California’s Affordability Crisis
How a well-intentioned environmental protection law created a housing shortage
California is suffering from a severe housing crisis. With a 3.5 million unit deficit predicted by 2025, the state needs to start building much more housing. Policymakers recognize this is a problem. The citizens of the state recognize this is a problem. Solutions abound, but entrenched interests have made development cost-prohibitive state-wide, particularly in large cities such as San Francisco, Los Angeles, and San Diego. So long as the status quo continues, the problem will not be solved. But the complexity of this issue is why it has been so hard to solve; it is multifaceted, and dozens of conflicting problem areas and policy systems have been put in place to make even modest reforms extremely difficult.
The California Environmental Quality Act (CEQA) is just one policy process used to restrict home developments in the state. New policies such as California State Senator Scott Weiner’s SB 35 have worked to empower multi-use and multi-family housing developers in the state, but historically CEQA has been used to stop many housing developments. This landmark environmental legislation has been weaponized by local activist groups to prevent building new homes and apartments in their neighborhoods. These activists, referred to as NIMBYs, recognize more housing units need to be built in California. The problem is, they do not want these developments near their homes because they believe further development will drive down property values. NIMBY stands for Not In My Back Yard. It is not a political group, per se. Rather, it is a belief that increasing density in a given neighborhood will be bad for the community; adding more people to a neighborhood can increase traffic, cause more crime, or strain public services. Whatever reasoning NIMBY homeowners have, NIMBYism has decreased the amount of houses in the state, reducing supply while demand for homes has gone up. Thus, home prices have skyrocketed over the past half century, and California has become one of the most expensive states to call home.
Understanding and challenging CEQA legislation is not a panacea to fixing the housing crisis in California. But it is an important issue that must be addressed if we are going to get anywhere and build the amount of housing necessary to keep housing affordable and inclusive in the state.
Environmental Protection as a barrier to construction
The California Environmental Quality Act (CEQA) was signed into law in 1970 in order to protect the state’s ecological diversity and strengthen the community’s power to have a say in local land usage plans. CEQA mandates that construction in the state must create a comprehensive plan listing the environmental impacts of building, and it must work diligently to mitigate any damage to the environment. If a proposed project threatens to impact the environment, then lawsuits can be filed under CEQA by any organization against the developer. Examples of environmental degradation include: cutting down trees for the development, increasing traffic around the development site, building over waterways, and a host of other potential environmental ills.
When any new construction is built across California, local governments must either approve a “negative declaration,” meaning the new development causes no harm to the environment, or the city will ask a developer to create an EIR, otherwise referred to as an “environmental impact report.” The EIR is a much more in-depth environmental quality review. The process of creating an EIR can add years onto any construction: consultants, soil experts, and a host of other professionals are needed to create a strong EIR that can survive judicial review. CEQA violations are not overseen by any one state agency; it is a self-executing law that can be invoked by any organization through lawsuits. Thus, the court is typically the final decider in CEQA disputes.
EIRs and negative environmental impacts are subject to community review. Ultimately, city council’s and public opinion decide whether a development can go ahead as planned by measuring its environmental impact and its aesthetics. Lawsuits filed using CEQA can stop developments in their track by necessitating costly expansions to building and by deterring developers from building in areas that will likely end in lawsuits. Legal fees can stop an unwanted development and make the costs too high for builders. Thus, CEQA has given power to local officials and community members to have a voice in developments that are built in their neighborhoods. For pro-development groups in California, that is the problem.
Imagine a housing developer wants to build a 10 unit apartment complex in a quiet neighborhood outside of Los Angeles. By law, there must be a public hearing on the proposed development. Local homeowners can speak at this meeting and raise concerns. “10 units means at least 10 new people with cars,” is a typical contestation from a homeowner. If the homeowner asks for a traffic review, then the developer must legally try to accommodate that neighbor’s proposal. The apartment developer must then hire a consulting firm to measure and figure out exactly how traffic will be impacted by this development.
Six months later and after spending $10,000 on the traffic review, the apartment proposal is brought up again in front of the city council. Because the developer had to pay property taxes and has spent a lot of money waiting around for the traffic review to finish, they have decided to change their plan and make the apartment complex 12 units so they can recoup some of their losses. Another neighbor sees the new plan and says “12 units means there will be even more cars! Please, do another traffic review.” Following that, the developer must try and accommodate the concern and get ANOTHER traffic review.
Another six months pass and a similar story repeats. Developers can pay tens of thousands of dollars on reviews, emissions tests, and soil protection tests. All of these processes take time and cost the developer even more, because they could be doing something else with their money. After a while, they give up, because the apartment project would’ve simply cost them too much time and money to continue to fight with local homeowners. Failure to meet the homeowner’s requirements could result in a CEQA lawsuit, where homeowners could see developers into complying with their testing requests. The cost of a lawsuit can make some developers go bankrupt: legal fees alone make many projects too expensive to pursue.
While CEQA has been a great tool to protect California’s air, water, and environment, its original mission has expanded to now become a powerful tool to stop any and all new development in counties across the state. Not In My Backyard (NIMBY) movements have arisen across California, preventing new developments from being built. Although the state is suffering through a housing shortage, NIMBYism has prevented new developments, such as affordable housing projects and apartment buildings, from being created. According to a Holland and Knight review of CEQA litigation, 67% of CEQA lawsuits were filed by small neighborhood groups or newly founded organizations specifically for the reason of filing a CEQA lawsuit to stop development in a given neighborhood. With the rhetoric of preserving neighborhood character, NIMBYs oppose new building construction as it will increase density in a given neighborhood, reducing property values and bringing diversity into otherwise homogenous communities.
