Introduction to California’s New Housing Reform

California’s homebuilding industry is on the cusp of significant change, courtesy of major reforms to the California Environmental Quality Act (CEQA). Governor Gavin Newsom has successfully pushed through legislation that waives CEQA for most low- and mid-rise developments in urban neighborhoods zoned for multifamily housing. This move aims to remove barriers that have stifled housing construction and made living affordably in California a daunting task.

The Impact of CEQA Reform on Homebuilding

The reforms, which took effect immediately, are expected to revolutionize how development is done in California cities. While numerous hurdles, such as interest rates, labor availability, zoning, material prices, and tariffs, still affect housing construction, the key leverage point that outside groups have used to influence or halt projects is now gone. This change could potentially lead to an increase in housing projects, as developers will no longer face the uncertainty and expense of lengthy environmental studies and potential lawsuits.

Understanding CEQA and Its Evolution

CEQA, signed into law in 1970, requires project proponents to disclose and mitigate environmental effects before approval. However, over time, the process has become cumbersome, with years of studies, lawsuits, and restarts. Opponents have used CEQA to their advantage, sometimes to address legitimate environmental concerns, but also to influence outcomes tangentially related to the environment. Examples include a gas station owner suing a rival over adding pumps and homeowners in Berkeley suing the University of California over plans to increase enrollment.

The Role of Labor Organizations in CEQA

Labor organizations, particularly those representing construction workers, have been significant players in CEQA negotiations at the state level. They have argued that CEQA relief for developers should be tied to better pay and benefits for workers. This stance has led to annual dances between lawmakers and labor groups, with proposals and counter-proposals. In 2022, a defection from the State Building and Construction Trades Council led to support for less strict labor standards, which were incorporated into multiple bills.

The Path to Reform

The latest reforms were expedited by Governor Newsom, who grabbed legislation authored by Assemblymember Buffy Wicks and additional CEQA reform bills, aiming to pass them as part of the budget. This move fast-tracked the bills into law without the usual committee hearings. Newsom tied the approval of the state’s spending plan to the passage of CEQA reforms, making it difficult for opposed legislators to vote against without jeopardizing the budget. The result is a clean CEQA exemption for homebuilders in urban multifamily areas, with union-level wages required only for high-rise or low-income buildings.

Immediate Effects and Future Outlook

The immediate impact of these reforms on homebuilding is not entirely clear. Studies vary on CEQA’s effects, with some finding fewer than 3% of housing projects faced litigation, while others identified tens of thousands of units challenged under CEQA. Advocates argue that the threat of CEQA lawsuits has had a chilling effect on development, which is now alleviated. The shift signals a move from NIMBYism to abundance in Democratic politics in California, according to Mott Smith, board chair of the Council of Infill Builders.

Conclusion

The reform of CEQA marks a significant shift in California’s approach to housing development. By removing a major barrier, the state aims to increase the supply of housing, making it more affordable for Californians. While the immediate effects may be more about changing the development landscape than an instant surge in construction, the long-term impact could be substantial. As the state navigates the complexities of housing affordability, this reform is a crucial step towards addressing the crisis.

FAQs

• Q: What is CEQA, and how does it affect housing development?
  A: CEQA, or the California Environmental Quality Act, requires projects to disclose and mitigate environmental effects before approval. It has been used to halt or modify housing projects, sometimes for environmental reasons, but also for other concerns.
• Q: How do the new reforms change CEQA’s application to housing development?
  A: The reforms waive CEQA for most low- and mid-rise developments in urban neighborhoods zoned for multifamily housing, removing a significant barrier to housing construction.
• Q: What role have labor organizations played in CEQA negotiations?
  A: Labor organizations have argued for tying CEQA relief to better pay and benefits for construction workers, influencing the annual proposals and counter-proposals in the legislature.
• Q: How might these reforms impact the future of housing development in California?
  A: The reforms could lead to an increase in housing projects by alleviating the uncertainty and expense associated with CEQA, potentially making housing more affordable in California.