Effects of Zero-Emission Regulations on Housing Affordability and Rental Costs

Background

About ten percent (40 million metric tons annually) of California’s greenhouse gas (GHG) emissions are attributed to the combustion of fossil gas in residential and commercial buildings.[1] This combustion produces pollutants such as carbon monoxide, nitrogen oxides (NOx), particulate matter, and formaldehyde, which may increase the risk of respiratory illness, cardiovascular disease, and premature death. Fossil gas combustion in buildings emits 66 tons per day of NOx on average, four times as much as California power plants and on average nearly two-thirds those from light-duty vehicles.[2] Reducing emissions from buildings is a key component of achieving California’s climate and air quality goals. The impacts of climate change are no longer a distant threat on the horizon—they are right here, right now, with a growing intensity that is adversely affecting our communities and our environment, here in California and across the globe. California is facing the impacts of climate change more than other parts of North America with more frequent and severe drought conditions, heat waves, high winds, variable precipitation, and increased wildfires.[3] While climate change impacts all Californians, these impacts fall most heavily on frontline communities (i.e. historically marginalized communities that experience the first and worst consequences of climate change and other injustices). Low-income communities and communities of color are also disproportionately impacted by fossil fuel combustion-related air pollution and associated health problems.

The negative consequences of climate change were on full display in January 2025, when high winds resulted in a series of catastrophic wildfires, which destroyed tens of thousands of properties in Southern California, and resulted in an estimated 30 deaths. One of the many decisions homeowners face for the properties destroyed in recent fires is whether to rebuild all-electric or re-install emissive appliances.[4] Climate advocates are hoping to convince homeowners to rebuild all-electric.[5] Although the City of Los Angeles (L.A.) has exempted replacement structures from local codes mandating all-electric new construction, L.A. will streamline permits for homes that rebuild all-electric.[6]^,[7] Even though studies have shown that all-electric new home construction is less expensive to build than dual-fuel new homes, can avoid costly retrofits in the future, and provide utility bill cost-savings, some homeowners are still planning to rebuild with emissive appliances.[8]

With massive new construction efforts underway to rebuild the Alta Dena and Pacific Palisades regions, it is important to understand the potential effects that zero-emission technology installations in new construction may have on housing ownership and rental costs, both in the rebuilt areas of Southern California and across the state. Effective July 1, 2023, the California Public Utilities Commission (CPUC) eliminated fossil gas line extension subsidies for new fossil gas hookups. Additionally, effective July 1, 2024, CPUC eliminated electric line extension subsidies for new construction projects that use a mix of both electricity and fossil gas. These decisions create a financial disincentive for developers to extend fossil gas infrastructure into new construction developments. While existing cost studies[9]^,[10]^,[11]^,[12]^,[13] have shown zero-emission new home construction is cheaper than mixed-fuel new buildings, most studies are several years old, prior to the elimination of fossil gas subsidies by CPUC, which may make zero-emission new home construction even more cost-effective than prior studies have shown. Despite the cost-effectiveness of zero-emission new construction, 2023 data from CPUC shows only 4% of residential new construction projects in Southern California Edison territory were zero-emission, whereas over 60% of new residential projects in Northern California’s Pacific Gas and Electric territory were zero-emission.[14] Further research is needed to understand these regional differences, and what fraction of these projects are for affordable housing for lower-income households.

While the 2022 Scoping Plan relies on zero-emission new home construction to achieve California’s goal of climate neutrality by 2045, regulations impacting new construction alone are insufficient for addressing emission reductions in buildings. CARB is also developing Zero-Emission Space and Water Heater Standards (ZESWHS) to assist California with meeting greenhouse gas reduction targets, state and federal air quality standards, and achieving public health benefits. The ZESWHS are expected to impact both new and existing buildings. These standards complement planned and existing local zero-NOx rules for space and water heaters, including the Bay Area Air District’s (BAAD) adopted rules 9-4 and 9-6 for residential and commercial space and water heating, the South Coast Air Quality Management District’s (SCAQMD) adopted rule 1146.2 for large water heaters, and SCAQMD’s proposed rules 1111 and 1121 for space and water heating in residential and small commercial buildings. Additionally, these standards support the 2025 Building Energy Efficiency Standards (California Energy Code), which include heat pump requirements for both newly constructed and existing buildings along with electric-ready provisions for residential new construction.

