This is a question that never seems to get answered. I’ve only had to deal with it for about forty years, but it’s a far older question. It really has been around since water heaters first became automated around 1868, when an Englishman, Benjamin Maughan invented the first tankless water heater.
To start, I think we’ve been asking the wrong question. What we really want is the service of hot water in the most affordable, and easy to live with way. So, the question shouldn’t be about what technology is superior, but what technology meets my needs best. And the water heater is just one small part of the hot water system. The system itself affects the decision of what’s the best heater to use.
Most water heaters get replaced on an emergency basis. Heaters just love failing on holidays and when you have company. That’s the wrong time to figure out how to change things for the better, so most of the time a similar heater is slapped in place and promptly forgotten for another ten years.
I like the idea of having in mind all the things that would make your hot water system simply fabulous! It would give you hot water very fast, it would waste very little water, it would be silent yet provide good flow. And it would be inexpensive, durable, and simple to maintain. Okay, knowing those things, we know we want efficient fixtures and low volume plumbing. These things can save water and give fast hot water delivery, while making water scrub the lines to keep bugs and biofilms from growing in the system. Modern piping materials like PEX and lead-free fixtures will add very little contaminant to the water. Placing the water heater close to the rooms that use hot water will shorten plumbing runs for faster hot water delivery. Checking to see what fixtures even need hot water could simplify the hot water system as you discover that the clothes washer and dish washer might be able to heat their own water. Maybe some sinks don’t need hot water either as hand washing with room temperature water isn’t a big deal. Then point of use heaters can be considered for fixtures far from the main heater.
All of this matters because it allows you to modify the system as needed over time to make it easier to live with, while performing better. It gives you a plan moving forward. Maybe when you must replace your heater, you’ll discover that just by installing low flow showerheads, you can install a smaller water heater. And when you decide to do that remodel of the kitchen, you’ll know that you’re going to install smaller diameter PEX tubing to get better performance, and maybe skip that hot line to the dishwasher.
These things all make it easier to know what sort of heater you want to have. Tankless heaters offer endless hot water but the only place where I know we need endless hot water is with some industrial processes. In homes we use hot water not that many minutes of the 24-hour day. In homes, what we need is enough hot water. Tankless offers greater energy efficiency. Well, that depends on what technology it’s being compared to. Well insulated, condensing gas, or heat pump tank-type water heaters are hard to beat. Older, poorly insulated, atmospheric draft heaters are easy to beat, but still, they have little to maintain, unlike tankless heaters, so can wind up costing no more to own than tankless.
I like to match technology to the people who live there. An engineer might enjoy tinkering with the system, but a busy mom, not so much. Historically, we do not maintain water heaters or equipment in the home, even though we are told to do so, and warranties sometimes depend on our doing it. Complex equipment, like a tankless heater is more delicate with so many ways to fail. And the design of some equipment just baffles me. Have you ever seen the electronics of a modern heater placed under water connections? This way when there is a leak, it lands on the electronics, killing them. Why do they do dat?
Tankless does have a place. Glass lined tank-type heaters can give you smelly water if they sit unused for too long. Churches, vacation homes and any other places that have intermittent use are more prone to having the odor problem. Tankless units help you to avoid this problem as they don’t have much stored, stagnant water. A single faucet, far from other hot water uses can be a good place for a tankless heater. A big tub is a great place to consider tankless as it means you can use a normal sized heater for the rest of the house and still have the capacity to fill or reheat that tub for occasional use.
Oversold is a term usually used around stocks, but it can also apply to tankless water heaters. We are told about benefits that we don’t need, like endless hot water and how efficient the units are, compared to what…? We aren’t told about the high cost of yearly maintenance or the limited warranties, or that getting hot water in winter might be more difficult because of lower groundwater temperatures. My point in this is to point out how important self-education is in making sure you wind up with the right system for your needs. Ask good questions. Look at your own needs and wants. Make a plan that fits. And don’t be swayed much by other people’s enthusiasm for what fits their needs, for their needs and yours are probably not identical. I have no doubt that good ol’ Ben Maughan would not be displeased with your decisions even if it meant you didn’t use on of his heaters.
Looking back over my working life of 50+ years, it seems clear that self sufficiency has always been the best way for me to be useful. Now, mix in a strong interest in water in its many forms and the wide world of animals and you'll know what's important to me.