Thread by @CSElmendorf

"Can you put a rough number on how much California's CEQA reforms will increase housing production?"

I've gotten this Q from lots of journalists over the last 48 hours (who sound frustrated w/ my answer), so here's a 🧵 laying out my thinking about it.

1/25

tl, dr: @GavinNewsom was right to call AB 130/SB 131 "the most consequential housing reform in modern history in the state of California" -- but even so, there's no defensible way to give a quantitative "this much more housing" answer to the reporters' question.

/2

In part, the CEQA-reform package is consequential b/c of what it signifies: that California is overcoming the seemingly intractable politics of a high-cost, low-supply equilibrium.

/3

In that equilibrium, a host of interest groups -- labor unions, community orgs, equity groups, HOAs -- jockey w/ one another & local gov'ts to "capture value" from proposed developments.

/4
scholar.google.com/citations?view…

The threat of a CEQA lawsuit is a major weapon for 3rd party orgs, who negotiate side deals (typically subject to nondisclosure agreements) in which they agree not to sue & get a project-labor deal or other payoff in exchange.

/5

reason.com/2019/08/21/how…

The resulting costs & delays make housing expensive to build, sustaining the low-supply/high-price equilibrium.

The groups (especially Labor) have had a stranglehold on the Legislature, which is why Jerry Brown called CEQA reform "the Lord's work."

/6
calmatters.org/environment/20…

Even in YIMBY era, California has been stuck on a "housing treadmill."

The Leg passes laws that streamline approvals & prevent third parties from using CEQA to extract value--but only w/ bills that require high-cost labor & money-losing BMR units.

/7

city-journal.org/article/the-ho…

Such reforms generated excitement, but they didn't get us off the treadmill b/c the projects they streamlined were too expensive to build, owing to the "bagel toppings" the legislature required.

/8

papers.ssrn.com/sol3/papers.cf…

What's so exciting about the new CEQA package is that it passed in a substantially "plain bagel" form, w/o costly conditions on the newly CEQA-exempt projects.

The Lord's work was done. But only the Lord can say how much more housing will result. Read on for my explanation.
/9

Big picture. Housing production is constrained by:
- permitting uncertainty/delay
- fees, exactions, taxes & codes that raise development costs
- zoning limits on size/density
- local political incentives

/10

Good news: Research finds that reducing permitting time can greatly increase production, other things equal.

Using L.A. data, Gabriel & Kung estimate that a 25% reduction in permitting time & uncertainty would increase rate of production by ~25%.

/11

papers.ssrn.com/sol3/papers.cf…

If AB 130 works as intended, it will reduce permitting times in big cities by a lot more than 25%!

E.g., S.F. & L.A. nowadays take 2+ years to review non-ministerial projects. Where under AB 130 as written, cities have 5 months, max, to issue entitlements.

/12

Post-AB-130 permitting will be even faster in places where there are no tribal resources and for projects where tribes don't exercise their consultation rights.

AB 130 could reducing permitting times by ~75!

/13

The CEQA package also makes significant headway on the other categories of constraints.

▶️ Exactions: there'll be no more CEQA mitigation measures (b/c project is exempt) on infill housing & no more "shadow exactions" thru threatened CEQA lawsuits.

/14

▶️ Zoning: SB 131 clears path for lots of upzoning by exempting from CEQA rezonings that implement HCD-approved housing elements.

/15

▶️ Local political incentives: by removing infill projects from CEQA, AB 130 also removes device that NIMBYs use to get political review of projects they oppose.

(Absent CEQA, city council often lacks "appellate" authority over housing approvals)

/16
papers.ssrn.com/sol3/papers.cf…

In sum, the package is a banger!

So why am I reluctant to make assertions like, "Treating Gabriel & Kung's results as a lower bound, this package will increase big-city housing production by more than 25%"?

/17

B/c the CEQA package is just one move in an ongoing strategic game, and we don't know how other actors will respond. Read on for examples.

/18

1⃣ To make "max 5 months" permits a reality will almost certainly require legislative tweaks to the Permit Streamlining Act.

Does passage of the CEQA package mean there's now a legislative coalition to finish the job, or was it a one-off?

/19

https://x.com/CSElmendorf/status/1937788668078432507

(I would be more confident about Leg finishing the job if Newsom's intervention had come at the start of his term, rather than near the end.)

/20

2⃣ Will NIMBY groups be able to evolve a CEQA substitute (in which the Leg acquiesces) w/ other legal battering rams?

There's some risk that "affirmatively furthering fair housing" could become the next CEQA.

/21

https://x.com/CSElmendorf/status/1741931125097050364

3⃣ Will city councils choose to re-politicize project approvals?

They may, if they wish, confer on themselves the authority to hear internal appeals of project approvals.

/22

The CEQA reforms don't fix the fundamentally bad political incentives for housing that result from fragmented local govts, single-member district elections, and Prop. 13.

/23

https://x.com/CSElmendorf/status/1899543228376064510

4⃣ Will Native American tribes become the new "value extractors," impeding low-cost housing production by leveraging the tribal consultation requirements of AB 130?

If so, will Leg have the stomach to stop it?

I don't know.

/24

In sum, the Leg has pulled off an amazing feat, one which makes me hopeful about California's future.

But beware of anyone who offers confident prognostications about how much this package, alone, will increase housing production.

/end

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