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Coloradans are feeling the squeeze on the family budget as prices skyrocket on just about everything from food to gas to housing and health care. In fact, since 2020, inflation has cost the average family a staggering $5,880. It’s no wonder that the economy remains a top issue for voters this fall.

For housing, the issue of affordability has been particularly stark. With recession fears looming and inflation hitting another record high, the average sales price for a single-family home in Colorado reached $750,143 in May. In Denver County it was $912,861.

In recent studies, the non-partisan Common Sense Institute (CSI) has taken a deep dive into housing prices to understand the impact the issue is having on the state economy and the prospects for the future. Unfortunately, it’s not good news.

When it comes to housing affordability, we should brace for a rocky ride. With the Federal Reserve increasing its benchmark interest rate by .75%, the largest jump since 1994, and additional increases coming, mortgage rates will increase and reduce buying power for the average home buyer; making the dream of home ownership increasingly out of reach for more and more Americans.

Colorado’s population growth percentage is the sixth highest in the nation, beginning since the Great Recession. We simply did not build enough homes at the rate needed to address the influx of new residents. This short supply, combined with increased regulatory burdens, forecast a bleak outlook for housing development in the state. It’s not just about home ownership; for many, it’s about finding basic housing even to rent.

CSI estimated the housing supply shortage to be 195,912 units with the deficit projected to grow to over 338,000 units by 2026. To close the deficit by 2026, 67,732 housing units will need to be built every year. To put that number into perspective, that is more units than we have ever built in Colorado in any one year, the highest being in 1972, when 65,664 units were built. 

Building more than we have ever built before every year for the next four years will be a monumental task . One would think that given this housing deficit and the need for affordable housing, lawmakers would be keen to find ways to help build more homes and faster. However, instead of fostering an environment that enables more housing development, lawmakers are making the situation worse.

The legislature is adding regulatory barriers that will drive up the price for housing, which will further reduce access to housing overall.

Not acknowledging changing economic times, state legislators and Gov. Jared Polis doubled down on costly climate initiatives like “Building Greenhouse Gas Emissions” — House Bill 1362, passed by the legislature this year — which requires the adoption of new energy codes for new buildings.

Adopting a more stringent minimum energy code will significantly increase the cost to build new homes. Analysis shows the additional costs range anywhere between $6,450 and $22,352 per new home.

We already saw a real-life example play out in Colorado.

The Louisville Marshall Fire victims saw this firsthand as they contended with their city council — which had adopted stringent energy codes just weeks before the fire destroyed hundreds of homes — to allow them to rebuild under the prior energy code. Most homes destroyed in the fire were built in the 1990s. Even building to the prior version of the code, would have made the homes more energy efficient than their predecessors.

With the additional cost of the new energy code adding up to $22,000 to the cost to rebuild, homeowners balked at the mandated extra costs many couldn’t afford. The city council relented and approved an exemption for fire victims from the new code. Just days after, the state legislature moved forward in passing HB22-1362, albeit with amendments that included exemptions for disaster victims.

The cost of going green

The energy code is just the start. HB22-1362 paves the way for “beneficial electrification,” which means replacing fossil fuels with electricity in order to reduce greenhouse gas emissions. In other words, requiring consumers to use electric appliances and energy sources rather than gas.

Because HB22-1362 applies to new builds, it will only impact a small percentage of buildings in the state. To meet the state’s aggressive greenhouse gas reduction targets, millions of homes that currently utilize fossil fuels will need to be retrofitted. So far, those costs to the homeowner and the utilities are yet to be adequately estimated.

Based on a 2020 analysis of the cost of residential electrification done by Black Hills Energy, the public utility for Rocky Ford, CSI estimated that the combined cost of “behind the meter” expenses and electric utility infrastructure would range between $36,000 and $42,000 per existing residential unit, for a total statewide cost of $59.1 billion to $68.4 billion. If you add in commercial properties, the estimate jumps to $71.3 billion. A different study that looked across all 50 states put the cost of commercial and residential electrification in Colorado at $488 billion.

Amidst the widely varying estimates to the cost of electrification, policy makers must acknowledge that the true cost is unknown. But what we do know is that forcing electrification too quickly will be expensive to consumers who will require more than just a change in appliances and will also put additional strain on the electric grid, which isn’t ready for electrification.

Moving too fast in the face of wildfire and disaster risks can lead to electricity outages as other states with aggressive climate goals like California have seen. In an ironic twist, M.cubed recently found that within three years back up generators increased by 34% in the Bay Area and 22% in South Coast. The electricity capacity of these generators are equivalent to nearly 15% of California’s entire grid; 90% of the generators were diesel powered. These diesel-powered generators are a hurdle to the state’s greenhouse gas goals yet are necessary for back up resiliency, particularly in the state’s industrial and agriculture sectors.

Not to be deterred from their greenhouse gas targets, the California legislature passed a law that banned the sale of gas-powered portable generators. One wonders how this type of mandate with workarounds for those with means to travel across state lines to purchase a generator helps environmental and social justice goals. An aggressive move to electrification can also have disparate impacts on those who cannot afford to retrofit their homes for electrification and stay on natural gas. Those customers will bear the brunt of the costs to maintain the natural gas infrastructure. And rebates can’t help everyone.

Given the massive costs associated with electrification, the impacts on the electricity grid, and consumer preferences regarding natural gas, the choice is far from clear.

Across the United States, states and localities are weighing the benefits of electrification against the costs. Some states and cities have moved toward full electrification by banning natural gas appliances. Berkley, Calif., was the first U.S. city to require building electrification for new buildings beginning January 1, 2020. Washington recently became the first state in the country to mandate that newly constructed buildings use all electric space heating and hot water systems for commercial and multi-family buildings. This occurred as a similar measure was proposed in New York to ban fossil fuel heating in new buildings. This measure failed to pass in the New York state legislature during budget talks.

Colorado, in alignment with the Biden administration’s environmental agenda, is using energy codes as a step toward meeting greenhouse gas targets. And while the Supreme Court recently dealt a hefty blow to the EPA’s authority to regulate carbon emissions, the ruling makes little difference in a state like Colorado that has already codified its emission targets in HB19-1261.

While HB22-1362 does not mandate electrification, it paves the way for building electrification through the development and adoption of model codes. The road to electrification will be costly. We just don’t know how much.

We know the new energy code will increase the cost of housing in the state. However, it’s not too late to course correct. To ensure costly policies do not overly burden housing development in Colorado, policymakers should ensure that wide-scale implementation of an electrification plan will be based on informed tradeoffs by:

By addressing climate change through reasonable policies, we can improve the lives of individuals and the resilience of our communities. However, this must be balanced against our current housing crisis. Before taking any steps toward beneficial electrification, policy makers should ensure that it is economically justified. In other words, ensuring beneficial electrification is, in fact, beneficial for all Coloradans.

Evelyn Lim is a Mike A. Leprino Fellow at Common Sense Institute, a non-partisan research organization dedicated to the protection and promotion of Colorado’s economy.  She previously served as the U.S. Department of Housing and Urban Development’s administrator for Region 8, which covers Colorado, Utah, Wyoming, Montana, North Dakota and South Dakota.

Ryan McKibben, Chairman Christian Anschutz, Vice Chairman Chris Reen, Publisher Wayne Laugesen, Editorial Page Editor Pula Davis, Newsroom Operations Director