Should California Skip Environmental Reviews to Boost Housing?

California’s Environmental Quality Act (CEQA) has been blamed for the state’s housing shortage. New legislation would bypass it when localities are failing to meet their housing goals. Will it help?

Today’s Debate

The California Environmental Quality Act (CEQA) is a state law passed in 1970 that requires state and local agencies to identify and analyze the environmental impacts of proposed projects, including housing developments, and to take measures to mitigate those impacts. Under CEQA, developers are required to prepare an Environmental Impact Report (EIR) for any project that is likely to have a significant effect on the environment. The EIR must identify all potential environmental impacts of the project, including impacts on air and water quality, habitat and wildlife, noise, and traffic, among others. The developer must also propose measures to mitigate those impacts.

Critics argue that the EIR process and associated litigation have made it difficult and expensive to build new housing in California, particularly in urban areas where demand is highest. Supporters of CEQA, however, argue that the law is an important tool for protecting the environment and promoting sustainable development. 

In September 2017, Governor Jerry Brown signed SB35 into law requiring local governments to streamline the approval of some projects if the locality hasn’t met its state-mandated housing targets. UC Berkeley’s Terner Center for Housing Innovation estimates that SB35 has been used to speed up the approval of more than 18,000 units since its passage (~3% of all units built since 2018). 

The law is supposed to sunset in 2025, but just this month, state Senator Scott Wiener announced that he’ll be proposing legislation to make SB35 permanent:

“California needs to deliver millions of homes in the coming years, and we need to give cities and builders every tool to make those homes a reality. Let’s remove that sunset and keep (SB35’s) success going.”

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Argument in Brief

Should California skip environmental reviews to boost housing?

Case For:

• California is in dire need of more housing

• CEQA slows and even blocks housing production

• CEQA makes housing more expensive

Case Against:

• CEQA ensures important protections for the environment

• Local regulations are the primary deterrents of housing production, not CEQA

• CEQA has already been amended to minimize its impact on housing production

My Assessment:

California’s housing shortage is severe and damaging, requiring urgent action. However, the data is mixed on whether CEQA is a primary reason for the state’s housing shortage. The state should avoid pointing to CEQA reform as the silver bullet for the housing crisis while continuing to minimize the impact of CEQA on housing production without undermining its stated purpose. 

Given the severity of the current housing crisis, California should extend SB35 beyond 2025 - perhaps to 2035 - but not make it permanent. California should also look for ways to minimize misuse of the law by requiring those filing CEQA lawsuits to disclose their identity and environmental interests.

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Case For:

California is in dire need of more housing

California's housing shortage is a pressing issue that has been decades in the making. A 2016 report by McKinsey estimated that the state would need to build 3.5M housing units by 2025 to close the gap. When running for governor in 2017, Gavin Newsom pledged to meet this goal.

This would have required California to build 500,000 housing units per year. Last year, we built just over 120,000 units and we haven’t exceeded 200,000 units since 2005:

“In the nearly four years since he took office, California cities are projected to have permitted a total of about 452,000 homes — less than he pledged he’d build in one year alone…”

In 2016, California ranked 49th among the 50 US states in housing units per capita. New York, for example, built 80% more housing units between 2009 and 2014 than California. 

As a result, housing prices have skyrocketed, making it increasingly difficult for people to afford housing. The median home price in California is currently more than double the national average, and rents are among the highest in the country.  

“Virtually none of California’s low-income and very-low-income households can afford the local cost of housing. Nearly 70 percent of these households would have to spend more than half of their income to afford the local cost of housing.”

CEQA slows and even blocks housing production

CEQA can slow housing production by requiring extensive environmental impact reports (EIRs):

“In the early days, initial studies and EIRs were generally quite short, and covered only truly public projects… To minimize the risk of litigation, EIRs have ballooned into thousand-page documents covering potential impacts that few would normally associate with the environment.” 

It takes time to produce EIRs and other less intensive documentation: 

The approval timelines for housing projects in Southern California are very, very long. For multifamily projects approved between 2014 and 2016, the average time to approval was 13.1 months in Los Angeles, 16.3 months in Pasadena, and a whopping 48.3 months in Santa Monica. For projects requiring the highest level of environmental review, an environmental impact report (EIR), average timelines were 43, 28, and 77 months, respectively.”

According to the Legislative Analyst’s Office, local agencies took 2.5 years to approve housing projects requiring an EIR. 

CEQA also allows any California resident to anonymously file a lawsuit against a proposed development. These lawsuits can slow and block development, as the law firm, Holland & Knight, describes:

“...as our one-year snapshot of 2020 CEQA lawsuits shows, almost 50,000 housing units were challenged with anti-housing CEQA lawsuits - and thousands more were blocked in CEQA lawsuits challenging upzoning in existing communities to allow more housing, including near transit.”

