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Copyright © American Gas Association, 2012. All rights reserved.

Some materials herein may be the copyrighted works of others produced with permission of the copyright holder.

EA 2012-05 September 12, 2012

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Introduction and Executive Summary

Market shares for natural gas homes have been falling in the new construction market for

almost a decade, from 70 percent in 2003 to 55 percent in 2011.1 Yet the American Gas

Association (AGA) members state that if their gas lines are in the area of new construction, 82

percent of the homes will choose gas service.2 Thus it appears that a significant amount of new

home construction occurs beyond the reach of gas mains.

To gather more information on this topic, AGA engaged the National Association of Home

Builders Economics and Housing Policy Group (NAHB) to survey builders.3 In addition to

identifying the natural gas market share of their homes, builders were asked why they did or did

not opt for natural gas service when gas was available during construction.

The survey, completed in August of 2012, corroborated the prior findings of AGA and identified

the top reasons why builders do or do not choose gas:

On average, 66 percent of these builders’ new homes were in areas served by gas.

Thus one-third of their new home market was beyond the reach of gas lines.

If gas was in the area, builders choose gas, on average, 88 percent of the time.

That would indicate that these builders overall gas market share is roughly 58

percent when all homes are considered, even those not within reach of gas lines.

Census data report that natural gas market share in the new home construction was

just 55 percent last year, close to the findings of the NAHB survey.

1 Characteristics of New Single-Family Houses Completed 2011 Data, U.S. Census Bureau. 2 Challenges and Opportunities in the Residential Natural Gas Market: Results of the AGA Residential Market Share

Survey, American Gas Association, March 16, 2010. 3 Natural Gas Appliances in New Homes, The National Association of Home Builders, Economics and Housing Policy Group,

September 2012. See Appendix for NAHB detailed report and survey questions. Gas Appliances in New Homes

2

If gas was available and chosen, the primary reason by far was that the consumer

wanted gas appliances, scoring a 4.0 on a scale of one to five. The second most

selected reason was that gas offered lower operating costs (3.4 score).

If gas was available but not chosen, the primary reason by far (selected by 73

percent of respondents) was that the consumer wanted a different energy source for

their appliances. The second, third, and fourth reasons were that the cost premium

for purchasing/installing gas appliances was too high.

Survey Results

Natural Gas Availability Natural gas lines are typically present in areas of sufficient population density. Gas utilities need to determine if a project to connect new customers will achieve minimum economic returns before installing new mains and services. Not all neighborhoods qualify, particularly more rural areas. Thus gas service is not an option for some potential customers. In this survey, builders were asked to estimate the proportion of their construction that had gas service available in the area. Overall, gas lines were present in two thirds of their project areas (Figure 1). Drilling down:

gas was always available for almost half of the respondents; and gas was not available for 22 percent of respondents.

The remainder either had the gas option for:

up to half of their construction projects (12 percent of respondents); or more than half of their projects (18 percent).

Figure 1

Source: NHAB Economics and Housing Policy Group August 2012 Survey

3

Natural Gas Market Share Where Gas Is Available An additional survey question asked builders, if gas were available, how often did you install gas appliances in new homes? In that instance, slightly more than three quarters of those respondents put gas appliances in each and every house they built. Only a very small fraction of builders (4 percent) reported not installing any gas appliances in homes where gas was present. The remainder reported putting gas appliances either in more than half the homes (9 percent) or in less than half (nine percent). On average, builders installed gas appliances 88 percent of the time in areas of gas service. (Table 1).

Table 1

Where Available, Share of New Homes with Natural Gas Appliance(s) – By Region (Percent of Respondents)


Why Gas?

For many services in homes, natural gas appliances are an option. About 40 percent of U.S.

homes do not have gas service, and gas homes typically cost more than comparable electric

homes due to the higher cost to install gas appliances. So why do builders opt for natural gas

appliances where available? The survey asked builders to rate the most influential reasons that

made them choose gas. They identified the following factors (listed starting from the most

important):

customers desire gas appliances (average rating, 4.0 out of 5.0);

gas appliances have lower operating costs (3.4); and

builder has good working relationship with utility (2.8).

Customer preference was by far the most important factor for the builder to choose gas. Why Not Gas? Similar to why gas, the customer desire for fuels other than gas was the primary reason builders did not opt for gas where available. This reason was ranked highly important by 73 percent of respondents not opting for natural gas. The next three reasons were of lesser importance to builders but dealt with the same issue – the higher installation costs, and therefore house price, for natural gas appliances.