A key policy question related to the ZESWHS is how zero-emission technology installations affect sale price and affordability for prospective home buyers, and rental costs for tenants. Research indicates that installing zero-emission technology can increase property values.[15]^,[16] Home resale price premiums are large enough to compensate homeowners for the upfront costs of installing zero-emission space heating technology.[17] Prospective home buyers who are environmentally conscious, economically secure, or live in mild climate regions are more likely to pay a higher price premium for homes with zero-emission space heating installed.[18] While research shows low-income households may not be able to afford home upgrades and realize the higher property values they can provide,[19] recent efforts such as the California Energy Commission’s Equitable Building Decarbonization Program[20] are now beginning to provide direct installation of zero-emission space and water heating technology at no-cost to low-income households.

Previous studies are outdated and focused on immediate historical transaction records between 2016-2018. Past research was also limited to evaluating resale value in existing homes that installed zero-emission space heating technology. More research is needed to also evaluate changes in monthly rent costs from installing other zero-emission technologies, especially for low-income households. Recent studies recommend installing a zero-emission water heater first as it is often the most cost-effective end use based on equipment and energy costs alone.[21] Future research is needed to better understand the long-term (e.g., 10-20 years) cost-benefit of installing zero-emission technologies, and how resale value and rental costs may vary across different income levels and market segments (e.g., single-family homes vs. multifamily, new construction vs. existing buildings). Research is also needed to better understand the variables that impact new construction costs, how they have changed over time, and how installing zero-emission technologies in new buildings affects builders’ and developers’ willingness to construct new affordable housing for low-income families.

Statewide regulatory analyses typically look at future impacts of new regulations. This contract will require investigation of historical trends related to the effects of installing zero-emission technologies on home purchase prices and rental costs.

Objective

The objective of this project is to enhance CARB’s understanding of the potential long-term economic impacts, both positive and negative, of installing the following in both new construction and existing homes:

A zero-emission space heater
A zero-emission water heater
Both zero-emission space and water heaters
All zero-emission end-uses, including space heating, water heating, cooking, and clothes drying

This includes examining the effects on property value, home ownership, and rental costs across various income levels and market segments. The project will provide recommendations to inform policy and program design and implementation.

Scope of Work

This project aims to shed light on the impacts of installing zero-emission technologies in new construction and existing homes on home ownership and housing affordability for prospective home buyers and renters. This includes but is not limited to understanding the potential benefits to offset initial costs. Further, the study aims to address how regulations could influence builders’ and developers’ willingness to construct new affordable properties. The study involves literature review, data collection and analysis, and surveys to characterize these potential effects and translate the results into policy recommendations.

Task 1: Literature Review

The contractor shall conduct a review of existing literature examining the potential positive and negative economic impacts of installing zero-emission technologies on prospective homeowners and renters. In addition to upfront new construction cost-savings, the literature review should examine resale property value, prospective homeowner willingness to pay higher prices, and rental costs and their effects on prospective renters to afford homes, for scenarios with either one zero-emission space or water heater installed, both zero-emission space and water heaters installed, and all zero-emission end-uses installed. The literature review shall examine the factors influencing builders’ decisions on whether to install zero-emission technologies in new homes. The contractor should focus on California-specific sources to the extent possible. Further, this task shall also outline data gaps in existing literature. Filling these data gaps will be the focal point of task 2.

