Governor Gavin Newsom made contact with one of California politics’ third rails this week. He hopes the outcome will shock the homebuilding business in the state.
Newsom used his influence to persuade the state legislature to enact what many consider to be the biggest changes to the California Environmental Quality Act (CEQA) since it was first enacted in 1970.
Almost any proposed low- or mid-rise development in urban zones zoned for multifamily housing is exempt from CEQA under the modifications. No more lengthy, thousand-page analyses of soils, potential building shadows, and potential traffic. CEQA lawsuits from irate neighbors are no longer a possibility.
The governor said when he signed the legislation Monday night, “Getting rid of these rules shows that no matter how difficult the politics, the state will remove the barriers it has built over decades that have ended up stifling housing construction and suffocating Californians’ ability to live affordably.”
According to Newsom, we have been up against the world we created. We must perform.
The effects of the reforms won’t be long-lasting for Californians. With a stroke of the governor’s pen, they went into effect.
The outcome might be more of a revolution in the way California communities evolve, at least in the medium term, than a direct effect on construction. The construction of homes will still be influenced by a number of obstacles, both inside and outside the jurisdiction of the local and state governments, including borrowing rates, labor availability, zoning, material pricing, and tariffs. The main difference is that outside organizations no longer have the power to influence housing development in California towns, both positively and negatively.
It can be challenging to comprehend how CEQA came to be known as the law that engulfed California, as one critic put it.
CEQA essentially states that before a project can be allowed, its proponents must disclose and, if feasible, mitigate its environmental effects. However, the CEQA process can take years as local governments and developers finish countless studies, opponents accuse them of being insufficient, and judges force everyone to start over.
Opponents of the project quickly saw that they might take advantage of this uncertainty because time equals money. Threatening a CEQA challenge was occasionally the only way to be heard and prevent negative consequences if their grievances were ignored by City Hall. In other cases, however, the law was used as a strong tool to sway issues that were only marginally related to the environment.
There are countless examples. A San Jose gas station owner filed a lawsuit against a competitor gas station in the area that wanted to install a few extra pumps. A proposed Planned Parenthood clinic in South San Francisco was sued by pro-lifers. The University of California was sued by Berkeley homeowners for its plans to expand enrollment at the state’s premier university and the potential resulting noise and traffic.
Over time, all of the key parties learned about and exploited CEQA negotiations, which became ingrained in California’s development framework. As a community leader in South L.A. in the 1990s, Los Angeles Mayor Karen Bass once recounted using CEQA to try to prevent the building of liquor stores. This year, a CEQA lawsuit was brought against a corporation owned by billionaire developer Rick Caruso, Bass’s opponent in the most recent mayoral election and a typical CEQA critic, contesting a significant rebuilding of a television studio close to a Caruso shopping mall.
Labor groups that represent construction workers have been the main interest group that has invested in CEQA at the state level with regard to housing. Their leaders have maintained that workers should benefit from increased pay and benefits if lawmakers give developers CEQA relief, which increases their profits.
In 2016, this union resistance was sufficient to keep then-Governor Jerry Brown’s proposal to restrict CEQA challenges to urban housing projects from ever reaching a legislative committee vote. Only because developers who wished to exploit workers were forced to pay union-level salaries did a version of Brown’s measure pass a year later.
Since then, lawmakers have danced with labor groups in this manner almost annually. After the California Conference of Carpenters left the State Building and Construction Trades Council in 2022, they backed a looser set of labor laws that were incorporated into many measures.
However, home development has not kept pace. Permits have been granted for millions less projects than Newsom pledged to construct during the 2017 campaign. Californians continue to pay record rates for housing, and the expense of living is frequently cited by individuals who are leaving the state. Newsom and lawmakers agreed that more had to be done.
In the signing ceremony on Monday, Assemblymember Buffy Wicks (D-Oakland) stated, “We don’t want to sit here and ram our head against the wall on the politics and then have nothing to show for it.”
This year, Wicks wrote legislation that was going through the normal procedure and disregarded CEQA restrictions allowing the construction of urban homes without any labor obligations. Wicks’ measure and other CEQA reform proposals were seized by Newsom in May, and he declared his desire for them to be included in the budget. By doing this, the measures would become law more quickly and without the typical whittling down that occurs during committee hearings.
Newsom doubled down as the budget talks heated up. In a rare move, he required that CEQA amendments be passed before the state’s entire budget plan for this year could be approved. As a result, lawmakers who would have ordinarily opposed the budget could only vote against it if they were prepared to destroy it.
A clear CEQA exception for homebuilders in urban multifamily settings was the result. Due to specialized labor needed for taller buildings and other state and local regulations for inexpensive construction, high-rise and low-income structures are the only ones that demand union-level wages for construction workers.
Construction of single-family homes is unaffected by CEQA.
It’s unclear how much of an immediate impact this will have on homebuilding. Research on the effects of CEQA is conflicting. Less than 3% of housing projects in numerous large cities throughout the state saw any CEQA litigation over a three-year period, according to a study conducted by law experts at UC Berkeley. In a single year, tens of thousands more housing units were challenged under CEQA. However, other reformers contend that it is impossible to measure how much the law has dominated the discussion and how much the threat of CEQA lawsuits has stifled development in California.
According to Mott Smith, board chair of the Council of Infill Builders, a real estate trade association that promotes urban housing, this marks a dramatic change in Democratic politics in California from NIMBYism to abundance. You will live to see another day if you touch this fabled third rail.
A 55-year-old environmental law is the only option available to those who live across the street from a proposed five-story apartment complex and are opposed to the housing.
