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How Will the New California Solar Energy Mandate Affect the Housing Market?

The new solar energy mandate taking effect January 1 could make life for new homebuyers in California a little more challenging. Newly constructed single-family homes and multi-family homes three stories or less will be required to have solar panels, which will add a price tag of approximately $10,000 to each new home.

In a state where few can afford homes in the major markets to start with, raising the prices doesn’t seem to be the best way to make ownership more attainable. The state says the offset in energy bills will more than make up for the added monthly cost - a savings of approximately $80 per month on energy costs versus the additional $40 or so on the mortgage payment.

Let’s face it, the extra price tag on the upfront cost isn’t going to affect the affluent market in any major way. This is specifically going to hinder those seeking affordable housing and those who provide it. According to an article from the National Association of Home Builders, every increase of $1,000 in the median price of a new home eliminates 127,560 households nationwide from that home. The potential savings of around $19,000 over a 30-year mortgage sounds nice, but will the increase in upfront costs stop families from being able to afford the same house?

California homebuyers will have their choice of leasing the panels, buying them outright or entering into a PPA (power purchase agreement) with the developers. Considering that only 8 percent of households can afford a median-priced home in LA as compared to the national average of 50 percent, increasing that price point could make it tougher to move the new homes being built.

If solar energy was going to be mandated somewhere, California would be a good option, at least as far as the climate is concerned. The state sees more sunny days than the national average. California is also right behind Arizona, New Mexico and Nevada as far as number of clear days goes. Currently only around 15,000 of the 80,000 or so new homes built in California each year have solar panels. At this rate, the mandate will increase these installations by 44 percent.

What are your thoughts? Will other states begin to mandate solar panels on new builds as well? Or will the other sunny states wait to see the effect that California’s new law has before following suit? Alternatively, should the focus be on promoting affordable housing, especially in a market where that shortage is a crisis of sorts?