Percent of Time Gas Was Chosen

Total

None 4%

1% - 50% 9%

51% - 100% 9%

100% 78%

Mean 88%

4

Regional and Builder Size Differences The survey results differed only slightly among builders of different size and location. Those noticeable differences include:

The availability of gas varied, in part, on the geographic location and the number of homes built per year for the builders. For example, the Northeast had the least access to gas (57% - a result of a lesser developed delivery system) followed by the South (59% - gas has lower market shares here due to strong electric appliance competition). The West (78%) and the Midwest (81%) had higher access due to the strong, traditional market for natural gas in these areas.

Gas was chosen more often in the colder climates (Northeast – 90 percent and Midwest—92 percent) than the South (84 percent) and the West (82 percent).

The Northeast and the Midwest builders identified customer preference as the reason not to install gas 81 percent of the time compared to 68 percent for builders in the South and West.

Table 2 Percent of Time Gas Was Available in Area of New Construction

Region Number of Units Started 2011

Northeast Midwest South West <25 25-100 >100

None 29 10 28 17 24 10 10

1% - 50% 15 7 15 7 12 10 10

51% - 100% 18 22 20 3 15 29 40

100% 38 61 37 73 49 52 40

Mean 57 81 59 78 65 77 78


Table 3 Percent of Time Gas Was Chosen Where Available

Region Number of Units Started 2011

Northeast Midwest South West <25 25-100 >100

None 3 2 6 4 4 3

1% - 50% 10 5 11 8 8 4 6

51% - 100% 5 11 9 6 8 8 28

100% 82 82 74 82 79 87 67

Mean 90 92 84 82 89 94 89


5

Key Takeaways

1. The customer is king. If customers want gas appliances, builders will probably install

them if gas access is nearby.

2. Where gas is available, market shares are high. Thus expanding gas service lines is a

key strategy to increasing gas market share. If natural gas infrastructure is not built,

they will not come.

3. Two thirds (66 percent) of new homes were built in areas of gas service, and in those

areas builders opted for gas 88 percent of the time. That said, about 47 percent of all

new homes do not have gas service. But these homes may be later candidates for

conversions.

American Gas Association

The American Gas Association, founded in 1918, represents more than 200 local energy

companies that deliver clean natural gas throughout the United States. There are more than 71

million residential, commercial and industrial natural gas customers in the U.S., of which 92

percent — more than 65 million customers — receive their gas from AGA members. AGA is an

advocate for natural gas utility companies and their customers and provides a broad range of

programs and services for member natural gas pipelines, marketers, gatherers, international

natural gas companies and industry associates. Today, natural gas meets almost one-fourth of

the United States' energy needs.

NOTICE In issuing and making this publication and the sources cited herein available, AGA and the cited sources are not

undertaking to render professional or other services for or on behalf of any person or entity. Nor is AGA or the

cited sources undertaking to perform any duty owed by any person or entity to someone else. Anyone using this

document should rely on his or her own independent judgment or, as appropriate, seek the advice of a competent

professional in determining the exercise of reasonable care in any given circumstances. The statements in this

publication are for general information and represent an unaudited compilation of statistical information that

could contain coding or processing errors. AGA and the cited sources make no warranties, express or implied, or

representations about the accuracy of the information in the publication or its appropriateness for any given

purpose or situation. The information is highly dependent on future policy and commercial decisions outside of

their control.

This publication shall not be construed as including, advice, guidance, or recommendations to take, or not to take,

any actions or decisions in relation to any matter, including without limitation relating to investments or the

purchase or sale of any securities, shares or other assets of any kind. Should you take any such action or decision;

you do so at your own risk. Information on the topics covered by this publication may be available from other

sources, which the user may wish to consult for additional views or information not covered by this publication.

Copyright © American Gas Association, 2012. All rights reserved. Some materials herein may be the copyrighted works of others

produced with permission of the copyright holder.

6

Appendix:

Report by the National Association of Home Builders on the Survey Results and Detailed Response Data

NAHB Economics and Housing Policy Group

September 2012

Economics and Housing

Policy Group

Natural Gas Appliances

in New Homes

Table of Contents

Introduction ....................................................................................................................................1

Survey Findings ..............................................................................................................................2

Share of New Home Construction in Areas Served by Natural Gas ............................................2

If available, Share of New Homes with Natural Gas Appliances ...............................................4

Most Influential Reasons for Installing Natural Gas Appliances .................................................6

Most Important Reasons for NOT Installing Natural Gas Appliances ........................................9

Appendix I: Survey Questionnaire .............................................................................................12

1

INTRODUCTION

For more than 25 years, the National Association of Home Builders (NAHB) has

conducted a monthly survey of its builder members that is used to generate the NAHB/Wells

Fargo Housing Market Index (HMI) – a leading indicator on the condition of the housing

industry. In addition to the questions that provide the data needed to compute the HMI, the

survey also includes a set of “special” questions on a topic of current interest to the housing

industry. In August 2012, these special questions focused on the share of new construction

taking place in areas where natural gas service is available, and, if available, the share of new

homes built over the previous year where natural gas appliances actually got installed. Builders

were also asked how influential a number of reasons would be in their decision to install natural

gas appliances in new homes, and conversely, what would detract them from doing so.

