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Another Stupid California Dream

Sometimes I wonder if too many posts here are spent writing about the California housing affordability crisis – easily my most frequently posted-about topic – but then I consider that the state keeps providing ample ammunition by doing so much stupid crap. The latest in a long list of easily avoidable self-owns took place this week when the California Energy Commission voted 5-0 to approve a requirement that all newly-constructed residential buildings up to three stories high, including single-family homes and condos, be built with solar installations starting in 2020.

Before I delve too deeply into this subject, I think it’s important to note that I consider myself a solar advocate and put my money where my mouth is. I own two houses in Southern California. One is my primary residence and the other is a rental. Both have solar panels on the roof for a combination of the following reasons:

  1. It increases the values of the houses
  2. It saves money on electrical costs over time
  3. It’s good for the environment
  4. It provides a hedge against ever-rising electricity costs

I point out the above in order to give some context to what I’m about to write. As my actions make clear, I am both a supporter of a believer in solar energy as a reliable source of renewable power. That being said, the recent vote by the California Energy Commission is an incredibly stupid move to make in the middle of an affordability crisis and here’s why: when I put solar on the two houses, it was because I was able to pay the higher upfront cost in order to reap the financial benefits down the road. In other words, it was a choice that I made on my own and not everyone has the financial flexibility to make such a decision. However, the state is now mandating that they do so in the event that they are purchasing a new home.

Sebastian Malo and Nichola Groom of Reuters provided some context to the economics behind going solar:

Constructing a home in accordance with the new rules will add about $9,500 in immediate costs, according to estimates by the Energy Commission.

It will save homeowners about $19,000 in energy and maintenance costs over 30 years, Energy Commission spokeswoman Amber Pasricha Beck told the Thomson Reuters Foundation.

That appears to be the best case scenario for cost as builders estimate that the upfront cost increase is more in the $14,000 – $16,000 range. For home buyers with high incomes, this isn’t much of a hardship and the investment should pay off over time. However, for entry level home buyers it is a much bigger issue.

The $9,500 (or $14k – $16k depending on who you believe) is a much larger percentage of a $350k house than it is of a $1MM house. If a buyer is already barely at the margin to buy an entry-level home, the extra cost of solar could potentially push them out of qualifying range and back into the rental pool. This is especially bad in a market where there are very few existing entry-level homes on the market meaning that new construction has to account for a larger portion of the entry level than market than usual. It’s even worse when you consider that this creates more renters at a time when rents are sky high and around 54% of California renters is already considered rent burdened (meaning that they pay over 30% of their gross income in rent).

For the record, about 15% – 20% of new homes built in California today include solar panels. The California Energy Commission’s stated objective with this solar mandate is to lower carbon emissions by increasing energy generated from renewable resources – a worthy goal.

However, California would do far better by the environment and its middle-class residents to simply increase density dramatically in cities and spend the money being wasted on the bullet train boondoggle on urban mass transit. It’s a shame that many of the so-called environmentalists who push efforts like state-mandated solar aren’t equally as passionate about building more in urban areas, which pretty much every credible study shows would be the best thing that we could do for the environment in the long run.

Then again, that type of impactful solution doesn’t allow for either the virtue signaling or the payoff to donors such as solar companies and Tesla-like mandating solar panels on newly built homes does.