Interim Deliverable

Summary describing literature sources identified, what information has been collected, and data gaps that remain (Month 2)

Task 2: Data Collection and Analysis

This task seeks to fill knowledge gaps identified in Task 1 through appropriate data collection methods, such as interviews and/or surveys with contractors, developers, builders, utilities, program implementers, realtors, housing affordability or tenant rights groups, or other technical experts, and investigating available real estate, permit, or other market data that is available to evaluate historical net increase in home resell value and rental costs due from the following scenarios:

installing one zero-emission space or water heater only
installing both zero-emission space and water heaters only
installing all zero-emission end-uses.

This task also seeks to collect data on the percentage of zero-emission new construction occurring in the aftermath of the LA or other historical wildfires in the United States. In consultation with the CARB contract manager, the contractor shall develop a data collection plan for filling knowledge gaps identified in Task 1. The plan will identify and describe proposed data collection methods, such as the data sources to analyze and the planned engagement approach, including a complete list of technical experts to engage, the number of interviews or surveys planned (if utilized), a list of draft questions for technical experts, and a pre-analysis plan. After approval from the CARB contract manager, the contractor shall implement the methods identified in the data collection and analysis plan. The contractor will provide an interim report summarizing the findings upon completion of this task.

Interim Deliverable

List of technical experts to fill knowledge gaps (Month 4)
Data collection and analysis plan (Month 6)
Data collection and analysis summary (Month 12)

Task 3: Case Studies

In consultation with the CARB contract manager, the contractor shall develop at least 12 case studies of real-world buildings to assess the benefits and range of potential costs of installing zero-emission technology for a variety of new construction and existing buildings. Data collection for case studies may occur through interviews, home/building tours, focus groups, or other methods to obtain information on real-world projects. Case studies should account for the many unique factors affecting home affordability and rental effects, including for low-income and disadvantaged households throughout the state. The contractor shall provide clear justification for the representativeness and external validity of the case study sites selection and data used to support the case study analysis. The case studies shall evaluate the following scenarios:

installing one zero-emission space or water heater only
installing both zero-emission space and water heaters only
installing all zero-emission end-uses

All cases studies should include at a minimum:

upfront costs, including material and labor
energy bill costs, including costs before and after installation of zero-emission technologies in existing buildings
variations by geography
effects on housing affordability and rental costs

Case studies on new construction shall include at a minimum:

cost-savings for full zero-emission new home construction, new construction with both a zero-emission space and water heater installed, and new construction with either a space or a water heater installed
changes to building developer’s willingness to build new affordable properties and associated benefits and trade-offs to accommodate zero-emission construction
net cost-savings of avoided fossil gas infrastructure into new buildings

Case studies on existing buildings shall include:

sale and rental prices of similar homes, including those without any zero-emission technologies, considering location, building vintage, square footage, and other parameters in consultation with the CARB contract manager.
variations based on income level of building occupants.
variations based on climate zone in California.

Case studies should provide examples for both owner-occupied and rental homes. Building types identified for the case studies shall include (1) single-family detached, (2) single-family attached, (3) small multifamily (2-4 units), (4) medium multifamily (5-49 units), (5) large multifamily (50+ units), and (6) mobile and manufactured homes.

The final number and selection of case studies will be determined in consultation with the CARB contract manager.

Interim Deliverable

Draft case study plan identifying the number of case studies, building characteristics, parameters to analyze, and justification for representativeness of case study selection for approval by the CARB contract manager (Month 14)
Draft case studies report (Month 18)

Task 4: Final Report

The contractor will synthesize their findings from Tasks 1-3 in a final report. The final report should provide policy recommendations for maximizing benefits of zero-emission building and equipment regulations while minimizing challenges identified, and provide suggestions for future work.

Interim Deliverable

Draft final report (Month 19)
Final report (Month 22)
Final presentation (Month 23)

Minimum Expectations and Application Process and Requirements

Information on required material and process during the preproposal phase and expectations on the contract are found on the Solicitation landing page.

