On November 15, 2021, the New York City Council approved a bill banning gas hookups in new buildings, making the largest city in the United States the latest in a series of municipalities to ban gas infrastructure. natural gas in new homes and buildings. In the two and a half years since Berkeley, Calif., passed its then-unprecedented municipal ban on new natural gas infrastructure, many cities have found themselves at odds with state governments and industry groups. on the issue of full electrification in the residential and commercial real estate sectors. The resulting disputes, litigation and regulatory uncertainty have created headaches for the real estate industry. While not everyone sees the restrictions as negative, and many developers have embraced the push for more climate-neutral buildings, these bans introduce complexity to the real estate market, raising additional legal and business challenges.
According to the United States Environmental Protection Agency, the use of natural gas in homes and businesses accounts for 13% of annual greenhouse gas emissions in the United States. For this reason, advocacy groups have pushed cities to ban natural gas infrastructure in new construction and encourage full electrification of newly constructed buildings. Besides New York and Berkeley, cities that have adopted or considered such ordinances include San Francisco, Sacramento, Seattle and Denver, as well as many smaller cities. New York City’s recently passed gas ban, in particular, prohibits natural gas connections in new buildings under seven stories by 2024 and in taller buildings by 2027, but exempts connections in commercial kitchens.
Legislative backsliding, particularly in red states, has been swift and fierce. At least 19 states have enacted laws aimed at preventing local municipalities from banning gasoline. These state laws — which developers have called “energy choice” legislation — therefore prevent municipalities from imposing comprehensive electrification requirements in new buildings.
State energy choice laws can be very broad, potentially involving municipal ordinances or regulations that do not directly prohibit natural gas infrastructure. For example, the city of Lawrence, Kansas has committed to switching to renewable energy sources in all areas of the city by 2035. However, the Kansas Energy Choice Act, passed in April 2021, prohibits generally for any municipality to pass an ordinance that impairs “a customer’s end use the use of a [natural gas or propane] public utility.” SB 24, §§ 1(a)(2), 1(b) (emphasis added). Similarly, Mississippi’s All Fuels Act of 2021 prevents municipalities from passing an ordinance or enacting a policy that “has the effect of prohibiting the expansion, use of connection or reconnection of a service based on the type or source of energy to be supplied to an individual customer”. HB 632 § 2(1) These general legal prohibitions could potentially apply to local clean energy incentives and/or energy efficiency programs adopted by cities that impact the use of natural gas, complicating building decisions by introducing uncertainty about the validity of other building codes, policies, or incentives that municipalities may institute to achieve climate change goals.
Impact on the real estate sector
Some developers say it’s unclear if these restrictions actually increase costs and may even support restrictions on natural gas. Others say they recognize the need for the industry to adopt cleaner practices. Large landowners can accelerate industry’s move away from natural gas – for example, Kilroy Realty, a large, influential developer, has openly stated that it wants to reduce its portfolio’s total emissions and sees electrification as a way to do so. to arrive at. However, many other developers are opposed to such restrictions, arguing that they reduce options for potential customers and residents and add additional costs for users (and therefore potentially harm the marketability of new construction). While these developers may support increased building efficiency, promote electrification, and see early adoption as a potential selling point, they object that shrinking options and increasing costs exacerbate challenges within a market already grappling with rising prices and supply chain issues.
Whether they support or oppose the regulations, the various requirements, restrictions and exemptions create uncertainty for real estate developers. Some are scrambling to meet new laws that apply to ongoing developments. Others are considering development plans given the possibility of new bans being imposed or current bans being reversed. As various restaurant associations have pointed out, the restrictions also reduce the potential pool of tenants for new developments, as some restaurants may avoid spaces that cannot accommodate gas stoves and grills. Likewise, residential developers face the challenge of educating buyers and renters about electric and induction stovetops.
As cities move toward transit-focused mixed-use development and pursue alternative methodologies to reduce carbon emissions within their jurisdiction, the added layer of complexity will likely alienate some developers and deflect stated goals. towns. Time will tell which cities are able to strike the right balance.