homes.
For today’s blog post, I want to look at the U.S. housing stock. As I’ve dug into these data, I’ve been surprised by just how little new housing construction there is in the United States. Housing growth is much slower than it was in previous decades, and, ironically, tends to be particularly slow in states like California, New York, and Massachusetts that are the most active with electrification mandates for new homes.
The bottom line is that a lot of us live in older homes and will continue to live in older homes for a long time. Electrification mandates for new homes are not necessarily bad policy, but in countries with a long-lasting housing stock they take a very long time to reduce carbon emissions.
Not Building ‘Em Like We Used To
We just don’t build very many new homes anymore. Even before the most recent Covid-related crash, total U.S. new housing starts had reached an annual rate of only 1.6 million new homes.
This might sound like a lot but there are 128 million total U.S. households, so this is equivalent to barely more than 1% of households moving into a new home each year. In previous decades, the rate was above 2%.
Slow housing growth means that relatively few homes are subject to electrification mandates. For example, the city of Berkeley recently banned natural gas for new homes. This is a big change for new homes, but in the recent past only about 200 new homes are built in Berkeley each year, a city of over 120,000 residents.
Biden and many others are talking about drastic carbon dioxide reductions in the U.S. building stock by 2035, but 80%+ of the homes where people will be living in 2035 have already been built.
Where Are The New Homes?
Across all U.S. homes, only 6% were built since 2010. This ranges widely across states from below 4% throughout the Midwest, to above 8% through much of the South and West. The figure below plots the proportion of homes built since 2010 by state.
North Dakota ranks #1 — 16% of all homes were built since 2010. No other state comes close. The North Dakota oil boom led parts of the state to more than double in population over this time period. This is a classic demand shock, resulting in rapid housing growth.
While North Dakota is #1 for new housing growth, it ranks dead last – #50 – on ACEEE’s energy efficiency scorecard, and is one of only a handful of U.S. states to have no statewide mandatory energy code for buildings. Funny that in this one state which actually does have a lot of new homes, there has been little attempt to impose electrification mandates.
In contrast, housing growth is near the bottom for California, New York, Massachusetts, and Rhode Island – four states that have been recently active with electrification mandates for new homes.
This negative correlation between electrification mandates and housing growth is not a coincidence. Electrification mandates tend to be gaining traction in places where historically there have been density restrictions and other regulations on new housing. Wharton’s index of residential land use regulations ranks the San Francisco Bay Area, New York City, and Providence, RI, as the three hardest places in the country to build a new home.
Addressing the Old Home Challenge
Instead, you know what we have a lot of in the United States? Old homes. Nationwide, 17% of U.S. homes were built before 1950.
The states that have been most active with electrification mandates for new homes tend to be states with many old homes. In New York, Massachusetts, Pennsylvania, and Rhode Island, for example, more than 30% of homes were built before 1950.
These older homes are a big challenge. It is relatively easy to upgrade an older home with energy-efficient lighting and smart appliances, but going all-electric with an older home requires a major retrofit. Previous Energy Institute research shows that retrofitting older homes is not cheap and it is hard to convince people to participate.
A related question is whether electrification mandates might lead people to stay in their older homes longer. There is an analogy with new vehicles often referred to as the “Gruenspecht Effect”. Fuel economy standards make new vehicles more expensive, which discourages drivers from trading in their older vehicles. This same disincentive might apply also with homes, albeit with a much longer time horizon.
Better Be Patient
I’m intrigued by the increased interest in electrification mandates for new homes. These are interesting developments, and I look forward to future Energy Institute research carefully measuring the benefits and costs. But what is immediately clear is that these policies will not be a fast route to reducing carbon dioxide emissions. The U.S. has a lot of old homes and we aren’t building new homes quickly enough to rapidly renew the stock. Thus, whatever policy requirements are imposed on new homes, we should not expect these interventions to transform the housing stock overnight.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Davis, Lucas. “Electrification Mandates and Slow Housing Growth” Energy Institute Blog, UC Berkeley, August 17, 2020, https://energyathaas.wordpress.com/2020/08/17/electrification-mandates-and-slow-housing-growth/
Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley. He is a Faculty Affiliate at the Energy Institute at Haas, a coeditor at the American Economic Journal: Economic Policy, and a Faculty Research Fellow at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. Prior to joining Haas in 2009, he was an assistant professor of Economics at the University of Michigan. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.