Its 2018 report found that most of the challenged units were in “infill locations” (areas already approved for such construction), within half a mile of transit services, and in whiter, wealthier, and healthier areas. 

As one example, a state court blocked California’s $1B plan to replace the 70-year-old Capitol building, arguing that the state did not offer “a reasonable range of alternatives that fostered informed public participation and decision-making.” In another high-profile example, last year an Alameda County judge cited CEQA in ordering a limit on enrollment at UC Berkeley (this was later overturned).

However, some argue that this data is misleading and that these examples are outliers:

“While CEQA-based delays make good headlines, the scope of the CEQA “problem” may be smaller than it appears. For example, a study commissioned by the California Air Resources Board (CARB) found that less than 3% of approvals for housing projects faced litigation. On average, there are fewer than 200 CEQA-related lawsuits per year in California, which puts the rate of CEQA-based litigation at 0.7% for all projects that undergo environmental review.”

Several studies dating back to 1991 find similarly low litigation rates. A survey of 46 California cities and counties found that only 6% of projects between 2015 and 2017 even required EIRs. When EIRs were required, the Association of Environmental Professionals asserts that it only takes an average of 15 months to complete, compared to the 28 to 77 months cited above. 

CEQA makes housing more expensive

Navigating the CEQA process cost money, which gets added to the cost of housing, as state Senator Scott Wiener argues: 

“However, the CEQA process is subject to appeals and lawsuits that can increase project costs and create delays for reasons completely unrelated to the environment. It’s not unusual for it to take three to four years and millions of dollars to resolve a single lawsuit, while pre-lawsuit appeals regularly take six months to resolve. The delays and excessive costs associated with CEQA can slow down projects, or even prevent proposals from moving forward.”

There are 2 main costs: preparation of documentation and CEQA-related legal challenges, which can add up quickly, in part because of California’s legal rules.

“A project developer will usually have to pay both its own legal bills, as well as the tab the lead agency incurs in defending its CEQA document. What is more, if the CEQA document is found deficient, then the party that challenged it will usually be awarded its legal expenses (fees and costs), based on California’s “private attorney general” statute.”

While not related to housing, the impact of CEQA on the cost of windfarm construction demonstrates its cost-raising effect:

“These CEQA lawsuits, when combined with California’s extensive land use and permitting laws, help explain why it costs between 15 to 20 percent more to construct wind projects in California than in other areas of the country.”

Several case studies compiled by an environmental justice foundation suggest that such costs are insignificant compared to overall development costs:

“The report found that the direct environmental review costs for these five projects ranged from 0.025 to 0.6 percent of the total project costs. …The results [from the 2021 report] are very similar to the findings of the 2016 Report: the three new case studies indicate (1) direct environmental review costs ranging from 0.15 to 0.5 percent of the total project cost.”

Case Against:

CEQA ensures important protections for the environment

The primary goal of CEQA is “identify the significant environmental impacts of their actions and to avoid or mitigate those impacts, if feasible.” In the high-profile cases noted above, environmentalists generally believe that CEQA fulfilled its purpose.

For example, one of the lawyers who worked to block the state’s Capitol Annex Project described their legal victory this way:

“The court sided with the people of California today. [I hope state officials] will properly consider alternatives to the project which do not involve decimating these irreplaceable historical resources.”

While the pause on UC Berkeley enrollment was later overturned, some argue that the Court-ordered block was justified:

“The university’s proposal would have destroyed a landmark on the National Register of Historic Places in one of the most under-parked areas in the nation.”

The Rose Foundation warns against stripping CEQA of its power:

“Over time, CEQA has proved extraordinarily effective in protecting California’s environment, including minimizing air, water, soil and noise pollution that harms public health, while giving community members a powerful voice in the land use process… It is important to recognize that when the Legislature eliminates environmental review requirements through streamlining provisions such as those authorized by SB 35, there may be no mitigation for impacts causing public health and other harm.”

However, critics argue that CEQA is now frequently used to undermine its original purpose:

“Unsurprisingly, given the convoluted way in which CEQA litigation is being used today, a recent study showed that CEQA lawsuits are actually worsening the very thing that CEQA was made to protect: the environment… Instead, it has ‘evolved into a legal tool most often used against the higher density urban housing, transit, and renewable energy projects, which are all critical components of California’s climate priorities and California’s ongoing efforts to remain a global leader on climate policy.’”

UC Davis professor Chris Elmendorf describes it this way:

“Whether we’re talking big infrastructure, green infrastructure, shelter or even university enrollment, CEQA puts a heavy thumb on the scale in favor of maintaining the status quo. If anyone musters a ‘fair argument’ that any physical change that a project might cause would have any locally adverse effect, then the project can’t proceed unless the sponsor undertakes an exhaustive study and mitigates all physical effects found to be ‘significant’… This paradigm would make sense if humankind inhabited an ecological Eden in which everything was perfect until we touched it. But the world we live in today requires substantial physical changes to remain habitable.” 

