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.
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.
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.
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.
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.
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 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 Research Associate at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. 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.