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Evidence of a Homeowner-Renter Gap for Electric Appliances

Renters are more likely to have electric heating, electric hot water heaters, electric stoves, and electric dryers.

Renters tend to draw the short straw when it comes to low-carbon technologies. Previous research has shown that renters have fewer energy-efficient appliances, less attic and ceiling insulation, and not as many energy-efficient light bulbs.

When it comes to home electrification, however, the pattern flips. In today’s blog, I show that U.S. renters are significantly more likely than homeowners to have electric heating, electric hot water heaters, electric stoves, and electric dryers.

The “homeowner-renter gap” likely arises from the same incentives that lead to underinvestment in energy-efficiency, and has important implications for an emerging set of policies aimed at reducing carbon dioxide emissions through electrification.

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Homeowner-Renter Gap

I constructed the figure below using microdata from the U.S. Department of Energy’s Residential Energy Consumption Survey. These data are nationally representative of the United States’ 80 million owner-occupied housing units and 40 million renter-occupied housing units.

Fig1

The figure shows that U.S. renters are much more likely than U.S. homeowners to have electric appliances. The biggest gap is for electric heating. Whereas 50% of U.S. renters heat their homes primarily with electricity, only 31% of U.S. homeowners do the same.

There is a considerable homeowner-renter gap for all four categories, with renters between 8 and 19 percentage points more likely to have electric appliances. All four of these differences are statistically significant at the 1% level.

 

Ok, But Why?

This pattern likely arises from the same incentives that lead to underinvestment in energy-efficiency. Landlords are hesitant to make capital-intensive investments. Although in theory these costs could be passed on in the form of higher rents, it can be difficult for landlords to effectively convey this type of information.

In the energy-efficiency literature, this market failure is often referred to as the “landlord-tenant problem”. Simply put, landlords have too little incentive to invest in energy-efficiency when their tenants pay the energy bills.

By the same argument, landlords tend to prefer electric appliances. Electric resistance heating is cheaper to install than a natural gas furnace. Similarly, electric stoves and electric dryers tend to be cheaper to buy and easier to install than natural gas.

gasheat

 

Ruling out Alternative Explanations

You might wonder about alternative explanations. For example, completely apart from split incentives, there is an economies-of-scale argument. Electric appliances tend to have lower capital costs but also higher operating costs, so they make the most sense for  homes with fewer occupants where they get less use.

More generally, you might have thought that the gap reflects some other compositional difference between homeowners and renters. Maybe renters are more likely to live in certain parts of the country, for example, or have systematically lower income levels.

I’ve used regression analysis to distinguish these alternative explanations. The homeowner-renter gap persists even after controlling for the size, type, and age of the home, as well as for geographic fixed effects, climate characteristics, household income, and other factors. In short, there seems to be pretty robust evidence of a homeowner-renter gap.

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Broad Implications

This homeowner-renter gap has important environmental and policy implications. To begin with, it means that rental homes have significantly lower on-site consumption of natural gas, propane, and heating oil, and thus, less local emissions of criteria pollutants. This means less indoor air pollution too, by the way.

Yes, renters use more electricity. But over the last decade the U.S. grid has become much cleaner. Emissions from U.S. power plants are down 45% since 2010, and last year U.S. electricity generation from coal fell to its lowest level in decades. The rental housing stock relies relatively more on electricity, so its environmental impact has fallen relative to owner-occupied homes.

Looking forward, the homeowner-renter gap also has important implications for an emerging set of policies aimed at building electrification. More than 40 California cities have now passed measures prohibiting or restricting natural gas in new homes. 

Rental homes are low hanging fruit for these pro-electrification policies because landlords are inclined in this direction anyway. Thus, from a political economy perspective, the pushback to electrification is more likely to come from homeowners than landlords.  

These mandates may not be so cheap for tenants, however. From a societal perspective, renters are doing all of us a favor and relying more on an energy source that is rapidly becoming more green. But this inclination toward electricity could lead renters to end up paying higher energy bills, and I worry about what this means for equity.

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For more details see Lucas Davis, “Evidence of a Homeowner-Renter Gap for Electric Appliances“, Energy Institute Working Paper.

Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.

Suggested citation: Davis, Lucas. “Evidence of a Homeowner-Renter Gap for Electric Appliances” Energy Institute Blog, UC Berkeley, April 12, 2021, https://energyathaas.wordpress.com/2021/04/12/evidence-of-a-homeowner-renter-gap-for-electric-appliances/ 

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.

