Ranking New Construction Hot Water Heaters

When it comes to hot water heaters (HWHs), we all have the same two goals:

  • Make & deliver consistent hot water

  • Do so as affordably as possible

But hot water heaters are one of the most confusing aspects of your new home specifications because there are about a dozen different types that all have different install and operational costs. As one of the most energy intensive elements of your new construction home, it's important that you get the decision right from the start. So we put together this guide to give you the information that you need to make a decision based on your needs and preferences.

Primary Energy Sources:

There are 4 primary energy sources for HWHs:

Electric: The most common and conventional system. While cheap and quick to install, electric HWHs have not traditionally been as efficient as other options. More recently, heat pump electric HWHs have come to market which has led to a dramatic increase in efficiency. Note though, that heat pumps remove some heat from your home to heat the water so it will add load to your home heating source. They also require larger installation spaces so that they can utilize the air in the room around them.
Gas: Either natural gas or propane can heat water very efficiently but install costs can be high because of the added costs of running gas plumbing and flue venting. These units also come with the risks associated with gas leaks and CO poisoning.
Solar: Solar HWHs are expensive to install but very affordable to operate. They consist of a solar collector unit that is placed outside (either beside the house or on the roof). If you plan to place it on the roof, make sure that your roof is designed to support the increased load.
Geothermal: Geothermal HWHs utilize loops buried underground to extract heat from the earth and run it through a heat exchanger. These require electricity to run, but not nearly as much electricity as a conventional electric HWH. Because of the cost of installing geothermal loops, this option only makes sense if you are considering a geothermal HVAC system as well.
Water Heater Type Install Cost Annual Energy Cost Lifespan (Years) Average Annual Cost
Electric (Heat Pump) (Tank) $1,660 $190 13 $318
Gas (Tankless) $1,600 $256 13 $379
Gas (Tank) $2,000 $244 13 $397
Electric (Tank) $820 $439 13 $502
Solar $4,800 $175 13 $544


The above table of costs is based on a significant number of assumptions and averages. We recommend narrowing it down to two potential systems then getting install quotes for both. Once you know the cost of install, you can use the manufacturer estimates for annual energy costs to do the math to determine which unit is best for your home floorplan.

Storage vs Demand:

Most of the above types of HWHs can be further specified as either storage (tank) or demand (tankless). Tankless units are almost always more expensive to install but come with the dual advantage of being cheaper to operate (because there's no lost energy during storage) and being able to produce unlimited quantities of hot water (for those who enjoy endlessly long showers).


Sizing your HWH is a function of the demand (based on the anticipated usage) and the temperature difference between the incoming water and the heated water.

  • Flow Rate: Start by listing the number of hot water devices that you anticipate using simultaneously and adding the peak flow rates (in gallons per minute (GPM)). Most new appliances and plumbing fixtures will list their flow rates in the manufacturers' specifications.

  • Temperature Difference: The incoming water temperature is going to be about the temperature underground which ranges from about 37-77 degrees F ion the US. Check out This Chart from the EPA to identify the incoming water temperature at your build site. Subtract that value from 120 degrees F (which is the typical set point) to get your temperature differential.

The HWH manufacturer will rate the unit or a certain flow rate at a certain temperature rise. Make sure that your unit will meet that demand. In some cases, it makes sense to consider 2 units where demand and temperature differential is high.

Best practices:

HWHs will all ultimately fail so it's always good to have a plan in place for when they do. It's estimated that around 69% of all tanked water heater failures are the result of a slow leak or sudden burst which can cause thousands in property damage if you don't immediately notice. We recommend installing a drain pan with a hard piped drain so that if your HWH starts leaking, the damage is contained to the unit alone. Some models now come with leak detection and wi-fi connectivity to alert you to a problem. Other common failure modes include corrosion and hard water buildup.

Keeping in mind that HWHs will require maintenance and replacement, it's best to position them in places that are easily accessible.

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