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Electrification Mandates and Slow Housing Growth

Electrification mandates for new homes take a long time to reduce carbon dioxide emissions.

New housing construction has fallen sharply around the world due to COVID-19. Housing starts are down 30% in the U.S., and down up to 40% in the UK.

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.

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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.

new

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.

old

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.

dwight

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 View All

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.

15 thoughts on “Electrification Mandates and Slow Housing Growth Leave a comment

  1. My question is on electric homes, mostly heating and cooling with heat pumps. What happens to grid demand on the coldest days of the year? I read a while back that gas use on cold days is larger than peak summer grid.

  2. This blog seems to assume that local building codes that encourage electrification are the only or primary strategy to electrifying buildings – that is certainly not the case! Electrifying new buildings is just one small, but vital, first step in reducing emissions from buildings. It is already lower cost to build all-electric and you avoid stranded gas infrastructure. Plus, 1.6 million new electric homes per year would be a huge boost to the efficient electric appliance market, lowering the cost and increasing the availability of super-efficient heat pump equipment for existing buildings as well. The point about the “Gruenspecht Effect” is also misplaced. All-electric new homes are LOWER COST to build due to avoided gas infrastructure and in-home gas piping, as well as faster build times from only needing to connect one utility service (reduced build times = $$ for builders). Seems like this blog is grasping to create controversy where there really isn’t any – we all know that addressing new buildings is just one piece of the puzzle.

  3. I’m skeptical that electrification mandates have anything to do with slow housing growth. There are easy, alternative explanations, like zoning laws and NIMBYism. Or perhaps the fact that people are fleeing places like NY and CA in droves due to high costs. People have been leaving the dense NE for warmer areas for a long time, too. See Glaser and Moretti. Against the broader landscape of factors that affect housing starts, electrification mandates can’t matter that much. It’s a tiny cost, possibly a negative cost, and it’s easy to make nice homes without gas.

    Our old house in NC, from the 1950s, was electric only, and I honestly didn’t notice until we moved in. With an electric heat pump, utility bills were tiny all year around (rarely over $100/mo), and we were toasty in winter and cool in brutally hot, muggy summers. We stumbled into a remarkably fortuitous situation.

    Most homes here in Hawaii have no gas. The only thing I ever miss is a gas cooktop. But induction is way better than gas, if you can find one that won’t break after a month or two. From what I read, we’ve crossed that Rubicon: induction cooktops are quickly becoming more reliable. Mandates actually accelerate the process of learning by doing, both for heat pumps (which now work in much colder climates) and luxuries like induction cooktops.

    Older houses are a big challenge. But against all motivations for moving, gas can’t matter that much. Moving is a huge life change driven mainly by other things.

    Yes, we have a national housing shortage. But to allude to a causal link here with less than a sliver of credible evidence seems, well, not very modern micro like.

  4. First, it not clear that moving into a new home is environmentally beneficial. Older homes also tend to be smaller in square feet, which also tend to have a smaller energy footprint. It’s not expensive to quickly improve the energy performance of the building envelope.

    Second, the increased longevity of cars has much to do with the emission warranties required by CARB for new vehicles. Four decades ago, a car with a 100,000 miles was an accomplishment. Now its an expectation due to the increased durability created by the 100,000 mile warranty. Higher prices have some effect, but as EI researcher Christopher Knittel has shown, much of the increased investment in cars has gone into horsepower and performance, not fuel economy and emissions control.

    Finally, the key to retrofit electrification is catching homeowners as they replace appliances. That will require tracking the age of those appliances and either preemptively incentivizing a switch, or engaging HVAC contractors in presenting electric choices as the first option. It will require subsidies which could be a good use of GHG allowance funds.

  5. It would be useful if you identified the types of “electrification manadates”, how and why they might impact the energy performance of the installed stock of homes, and what it might cost (economic and otherwise) to make those retrofits. It would then be easier to evaluate the cost-benefit tradeoffs involved in removing and replacing any part of the installed stock.

  6. “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.”

    Though electrification could be of long-term benefit in the fight against climate change, instituting a “natural gas ban” then using natural gas-fired electricity for space heating, cooking, and laundry is a far less efficient use of energy. In California, an estimated 9% of electricity generation succumbs to line losses, and though solar electricity is often useful for helping to power air conditioning on hot days, it’s completely unavailable to power evening chores like space heating, cooking, and laundry.