The law firm, Holland & Knight, goes further, arguing that those filing CEQA lawsuits don’t even have environmental benefits in mind:

“Sixty-four percent of those filing CEQA lawsuits are individuals or local “associations,” the vast majority of which have no prior track record of environmental advocacy – and CEQA litigation abuse is primarily the domain of Not In My Backyard (NIMBY) opponents and special interests such as competitors and labor unions seeking non-environmental outcomes.”

Local regulations are the primary deterrents of housing production, not CEQA

The main strike against CEQA is its alleged role in worsening California’s housing crisis. However, research on the causes of the state’s current housing shortage, at a minimum, points to a range of factors, including high land and construction costs, restrictive zoning regulations, and limited availability of funding for affordable housing. 

Research by the Hoover Institute emphasizes one of the factors above the others:

“The substantial rise in California home prices since 1980 coincides with more restrictive land use regulations, including tighter zoning regulations. Many studies present evidence that these regulations are substantially increasing housing costs.”

Several economists believe that just returning to the land-use regulations of 2000 would have a tremendous impact. Others blame local land regulations too, explaining that even when CEQA is part of the problem, it's not necessarily the law itself, but the locality’s implementation of the law:

“All data points to local authority over land and local regulation as the most significant barrier to increasing infill dense housing and affordable housing. Local governments could eliminate obstacles associated with state level environmental regulation (and related litigation) by reforming their own local law.”

How exactly are localities thwarting housing production? A UC Berkeley study explains:

“We found that these local governments are imposing discretionary review processes on all residential development projects of five or more units within their borders. That means even if these developments comply with the underlying zoning code, they require additional scrutiny from the local government before obtaining a building permit. This triggers CEQA review of these projects.”

Localities also take wildly different amounts of time to process reviews, suggesting, again, that local variations are causing the problem.

For their part, California cities and counties generally blame factors other than CEQA for the limited supply of housing too:

“Respondents selected CEQA relatively infrequently among factors constraining new supply, with high development costs, neighborhood opposition, lack of sites, and lack of affordable housing funding as more common constraints to expanding supply.”

CEQA has already been amended to minimize its impact on housing production

Since its passage in 1970, CEQA has undergone significant changes intended to reduce its impact on development projects: 

“In 2020, the state legislature expanded that list [of exceptions that don’t require CEQA] to include certain green transportation projects, including pedestrian, bicycle, and transit improvements along existing rights-of-way, though these exemptions will sunset in 2023. This move followed an earlier 2019 bill, which exempted homeless shelters and permanent supportive housing within Los Angeles from CEQA requirements.” 

These exceptions are commonly used too:

“Because so many projects complete CEQA review via mechanisms other than EIRs, a large majority of all approved units did not require an EIR for project-level CEQA review. Our data indicates that compliance routes other than EIRs are not reserved for extremely minor projects, and are a key component of infill residential development in California.”

If CEQA is further disarmed, it could lose the ability to achieve its original mission:

“Misguided CEQA reform could undermine environmental protection throughout the state without providing meaningful improvements to our housing situation.”

However, as noted above, many of the more recent exemptions will sunset soon and some recommend extending exemptions further to, for example, more infill and affordable housing projects - and encouraging localities to take further advantage of existing exemptions. 

My Assessment

California’s housing shortage is severe and damaging. The 2016 McKinsey study cited above estimates that we lose 6% of the state’s GDP each year because of the shortage. With a declining population and a state budget deficit, this requires urgent action. 

However, the data is mixed on whether CEQA is a primary reason for the state’s housing shortage. While the anecdotes of delayed projects are powerful examples of the law’s effect, the data suggesting CEQA’s impact is minimal currently seems to outweigh the data condemning it in amount and rigor. 

This doesn’t mean that CEQA isn’t slowing housing production or being “manipulated to be a formidable tool of obstruction” as a recent San Francisco judge asserted, but the limited data proving CEQA is the problem and the abundance of other studies blaming local land-use regulations suggest there are other more significant causes of the shortage - albeit, ones the state may have more trouble addressing. 

As a result, the state should avoid pointing to CEQA reform as the silver bullet for the housing crisis, while continuing to minimize the impact of CEQA on housing production without undermining its stated purpose. 

Given the severity of the current housing crisis, California should extend SB35 beyond 2025 - perhaps to 2035 - but not make it permanent. The severity of the crisis warrants taking a risk on CEQA reform even though it may not make a big difference. California should also look for ways to minimize misuse of the law by requiring those filing CEQA lawsuits to disclose their identity and environmental interests. 

In 10 years, we can assess this balance again, judging at that time whether housing production is more important than enhanced environmental protection.

What’s your assessment?