The Department of Energy (DOE) is requiring water heater manufactures to increase the efficiency of their heaters, hence they are adding to the thickness of the insulation. I have read quite a bit about it on the web and the manufactures are suggesting that the new heaters will require an addition three inches in height and width. This may be problematic in the case of folding attic stairs and small closets. This is especially true of old gas water heaters in small closets that were not built with the modern methods of ventilation.
Even if the new heaters do fit in the old space, I have read that most replacement heaters will be at least 35% more expensive. For those situations where it will require extensive remodeling in order to make the new tank fit, another alternative would be a tankless water heater. I have builder friends who swear by them and other ones who swear at them. I have no personal experience with tankless heaters, so I do know have an opinion . . . other than it seems like a good alternative if the other choice is a major remodel.
As a personal aside, I can attest to the improved efficiency of water heaters the past few years. For thirty years I placed my wet boots in the water heater closet to get nice a dry overnight. Recently I changed out my water heater to a very efficient model, only to discover that my boots would not dry out. The added insulation was clearly doing the job!
Jeff Stewart, CCIM, SRES TREC BROKER 207762
Stanberry & Associates, REALTORS