    The intermittency of renewable energy has a price, in both convenience and carbon emissions, and after the scheduled shutdown of Diablo Canyon Power Plant the situation will only get worse.

    • The ban on natural gas in new buildings is not about reducing emissions today, but rather about reducing emissions in future decades. Once installed, the existence of natural gas appliances creates inertia to electrifying existing buildings. It is much cheaper to build new all-electric, including savings of thousands of dollars in avoided gas infrastructure. Any incremental increase in gas generation (which is unlikely to be significant) today is offset by the large decrease in gas space and water heating use in the near future.

      • Electric heating, cooking, and laundry appliances are not only less practical (all take longer to get the job done), they’re 10-30% more expensive to operate. Maybe you believe thrusting this added burden on new homeowners is justifiable, in my opinion that shouldn’t be your decision to make.

        The 130 degree temperature recorded yesterday in Death Valley reminds me of how pitifully ineffective renewables have been at lowering our carbon emissions (California’s gas consumption for power is unchanged since 2011). After California realizes it’s a mistake to shut down Diablo Canyon we can talk about eliminating gas appliances – until then, electrification will only be making our emissions worse.

        We didn’t have “decades” to wait in 1986; we certainly don’t have them now.

        • You can take up your cost issue with E3 who conducted the electrification studies. (Navigant/Guidepost’s study has numerous errors.) In addition, the CEC conducted Title 24 studies showing that electrification of new homes is cost effective and can be required in local ordinances. Operating cost is only one part of the total cost equation. Installation of otherwise avoided natural gas infrastructure saves thousands of dollars, and electric appliances can be comparable to gas appliance costs. Further, electric cooking technologies are now as fast as gas with inductive cooktops and convection ovens. (I’ve used both.)

          Click to access E3_Residential_Building_Electrification_in_California_April_2019.pdf


          https://www.ethree.com/e3-quantifies-the-consumer-and-emissions-impacts-of-electrifying-california-homes/

          Diablo is a drop in the bucket of what we need in zero emission generation. It would take a decade at best to build another nuclear plant. We don’t have time to wait.

          • “electric appliances can be comparable to gas appliance costs…installation of otherwise avoided natural gas infrastructure saves thousands of dollars…further, electric cooking technologies are now as fast as gas with inductive cooktops and convection ovens. (I’ve used both.)”

            100% unsupported personal opinion. Peer-reviewed references, please – advertising from marketing firms like “E3” will be ignored.

          • Where’s your purported documentation? It’s not just E3 that making these statements. As usual, anything that disagrees with your worldview, no matter how well documented must be a lie. It’s quite a conspiracy working against you specifically!

          • “It’s not just E3 that making these statements.”
            I’m sure there’s a whole raft of marketers in the renewables/gas cabal that making those statements. I’m sure upper management at Mars, Inc. that claiming “Snickers Really Satisfies!” So what?

            “As usual, anything that disagrees with your worldview, no matter how well documented must be a lie.”
            Since you’ve provided no documentation at all, I can’t either disagree or agree with it. For evaluation purposes it’s worthless.

            It’s quite a conspiracy working against you specifically!”
            What conspiracy? Just a plain old, predictable advertising. Yawn…

          • You provided no documentation whatsoever for your initial assertions. Why do you continue to try to hold me to a higher standard than you hold yourself? Provide your documentation backing your statements about relatives costs, but make sure that they aren’t “advertisers” like SoCalGas. I’ve provided mine. And again, your retort to every single piece of evidence against you is that the sources are not sufficiently “pure.” If you can’t refute the substance of what is being written and presented, then you most likely just don’t have the evidence to refute the statement.

  7. This is very valuable information. Electrification advocates hope that new building mandates will, within a few years, build up supply chains and installer expertise that will make it more affordable to electrify existing homes. This would be similar to the way that the solar PV industry grew from its initial base of “off the grid” households to widespread deployment in existing single family homes. As the 130 degree temperature recorded yesterday in Death Valley should remind us, we’re running out of time to make the necessary changes.

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