Law Changes in California Potentially Simplify Future Home Searches and Lower Costs
The recent reform of the California Environmental Quality Act (CEQA), enacted through Assembly Bill 130 and Senate Bill 131 and signed by Governor Gavin Newsom on June 30, 2021, is set to have a significant impact on housing affordability and development in California's major metropolitan areas.
Key expected impacts include a streamlined approval process for urban residential projects, reduced CEQA litigation delays, encouragement of environmentally friendly housing development, and a potential increase in housing supply and improved affordability.
By exempting many urban infill housing developments, especially low- and mid-rise multifamily housing in urban neighborhoods, from CEQA requirements such as lengthy environmental impact studies and the risk of litigation aimed at blocking projects, the reforms aim to speed up housing development. Projects that meet certain statutory criteria can now be expedited, with local agencies required to approve or disapprove them within 30 days of tribal consultation.
The reforms are also expected to reduce CEQA litigation delays, a strategy historically used by "not in my backyard" (NIMBY) groups to delay or prevent housing development. This should accelerate housing production and reduce costs associated with delays and legal battles.
Assemblymember Buffy Wicks described the reform as removing the biggest impediment to building "environmentally friendly housing" by eliminating procedural barriers rather than ignoring environmental concerns entirely.
The reforms are expected to encourage more housing construction in California’s major metro regions. Although broader economic factors like labor availability, interest rates, zoning, and construction costs still influence housing production, the CEQA reform eliminates a critical bottleneck.
However, the reforms have met opposition from environmental groups worried that exempting projects from CEQA could reduce environmental oversight. Proponents argue that the law had become a tool to block housing rather than protect the environment.
The effect of this short-term wave of for-sale construction could be limited and brief. On the other hand, CEQA reform could potentially freeze residential codes until 2031, which could have significant implications on the state's progress toward carbon reduction and building innovation.
In San Francisco, CEQA reviews have led to "absurd delays," which translate into increased carrying costs, reduced project feasibility, and ultimately, higher prices for buyers. In Marin, CEQA has become a tool for litigation rather than conservation.
For central California cities like Sacramento, Fresno, and Bakersfield, CEQA reform is designed to lower development costs primarily by shortening the schedule. Redevelopment is expected to be unlocked in underused commercial corridors in Los Angeles and Orange counties due to CEQA reform. It is plausible that for-sale condominium and townhouse projects that have been stalled in the past by CEQA litigation could move forward now.
These CEQA changes are seen as a positive signal that California is becoming more amenable to housing development. However, the full impact will depend on how these regulatory changes interact with other economic and policy factors affecting homebuilding.
- The recent reform of California's environmental law, CEQA, is expected to influence the investing landscape in California's real-estate sector, particularly in urban infill housing, by offering a streamlined approval process, reducing litigation delays, and encouraging environmentally friendly housing development, which could boost the housing supply and improve affordability in the housing market.
- The CEQA reform in California could potentially attract finance for housing market investments, as the expedited approval processes and reduced risks of delays and legal battles could make real-estate projects in California's major metropolitan areas more attractive to investors.