Timeline

This project is anticipated to be completed within 24 months from the start date. Cost shall not exceed $450,000.

Scoring Criteria

Responsiveness to the goals and objectives outlined in the pre-proposal solicitation(15 points)

The pre-proposal should demonstrate a clear understanding of the policy objectives and research needs that CARB aims to address with this project while highlighting the proposers’ expertise on the subject.

The pre-proposal should consider various aspects of the need and identify or acknowledge any potential biases. It should outline, in sufficient detail, the proposed approach to meeting the requirements of the Solicitation.

The pre-proposal must detail work that aligns with the objectives outlined in the Solicitation: The objective of this research project is to enhance CARB’s understanding of the potential long-term economic effects of installing zero-emission technologies in new construction and existing buildings, including effects on property value, home ownership, and rental costs across various income levels and market segments. It will provide recommendations to inform policy and program design and implementation.

Policy relevance/benefits to the state(10 points)

The pre-proposal must describe how the project will provide data, information, and/or products to support the objectives of this project in furtherance of CARB’s mission. This project is intended to support the 2022 Scoping Plan building decarbonization strategies, and CARB’s Zero-Emission Space and Water Heater Regulation development.

Previous work (15 points)

The pre-proposal should demonstrate that the proposers have a team with the work experience or subject matter expertise required to successfully carry out the proposed project as described in the varying tasks. Additionally, the pre-proposal should describe how the project will build upon previous relevant work that was funded by CARB, other regional, state, and federal agencies (e.g., the U.S. EPA, U.S. Department of Energy). If the project includes an equity component and/or community engagement, proposers should describe prior experience in community engagement and provide letters of support, references or a community impact statement detailing how their previous work has benefitted communities.

Five points will be reserved for project teams that meet at least one of the following criteria:

The project team is multi-disciplinary.
The project team includes members from various universities, non-academic institutions, or community-based organizations.
The project team includes one or more members who will contribute significantly to the project (e.g., a principal investigator, co-principal investigator, or co-investigator, contributing 25% or more of their time) who has not worked with CARB in the past 5 years.

Technical merit (25 points)

The pre-proposal should clearly explain the logic and feasibility of the project’s methodology, spell out the sequence and relationships of major tasks, and explain methods for performing the work. The pre-proposal should include a clear description and plan for how each task will be completed. The pre-proposal should also explain how the proposed methods are robust and how the results will be validated. Pre-proposals will be reviewed for how well they address these areas:

Is the proposed measurement approach appropriate? Are the technologies being considered suitable, and will the proposed analysis yield relevant results?
Does the proposed work address all the deliverables outlined in the “Deliverables” section? If not, the proposal will not be considered for funding.
The review team will select only one pre-proposal for development into a full proposal. If this pre-proposal shows potential, what areas or topics should be prioritized or further explained in the full proposal?

Level and quality of effort to be provided(15 points)

The pre-proposal should describe how time and resources will be allocated and demonstrate how this allocation ensures the project’s success. Pre-proposal reviewers will evaluate whether supervision and oversight are sufficient to keep the project on schedule, and whether the distribution of time and resources is appropriate for activities such as research, evaluation, analysis, data reduction, computer simulation, report preparation, meetings, and travel.

Cost effectiveness (20 points)

Pre-proposal reviewers will evaluate if costs are appropriately allocated across different project tasks and stages and if the proposed work appears feasible within the requested budget.

Scoring Criteria Scoring Guidance

91-100 points. Exceptionally strong. The submission is technically strong, meets stated research objectives, is cost-effective, and has a high potential to be successfully completed.

81-90 points. Strong. The submission is technically sound.

71-80 points. Mixed. The submission has either strong technical merit or strong policy significance, but not both.

61-70 points. Weak. The submission is not sufficiently linked to the needs of the Board and offers limited technical merit.

60 points or below. Unacceptable. The submission is not linked to the interests or needs of the Board and lacks technical merit.