The survey was sent electronically to 2,386 NAHB builder members across the country.

A total of 490 responses were received, for a response rate of 21 percent. This report analyses

responses by the four census regions and by the number of housing units started in 2011. The

distribution of responses is shown on Exhibit 1.

Exhibit 1. Respondents’ Profile

(Percent of Respondents)

Region

Northeast 12%

Midwest 23

South 52

25

West 13

No. of Units Started in 2011

< 25 84%

25 to 99 11

100 or more 5

2

SURVEY FINDINGS

Share of New Home Construction in Areas Served by Natural Gas

Builders were asked to estimate roughly what share of their total new home construction

over the previous year took place in areas where natural gas service was available. For almost

half of the respondents (47 percent), all 100 percent of their new home construction activity

happened in areas where gas service was available. At the other end of the spectrum, 22 percent

of respondents reported that none of their new home construction took place in areas served by

natural gas. For 12 percent of respondents, the share of new construction in areas with gas

service was 1 percent to 50 percent; while for 18 percent of respondents, the share was 51

percent to 99 percent (Exhibit 2). On average, 66 percent of respondents’ total new home

construction activity took place in areas served by natural gas during the one-year period prior to

the survey. The median was 93 percent.

Exhibit 2. Share of New Home Construction in Areas where

Natural Gas Service Is Available


47%

18%

12%

22%

100%

51% to 99%

1% to 50%

None

Mean: 66% Median: 93%

3

There are significant differences in the percentage of construction taking place in areas

serviced by gas across regions of the country. In the Northeast and South regions, for example,

the average shares of new home construction occurring in areas with natural gas service were 57

percent and 59 percent, respectively. In contrast, an average of 78 percent of construction in the

West and 81 percent in the Midwest took place in areas served by gas (Exhibit 3).

Results also show that larger builders are more likely to build in areas where gas service

is available. Among builders starting fewer than 25 units in 2011, the average share of new

home construction occurring in areas served by gas was 65 percent, while among those starting

25 or more units, the average share was about 77 percent.

Exhibit 3. Share of New Home Construction in Areas where

Natural Gas Service Is Available – By Region & Units Started


Percent Total Region

No. of Units Started in

2011

NE MW SO WE <25 25-99 100+

None 22 29 10 28 17 24 10 10

1 to 50 12 15 7 15 7 12 10 10

51 to 99 18 18 22 20 3 15 29 40

100 47 38 61 37 73 49 52 40

Mean 66 57 81 59 78 65 77 78

Median 93 75 100 80 100 97 100 90

4

If available, Share of New Homes with Natural Gas Appliances

A follow-up question asked builders who reported building in areas where natural gas

service was available about the share of their new homes (built in these areas) that were equipped

with natural gas appliance(s). As Exhibit 4 shows, 78 percent of the respondents building in

areas where natural gas service was available installed natural gas appliance(s) in 100 percent of

the homes they built in such areas. On the other hand, a very small fraction of builders (4

percent) reported not installing any gas appliance in any of the homes they built in areas served

by natural gas. Meanwhile, 18 percent of respondents installed these appliances in some – but

not all – of the homes they built (where gas was available): 9 percent did so in 1 percent to 50

percent of their new homes and another 9 percent in 51 percent to 99 percent of their new homes.

On average, 88 percent of the homes built by respondents in areas where gas was

available were equipped with one or more gas appliance. The median was 100 percent,

demonstrating the frequent use of gas appliances where this source of energy is available.

Exhibit 4. Share of New Homes with Natural Gas Appliance(s)


78%

9%

9%

4%

100%

51% to 99%

1% to 50%

None

Mean: 88% Median: 100%

5

The average share of new homes equipped with natural gas appliances (where service is

available) does not vary significantly by region. On average, about 92 percent of new homes

built in areas with gas service in the Midwest were equipped with such appliances, not much

different from the average 90 percent in the Northeast, and 89 percent in the West. In the South,

the average share was slightly lower, at 84 percent (Exhibit 5).

