Builders express concerns over Hochul’s ban on natural gas in new construction

Homebuyers will pay more for new houses; fewer homes will be built and multifamily communities will become even less affordable when New York requires all-electric buildings starting in 2026.

That’s the consensus from construction leaders, who say they’re all for green initiatives, but only if the electric grid can accommodate the increased demand that will result when natural gas is banned as an energy source in new buildings.

Just over a week after lawmakers passed the budget for Fiscal Year 2024, homebuilders and construction executives wonder how Gov. Kathy Hochul’s vigilant campaign for 800,000 new homes instead turned into legislation regulating the manner in which new buildings are heated and cooled.

Come Jan. 1, 2026, natural gas will be outlawed in all new houses and buildings with fewer than seven stories, and in all new construction by the end of 2028.

“What can anyone say, beyond stupid; a whole new level,” said Karl Schuler, president of Taylor, The Builders, the East Rochester-based construction firm whose subsidiary, Greenleaf Builders, is focused on green initiatives.

Contractors says there are two significant problems:

1. Installation of heat pump or geothermal heating and cooling systems will drive up costs — not just in the new-home price, but also in the energy bills as electric rates inevitably rise due to demand and necessary grid investments.
2. The current electric grid isn’t capable of handling increased capacity, and there isn’t enough time for upgrades before the mandates go into effect.

“All these mandates, they all add money to a house, and that goes to affordability,” said Rick Herman, CEO of the Rochester Home Builders’ Association. “We’re all in favor of the commitment, we’re all in favor of the end prize, but there are too many concerns right now.”

Lawmakers believe it is imperative for New York to slow climate change and commit to cleaner construction. Since buildings account for more than 30 percent of the state’s greenhouse gas emissions, they believe natural gas furnaces and appliances must be phased out (exemptions apply to backup power systems, manufacturing facilities, commercial food establishments, laboratories, car washes, laundromats and hospitals).

But the construction industry says existing electrical infrastructure isn’t prepared, and others share the concern, especially as more consumers buy electric vehicles and install charging stations at home.

“The effects of electrification programs on the building and transportation sectors will impact demand significantly in the future,” said Kevin Lanahan, vice president of external affairs and corporate communications at the New York Independent System Operator (NYISO), which manages the state’s grid.

“As recent events in Texas and California have shown us, we need to keep a careful watch on the balance between load and supply during the grid in transition. The NYISO will continue to prioritize grid reliability as we work to the meet the state’s clean energy goals.”

New York has ramped up efforts in recent years to incentivize the construction of solar farms, but in 2021, just 3 percent of the state’s electricity needs were met from solar, according to the U.S. Energy Information Administration.

Companies are being given significant incentives by public entities to build solar farms, “but if they’re subsidizing solar, it’s obviously costing more money to build than it’s bringing in,” said John Graziose, owner of Gerber Homes, headquartered in the Wayne County town of Ontario.

Which is why contractors are wondering how power companies will meet increased demands in the short term.

“How are they going to produce that electricity? What is their source to produce all this electric?” Graziose asked. “If it’s gas turbine generators, then I’m not sure how this (legislation) is helping.”

Without providing specifics, RG&E said in a prepared statement that it and Avangrid-affiliate NYSEG “have proposed a plan to upgrade its grid across its service territory to support the clean energy future and respond to evolving demands for electric and natural gas service.

“We work in tandem with New York State and the Department of Public Service, NYISO, as well as other agencies, and legislators to realize these transformational goals.”

Even if electric concerns are addressed quickly, builders aren’t sure how many homebuyers will want to give up natural gas.

“I can’t remember a buyer coming in and asking for all-electric,” said Jim Barbato, owner of Webster-based Pride Mark Homes.

Said Graziose: “We build what customers want. This will make new homes perhaps less desirable than existing homes.”

Which means demand for existing homes would rise, squeezing even further an already compressed and over-priced market.

New homes themselves will be even more expensive because contractors must pass along the costs of the heat pump or geothermal system to the consumer. A geothermal system is far more expensive, costing between $35,000 and $37,000 more than a traditional forced-air furnace, Graziose said. Rebates and incentives, however, can bring the difference down to about $8,000, he said.

“But again, those incentives are tax dollars, so all of us are paying for it,” Graziose said.

Another piece of the construction puzzle that can increase new home prices: bringing electricity to undeveloped property.

“So many times, when we’re looking at a piece of land, we need to ask, ‘Is electric(ity) available,’ ” Barbato said. “A lot of times the capacity of the substation is just not there, so it takes a capital investment from RG&E to meet the needs. Then those huge costs are passed on to consumers, and affordability is already a challenge.”

Which is precisely why many contractors can’t understand what happened to Hochul’s push for her Housing Compact and the creation of 800,000 new affordable homes over the next decade.

“The Governor and our elected officials talked about addressing the affordability and housing crisis by building 800,000 new affordable units. Yet this went unaddressed in the budget,” said Brian Sampson president of the Associated Builders & Contractors, Empire State Chapter. “They said they’ll deal with it post-budget. Yet, in this budget, they’ve actually made housing more expensive by passing the All-Electric Buildings.

“Explain to New Yorkers how this budget addressed the affordability crisis in New York. We don’t see it. It really shouldn’t surprise anyone anymore why people continue to flee New York in record numbers. They aren’t escaping the weather. They’re escaping the unaddressed affordability crisis that leaders in Albany continue to make worse by passing bad policies like those contained in this final budget deal.”

[email protected]/(585) 653-4020