CEQA litigation is an exceedingly complex process. Its authority is sweeping: one party can sue any developer or construction company under CEQA and tie it up in legal battles for years. The process can also be anonymous. Instead of just protecting the environment, CEQA can protect wealthy homeowners and preserve their home’s market value. The majority of lawsuits filed under CEQA have been for this purpose. Albeit the stated goal of CEQA is to protect California’s environment, the reduced housing lot in the state has driven citizen’s further and further away from their places of employment, adding extra time onto daily commutes and increasing greenhouse gas emissions from cars stuck in traffic.
The act itself is extremely difficult to change. The most mobilized group of voters in every city is wealthy landowners, who derive a lot of their wealth from their own property values. They mobilize and attend local hearings over development proposals. Their voices are amplified and overrepresented in city councils, county board of supervisors, and mayors offices across the state. Thus, local leaders would be remiss to vote against their desires, or else they would lose re-election. Quite often, local officials are also members of this wealthy landowning class. The use of CEQA to stop development is thus not a partisan issue. Communities in California, both Democratic and Republican, file CEQA lawsuits against non-single family housing developments in their communities at similar rates.
Reform Efforts
Legislators in Sacramento often place CEQA reform as the first step to increase housing developments in the state. SB35, for example, allowed expedited housing construction through CEQA exemptions for developers that could meet 10 separate criteria. SB50, authored by State Senator Scott Weiner, sought to grant CEQA and zoning exemptions to developers that built housing units within one mile of public transit or large job centers. While this legislation died on the floor of the State Senate, it shows where state leaders are devoting their efforts to build more housing in California. CEQA exemptions are often granted to other big ticket developments like the new Rams stadium being developed in Inglewood, CA. However, most housing developments in the state still have to file an EIR and avoid litigation if they are going to build.
The permitting process, CEQA lawsuits and EIR review, and the veto power of local officials over proposed developments thus add additional years onto any potential housing developments. Between attorney fees, CEQA consultant fees, and the added labor necessary to continually fix development proposals, building in California has become cost prohibitive for thousands of projects. In order for more housing developments to be built across the state, companies must be able to profit from building. They cannot do that if they must first spend tens of thousands of dollars on CEQA-related fees in court and in EIR production. Given diminishing possibilities to profit from the construction, companies have no incentive to build. In an effort to protect the environment, Californians have instead limited the state’s housing supply, boosting property values for homeowners and pushing rents higher for their tenants. The public call to invest in communities is just that: investing in communities. It is not investing in the renters and people that call those communities home. Property values increasing is good for homeowners, but it is not good for the renters who continually struggle to pay their bills on the first of every month. As home values increase, inequality grows worse for those who will never have the chance to buy a home in the first place.
CEQA as a collective action problem:
CEQA reform encapsulates the bigger problem facing California’s housing crisis. Where is the sweet spot between protecting the environment and creating equitable, affordable access to homes for renters? As costs of living in the state soar, more and more Californian’s are electing to leave the state, moving to neighboring Arizona, Nevada, Idaho, Utah, and Texas. Local officials are incentivized to represent their constituencies: but the wealthy minority of their districts have far greater power than any other group under CEQA. The apolitical nature of homeownership cuts across party lines. The issue then is one between wealthy and the poor. While CEQA was designed to democratize the construction process in local communities, it has been weaponized to stop virtually all building, aside from expensive condominiums and gentrified town centers. CEQA reform is necessary to alleviate the housing crisis in California. But entrenched interests will not allow for CEQA legislation to be reformed when it benefits them and their property values. Until then, renters, developers, and construction companies pay the brunt of the costs and gain nothing from the status quo. CEQA shows how policy intentions do not matter. Policy outcomes are determined by the attentive publics that enforce the policy and use the legislation for their own benefit.
It is not a bad thing to want your property value to increase. It is not a bad thing to be a homeowner. What needs to be addressed is that it is possible to build more homes and apartments in a given community, and still have property values rise over time. Allowing for new developments in a given community won’t hurt landlords and homeowners, but it will help those who are being squeezed by the high cost-of-living in the state. Blocking developments won’t increase your property value that much, but it will exacerbate income inequality and push millions out of the state.
Conclusion
Zoning restrictions, environmental standards, and the tax code have come together to create the housing crisis in California. Writing on all of the issues that have made the California Housing Crisis would fill dozens of books; but CEQA has played an important role in limiting housing development. That is not to say that we should not protect the environment. However, sometimes NIMBY groups use environmental protection policy for their own ends. Shrouding opposition to affordable housing through environmental rhetoric is powerful, and it has limited a great deal of construction in the state.
Entrenched interests have worked diligently to maintain the status quo. This position is not sustainable. As more and more Californians leave the state, politicians and grassroots organizers have risen to combat the crisis and fight for new developments (particularly affordable housing).
California now finds itself in a policy trap. Enough citizens are landlords that have benefited immensely from the current system. Reform is politically difficult, as too many benefit from the status quo. Unfortunately, while the benefits go to current homeowners, the costs are borne by renters who have been priced out of ever owning a home in the state. Moreover, the flight of high-productivity employees to low-productive cities has negatively impacted economic prosperity for the whole country. Given the financial incentive for landlords to preserve their property values, there is currently little hope for radical reform. Zoning changes, CEQA reform, and split roll taxes have all been proposed to tackle the crisis. We are still far away from having a politically viable solution. It took decades for the state to get into this crisis. It will take time to get us out.
