San Francisco has some of the nation's highest housing prices, whether one is looking at median home values or median rents. One reason for this, among many, is the city's rigorous approval process for new housing projects, which increases costs for developers. On April 19, the city added another layer, mandating that new buildings add solar photovoltaic panels. This will likely further increase said compliance and construction costs, which will then be passed onto consumers.
The legislation, approved unanimously by the city’s Board of Supervisors, will require that 15% of the rooftop area for new buildings of 10 stories or less have solar panels. California already requires that 15% of roofs for such buildings statewide must be positioned in a way that they can at least accommodate solar panels. San Francisco’s new law says this space must actually get filled. Three California cities--Lancaster, Sebastopol, and Santa Monica--already adopted these mandates, but San Francisco is the first major U.S. city to. It is part of a city goal to run 100% on renewable energy, with officials apparently believing that these panels will contain rising sea levels. As the Better Roof ordinance, which summarizes the policy, reads:
San Francisco is already experiencing the repercussions of excessive CO2 emissions as rising sea levels threaten the City’s shoreline and infrastructure, have caused significant erosion, increased impacts to infrastructure during extreme tides and have caused the City to expend funds to modify the sewer system.
Of course, the goals driving the solar panel mandate sound wonderful, but how will they influence San Francisco's already-high housing prices? This depends on their cost-effectiveness, which can vary based on what types of housing or climate they're installed in. As I learned through recent research and interviews, however, it doesn't appear that San Francisco's officials are too curious about the answer either way.
After contacting an aide of Supervisor Scott Wiener, who introduced the legislation, I was forwarded a staff report by the city's Department of Environment. The report's main point was to run, via findings by ARUP Engineers, a cost-benefit analysis. While factoring in the existing 30% federal tax credit for solar panels, the report estimated that installation and maintenance costs will be $26,523 for a 2-unit residential building, and $129,225 for a mid-rise.
These are big sums. The question is whether they will be offset by lower energy costs, which has always been the main argument for using solar panels and other forms of green energy. The report, however, didn't address this directly, instead using a huge umbrella to define “benefits.” Take, for example, this passage about "living roofs," which are one option under the program:
“Benefits included the avoided one-time cost of installing stormwater management equipment that would be required if not for the living roof, as well as ongoing benefits of energy savings, carbon abatement, heat island mitigation, air quality improvement, noise abatement, habitat addition, productivity increase based on biophilic effect, job creation and increased real estate value."
Unsurprisingly, the report found, while using these broad metrics, that solar panels would in fact pay for themselves in all buildings.
So why isn't every private building owner already using solar panels? Because most owners would use cost-benefit metrics far more rooted in their own bottom lines. Air quality improvement, habitat addition and job creation are certainly important; but they don't answer whether such panels "pay for themselves," in the common-sense understanding of that phrase. In other words, the report didn't specify whether owners would recoup the costs of the solar panels via lower utility bills. By employing such a dubious methodology (which is also used by the U.S. General Services Administration), the city is suggesting that solar panels likely don't recoup such costs.
This doesn't mean that solar panels can't ever pay for themselves. Both Supervisor Wiener, and Department of Environment Policy Director Guillermo Rodriguez, mentioned during phone interviews one effective concept: Power Purchase Agreements. This, Rodriguez later wrote by email, is "where a 3rd party (e.g., SolarCity) owns the solar array, pays for its installation on your roof and sells power back to you at a lower cost than utility power." Other analysis has found that, while returns vary, solar panel systems can cover their upfront costs over a decade or more, assuming, of course, that they remain heavily subsidized at federal (and in some cases state and local) level. But even if this latter scenario becomes the norm in San Francisco, it means a lot of new projects will be facing upfront 5- and 6-figure expenses that will take years to recoup. And that, in hand, would create an initial increase in rents, something the report briefly conceded.
But it's also possible that even with all the subsidies, and the industry's further growth, that the solar panel mandate will still not be cost-effective, even over time. Perhaps the best proof of this is that, even following the California law, which tried to nudge developers towards installing solar panels, mandates are still needed. When I asked Supervisor Wiener to address this contradiction, he said merely that “there are times when you have to, as a matter of public policy, provide a push.”
If the solar panel mandate does, in fact, make developing in San Francisco harder and more expensive, it will merely add to the existing barrage of costly regulations. These include everything from rent control, to inclusionary zoning, to restrictive zoning, to preservation overlays, to lengthy approval times, to strict building codes, to architectural review processes, and so on. Indeed, the city has, along with Los Angeles, San Jose, New York City, Portland, Washington, DC, and Seattle, become a case study for how an onerous regulatory environment leads to high housing costs.
Ironically, Supervisor Wiener has long drawn this connection better than most people in San Francisco, advocating for land-use reforms that put him far to the right of city hall, risking political capital along the way. He has used basic economic arguments about supply-and-demand--which aren't always accepted in the city--to advocate for higher density construction. And he has called for speeding up the review process.
"There are a lot of reasons housing is expensive here, and the regulatory framework is certainly a part of it. It takes too long to get housing approved, it’s too uncertain, and it’s too expensive.” But he believes that the solar panel mandate, which would seemingly exacerbate this problem, is "a microscopic drop in the bucket" compared to other factors.
Numerically speaking, he is right, as San Francisco's median home values are $1,129,800. But the solar panel mandate will still likely add costs--such panels are more complicated and time-consuming to install; they require upfront costs that aren't immediately paid off; they survive on federal tax credits, which necessitate staff work from companies to obtain; and they would be just another issue that developers would need to study and seek approval for. If their final impact on prices is a "drop in the bucket" compared to all the other regulations, it just shows how convoluted the city's entire system has become.