Likewise, there is little difference across builders of different sizes. Among those

starting fewer than 25 units in 2011, an average of 89 percent of their new homes (in areas where

gas was available) were equipped with gas appliance(s). Interestingly, that share is also 89

percent among builders who started 100 or more units in 2011.

Exhibit 5. Where Available, Share of New Homes with Natural Gas Appliance(s)

– By Region & Units Started




2011

NE MW SO WE <25 25-99 100+

None 4 3 2 6 4 4 3

1 to 50 9 10 5 11 8 8 3 6

51 to 99 9 5 11 9 6 8 8 28

100 78 82 82 74 82 79 87 67

Mean 88 90 92 84 89 89 94 89

Median 100 100 100 100 100 100 100 100

6

Most Influential Reasons for Installing Natural Gas Appliances

Another question asked builders to rate how influential six different reasons would be in

their decision to install natural gas appliances (if available) in new homes, using a scale from 1 to

5 where 1=“not at all influential” and 5=“very influential.” As Exhibit 6 shows, the most

influential reason builders cited was “customers prefer natural gas appliances,” with an average

rating of 4.0 and 73 percent of respondents rating it influential to very influential (4 or 5). The

second most influential reason was “gas appliances offer buyer lower operating costs compared

to other energy options,” with an average rating of 3.4 and 54 percent of respondents rating it 4

or 5.

Exhibit 6. Most Influential Reasons For Installing Natural Gas Appliances

1=Not at all influential and 5= Very Influential

(Average Rating)

2.0

2.1

2.3

2.4

2.8

3.4

4.0

Other

Local National building codes &

standards promote natural gas option

Higher profit for homes with natural gas

appliances

Financial/other incentives to install gas

appliance

Good working relationship with natural

gas utility

Gas appliances offer buyer lower

operating costs compared to other energy

options

Customers prefer natural gas appliances 73%

54%

33%

24%

20%

14%

19%

% Rating

4 or 5

7

Other, less influential reasons, include “good working relationship with natural gas

utility” (33 percent rated this reason influential to very influential); “financial/other incentives to

install gas appliance” (24 percent rated this 4 or 5); and “higher profit for homes with natural gas

appliances” (20 percent rated this 4 or 5). According to builders, the least influential reason for

installing natural gas appliances in new homes would be “local national building codes and

standards promote natural gas option,” with an average rating of 2.1 and only 14 percent of

respondents rating it 4 or 5.

Builders of different sizes and across the four Census regions all coincided in citing the

same two reasons as being the most influential in their decision to install natural gas appliances:

customers prefer them and gas appliances offer buyers lower operating costs (Exhibit 7).


- By Region & Units Started


Percent Total Region No. of Units Started in 2011

NE MW SO WE <25 25-99 100+

Customers prefer natural gas appliances

1:Not at all Influential 9 8 9 9 8 9 9 5

2 5 12 1 6 5 6 2

3 13 6 19 13 5 12 7 16

4 25 18 27 25 26 24 40 32

5:Very Influential 48 57 45 46 56 48 42 47

Average Rating 4.0 4.0 4.0 3.9 4.2 4.0 4.0 4.2

Higher profit for homes with natural gas appliances


2 12 12 12 12 13 14 7 5

3 24 16 27 24 25 23 31 21

4 9 10 11 10 5 10 2 5


Average Rating 2.3 2.5 2.2 2.4 2.1 2.3 2.2 2.5

8


- By Region & Units Started - CONTINUED


Percent Total Region No. of Units Started in 2011

NE MW SO WE <25 25-99 100+

Good working relationship with natural gas utility


2 9 12 11 8 7 10 5 11

3 27 22 27 28 26 27 26 26

4 18 14 19 19 13 19 12 5


Average Rating 2.8 2.5 2.7 2.9 2.8 2.8 2.7 2.2

Financial/other incentives to install gas appliance


2 12 10 13 11 11 12 5 21

3 20 12 27 20 18 21 14 11

4 10 12 8 12 5 11 5 5


Average Rating 2.4 2.3 2.2 2.5 2.1 2.4 2.1 2.2

Gas appliances offer buyer lower operating costs compared to other energy options


2 11 14 8 11 11 10 14 11

3 19 8 19 21 21 19 12 16

4 25 20 32 26 15 26 17 11


Average Rating 3.4 3.7 3.6 3.2 3.4 3.4 3.3 3.4

Local National building codes & standards promote natural gas option


2 13 10 8 15 12 12 14 11

3 25 20 33 23 24 27 19 5

4 9 8 10 8 9 8 7 16


Average Rating 2.1 2.2 2.1 2 2.2 2.1 1.9 2.1

Other


2 3 7 1 1

3 13 20 19 12 5 13 8 25

4 2 3 5 2

5:Very Influential 17 27 21 13 19 15 15

Average Rating 2.0 2.5 2.3 1.8 2.0 1.9 1.8 1.5

9

Most Important Reasons for NOT Installing Natural Gas Appliances

The last question of the survey asked builders to select the three most important reasons