11 thoughts on “Evidence of a Homeowner-Renter Gap for Electric Appliances Leave a comment

  1. I find it very amusing that this article bemoans the fact that renters don’t get the value opportunities of gas appliances, while other EI articles keep trying to tell us that all electric is way to go. It pretty much cements the idea that for the current state of the art, gas is delivering more cost-effective services for those who can afford the higher first costs. The electric technologies that can be more energy efficient (e.g. heat pump DHW or dryers) are much more expensive and have signficant performance problems relative even to gas.
    So which is it? Are the landlords villians for putting in the cheapest appliances or heros for being early adopters of the putative march to all electric? Forbidding gas in new construction is going to make it less likely that renters get higher value appliances options.

  2. While it is certainly true that the installation of electric heating is far less expensive then other heating systems I believe the primary reason landlords are currently choosing electric heat is to transfer the cost of heating from the landlord to the tenant. Steam and hydronic heating systems are usually provided from a single plant operated and paid for by the landlord. This means that the cost of heat has to be covered by rent. However with an electrical system combined with submetering or direct metering the cost of heat can be pushed off to the tenants. In northern locations like New York City far more energy goes into heating per year then cooling and transferring these costs to the tenants can be an enormous savings. Additionally when a tenant becomes responsible for paying their own utility bills they become more responsible in terms of conserving energy.

    I also believe it is slightly disingenuous to suggest that landlords are not trying to improve tenant apartments. Anyone who has ever looked at an ASHRE energy audit for a multifamily building will notice that the overall majority of potential energy improvement projects are focused on everything but the apartments. With the exception of insulating roofs, replacing windows, and weather sealing there isn’t much more that can be done to reduce HVAC costs within an apartment without massive changes to the heating system itself or the building envelope. These last two items are usually so prohibitively expensive that not only will they usually never have a payback but the landlord just can afford them.

    I agree with you entirely that there is poor equity for these renters. Those who own their homes can save a considerable amount in energy costs compared with renters and I fear that this will only get worse in the future. Homeowners in the future will probably choose to install more expensive heat pump systems to cool and heat their homes. These heat pumps combined with a solar roof will allow homeowners to pay less for utility bills than ever before. As heat pump technology will always be more expensive then simple resistance heating renters in apartments who won’t have the ability to use solar arrays will continue to pay the most for heating and cooling. To make matters worse as more homes are outfitted with solar arrays and other energy generating systems Utilities will need to find a way to make up for the lost revenue. The size of the utility’s electrical distribution which requires regular maintenance will only increase. Hence the cost for electricity from utilities will rise as a direct result of homeowners installing solar systems, affecting renters far more than homeowners.

    On a personal note I think some of these electrical appliances are far better then gas alternatives and may be a win for renters depending on what is installed. An electric oven tends to hold a more consistent temperature for a better bake, and an electrical countertop can be far easier to clean then it’s gas equivalent. Also instantaneous electric water heaters can ensure everyone in a large household can get a hot shower, as a post to gas powered water tanks which always seem to be going on empty when it’s my turn to shower. 😉

  3. A few considerations:
    – First, is there a difference between single family and multi-family rentals? SF rentals are less likely to be purpose built as rentals, so I would expect them to have a much higher rate of gas service.
    – Second, is there a difference between condominiums and apartments? That may be a more telling indicator of the renting/owning distinction.
    – Third, the insulation effect from apartments is significant. Anyone who’s lived high up in a building knows that they can get by using very little heat during the winter in many climates. Once space heating is taken off the table, the incremental costs of other heating uses is pretty small. Our summer gas bill is much less than $20/month.

  4. Politicians seldom rank taxpayers preferences above organized lobbies. Why do governments forbid natural gas hookups?
    Many consumers prefer cooking with gas and lower cost heating with gas.

    • Climate change mitigation is going to require reducing fossil fuel use. That is going to require reducing some consumer choices to avoid harmful legacy infrastructure. As to “taxpayers”, this affects consumers, not taxpayers. This is unlikely to cost taxpayers anything.

  5. In addition to the lower initial cost argument, I always thought that one reason why apartments were often all-electric or mostly-electric was because the risk of fire, explosions, and accidental suffocation was higher in units with natural gas. Landlords wanted buildings that would minimize these risks.

  6. Regardless of Owner vs Renter, food cooks better with gas and gas is cheaper.

    Additionally BBQ is done with gas grills. “Electric BBQ” just isn’t BBQ

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