[1] CARB GHG emission inventory, Scoping Plan Categorization: https://ww2.arb.ca.gov/sites/default/files/2024-09/nc-ghg_inventory_sco…

[2] Scoping Plan Appendix F – Building Decarbonization: https://ww2.arb.ca.gov/sites/default/files/2022-11/2022-sp-appendix-f-b…

[3] Bedsworth, L., Cayan, D., Franco, G., Fisher, L., & Ziaja, S. (2018). California’s Fourth Climate Change Assessment: Statewide Summary Report (No. SUM-CCCA4-2018-013). California Governor’s Office of Planning and Research, Scripps Institution of Oceanography, California Energy Commission, California Public Utilities Commission. https://www.energy.ca.gov/sites/default/files/2019-11/Statewide_Reports…

[4] Brady, J. (2025.) Some Los Angeles fires victims are rebuilding their homes without gas appliances. NPR Morning Edition. April 24, 2025. Available at: https://www.npr.org/2025/04/23/nx-s1-5345817/la-fires-electrification

[5] Ibid.

[6] Ibid.

[7] Takemura, A.F. (2025.) After LA fires, could it be cheaper and faster to rebuild without gas? Canary Media. May 5, 2025. Available at: https://www.canarymedia.com/articles/carbon-free-buildings/la-fires-ele…

[8] Ibid.

[9]Mahone, A., Li, C., Subin, Z., Sontag, M., and Mantegna, G. (2019). Residential Building Electrification in California: Consumer economics, greenhouse gases, and grid impacts. San Francisco: Energy and Environmental Economics, Inc. Retrieved from: https://www.ethree.com/wpcontent/uploads/2019/04/E3_Residential_Buildin… .pdf

[10] TRC. (2016). Palo Alto Electrification Final Report. City of Palo Alto. Retrieved from: https://www.cityofpaloalto.org/files/assets/public/development-services…

[11] TRC. City of Palo Alto Retrieved from: https://www.cityofpaloalto.org/files/assets/public/development-services/

[12] Frontier Energy. (2019). Cost-effectiveness Study: Low-Rise Residential New Construction. Retrieved from https://www.buildingdecarb.org/store/p81/Reach_Code_CostEffectiveness_S…

[13] Billimoria, S., L. Guccione, M. Henchen, L. Louise-Prescott. 2018. "The Economics of Electrifying Buildings: How Electric Space and Water Heating Supports Decarbonization of Residential Buildings." RMI. Available at: https://rmi.org/insight/the-economics-of-electrifying-buildings/.

[14] California Public Utilities Commission “Building Decarbonization” page available at: https://www.cpuc.ca.gov/about-cpuc/divisions/energy-division/building-decarbonization. The CPUC notes: “SCE data is impacted by the fact that it is a single-fuel electric-only utility that lacks insight into its customers’ gas usage, unlike PG&E. SCE implemented changes in 2024 to the way it tabulates information received from builders, and future reports from SCE will provide data that better accounts for customer gas usage.”

[15] Chalef, G. (2020). Energy efficient heat pump technology increases the value of homes in the U.S. Center for Global Sustainability, School of Public Policy, University of Maryland. Retrieved from: https://cgs.umd.edu/news/energy-efficient-heat-pump-technology-increase…

[16] Shen, X., Liu, P., Qiu, Y., et al. (2021). Estimation of change in house sale prices in the United States after heat pump adoption. Nature Energy. 6, 30-37 (2021) https://doi.org/10.1038/s41560-020-00706-4

[17] Ibid.

[18] Ibid.

[19] Ibid.

[20]Equitable Building Decarbonization Program | California Energy Commission

[21] Fadali, L., Waite, M., Mooney, P. (2024). The Value of Decarbonizing Equitable, Efficient Building Electrification. Washington, DC: ACEEE. www.aceee.org/researchreport/

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California Air Resources Board