(out of seven) that would influence them not to install natural gas appliances (if available) in new

homes. A majority of builders – 73 percent – indicated the most important reason would be if

“customers prefer a different energy option,” corroborating the principle that builders build what

their customers want. The distant second and third reasons would be “customers unwilling to

pay additional up-front cost for homes with natural gas appliances” and “installation of natural

gas service requires too large a cost premium,” both checked by 45 percent of respondents

(Exhibit 8).

Exhibit 8. Most Important Reasons for NOT Installing Natural Gas Appliances


6%

15%

21%

26%

28%

45%

45%

73%

Other

National/local building codes and

standards make it difficult for the gas

option

Incentives offered by other energy

providers to install their appliances

Problematic issues with gas utility

(timing, coordination, etc.)

Cost premium for natural gas appliance is

too high

Installation of natural gas service requires

too large a cost premium

Customers unwilling to pay additional up-

front cost for homes with natural gas

appliances

Customers prefer a different energy

option

10

Fewer than 30 percent of respondents selected any of the remaining reasons as the top

three most important for not installing natural gas appliances. “Cost premium for natural gas

appliance is too high” was a top reason for 28 percent of respondents, followed by “problematic

issues with gas utility (timing, coordination, etc.)” (26 percent); “incentives offered by other

energy providers to install their appliances” (21 percent); and “national/local building codes and

standards make it difficult for the gas option” (15 percent).

While the foremost important reason for not installing natural gas appliances (if

available) is the same across regions of the country (“customers prefer a different energy

option”), the second most important reason shows variation across geographic areas. In the

Northeast and Midwest, for example, “installation of natural gas service requires too large a cost

premium” is the second most important impediment, whereas in the South and West, it is

“customers unwilling to pay additional up-front cost for homes with natural gas appliances”

(Exhibit 9).

11

Exhibit 9. Most Important Reasons for NOT Installing Natural Gas Appliances

- By Region & Units Started




2011

NE MW S W <25 25-99 100+

Customers prefer a different

energy option 73 81 81 68 68 74 54 65

Installation of natural gas

service requires too large a

cost premium

45 47 43 47 36 42 51 71

Cost premium for natural

gas appliance is too high 28 26 19 32 32 26 54 29

Customers unwilling to pay

additional up-front cost for

homes with natural gas

appliances

45 26 39 52 43 42 41 53

Incentives offered by other

energy providers to install

their appliances

21 9 28 20 23 24 10 6

Problematic issues with gas

utility (timing, coordination,

etc.)

26 37 27 24 21 27 21 24

National/local building codes

and standards make it

difficult for the gas option

15 16 13 14 25 14 28 18

Other 6 5 4 7 8 6 5 0

12

Appendix I: BEC Special Questions for August 2012

1. Over the past year, roughly what percentage of your overall new home construction was in areas where natural gas

service was available?

______________%

2. Where natural gas service was available, in roughly what percentage of those new homes did you install one or more

natural gas appliances?

______________%

3. Please rate the level of influence each of the following reasons would have in your decision to install natural gas

appliances (if available) in new homes, using a scale from 1 to 5, where 1=Not at all influential and 5=Very Influential.

Not at all

Influential:

Very

Influential:

1 2 3 4 5

Customers prefer natural gas appliances

Higher profit for homes with natural gas appliances

Good working relationship with natural gas utility

Financial/other incentives to install gas appliance

Gas appliances offer buyer lower operating costs

compared to other energy options

Local/national building codes & standards promote

natural gas option

Other (specify):_____________________________

4. Please select the three most important reasons that would influence you NOT to install natural gas appliances (if

available) in new homes. (Please select only THREE).

Customers prefer a different energy option

Installation of natural gas service requires too large a cost premium

Cost premium for natural gas appliance is too high

Customers unwilling to pay additional up-front cost for homes with natural gas appliances

Incentives offered by other energy providers to install their appliances

Problematic issues with gas utility (timing, coordination, etc.)

National/local building codes and standards make it difficult for the gas option

Other (specify):_______________________________

THANK YOU

EA 2012-05 September 12, 2012 CHHOOO SS IINNGG ... - aga.org · Survey, American Gas Association,...

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