New Water Heaters Fit Apartments, Cut Energy Bills 65%

For years, families in apartments and small homes watched neighbors slash their water heating bills by 65% with heat pump water heaters while they stayed stuck with expensive old models that wouldn't fit in their closets.

That frustrating gap is finally closing. Three manufacturers just launched compact "split system" heat pump water heaters designed specifically for tight spaces, and a major innovation prize will announce its winner next month.

The Northwest Energy Efficiency Alliance estimates more than 2 million homes each year need water heater replacements but can't fit the newer, more efficient models. Standard heat pump water heaters stand 5 to 15 inches taller than traditional models and need a room with 450 to 700 cubic feet of air space. That's fine for houses with basements or garages, but impossible for apartment dwellers with tiny utility closets.

Split system heat pump water heaters solve this problem by separating the compressor from the tank. The noisy compressor sits outside like a mini air conditioner, while a slim tank fits under a sink or in a cramped closet. Japan has used this design as the standard for two decades.

The first US model, the SanCO2, arrived in 2015 and earned Consumer Reports' top ranking for efficiency and heating speed. But its $5,300 price tag put it out of reach for many families, especially those in smaller, more affordable homes who need the energy savings most.

In the past year, Ecological and A.O. Smith both launched new split models with various tank sizes, including low-profile options for the tightest spaces. Their timing likely connects to the Hot Water Innovation Prize created by the Northwest Energy Efficiency Alliance, which specifically challenged manufacturers to build affordable compact models.

The competition's top scoring criteria focuses on affordability, meaning the winner must produce something that competes on cost with traditional water heaters that typically sell for under $2,000. Judges will announce the winner this August at the American Council for an Energy-Efficient Economy's summer study.

The Ripple Effect

Heat pump water heaters represent one of the easiest wins in home energy efficiency, cutting water heating costs by roughly two-thirds compared to traditional electric models. Until now, that benefit flowed mainly to single-family homeowners with space to spare.

Opening this technology to apartment residents, condo owners, and manufactured housing families means millions more households can pocket those savings every month. For families already stretching budgets in smaller, more affordable housing, cutting the second-largest energy expense in most homes creates real financial breathing room.

As these new models reach the market and compete on price, the energy efficiency gap between housing types will shrink. Everyone deserves access to technology that cuts bills and reduces energy waste, regardless of how much closet space they have.

With multiple manufacturers now competing and innovation prizes driving affordability, efficient water heating is becoming an option for every home.