The capacity of a hot water heater should be based on the number of occupants and the peak hour water demand, regardless of the size of the house. The water heater should provide enough hot water at the busiest time of the day. Also, consider the number of plumbing fixtures you have in the home. The more sinks you have, the greater the demand for hot water. Finally, consider extraordinary hot water demands, such as hot tubs. The ability of a water heater to meet peak demand for hot water is indicated by its “first hour rating.” This rating accounts for the effects of tank size and the speed by which cold water is heated.