Analysis: How CEQA makes affordable housing construction a (pricey) nightmare
The Monster destroys a house in Conor's dream. From A Monster Calls (2016).
Maybe developers wouldn't be as spooked about building housing in the Golden State if our Environmental Quality Act wasn't so prone to: Labor corruption, economic inefficiency, and legal blockades. The Cato Institute examines in depth, below.
Approved in 1970, CEQA goes far beyond the requirements of the National Environmental Protection Act, which was passed by Congress in 1969. The act allows projects with negative environmental effects to go forward, but requires that those effects be publicly disclosed. In contrast, CEQA requires state and local governments, to the broadest extent possible, to prevent projects that would damage the environment.
Under CEQA, projects with negative environmental effects can only go forward if the environmental damage is mitigated. In some cases, projects can be denied if a feasible alternative exists that creates less environmental damage. CEQA requires the permitting agencies (state and/or local government agencies) to enhance public participation in the process and it also allows lawsuits by private parties.
CEQA has two significant flaws that interact in a very damaging way. One is the requirement of environmental mitigation without explicit consideration of a cost-benefit analysis. The other is unregulated bringing of private lawsuits. Both of these can lead to grossly inefficient resource allocation.
The first flaw, on its own, leads to economic inefficiency. … Any development will affect the environment, and efficiency dictates that the costs of mitigating a development’s environmental impact have some justification in terms of the mitigation’s benefits. While there can and will be reasonable disagreement about these issues, this disagreement should be grounded within the framework of a cost-benefit analysis. It makes no sense to spend millions of dollars in mitigation on a project whose environmental costs are nowhere near that much.
While CEQA has accomplished many worthwhile environmental goals, it is also being used in ways that weren’t intended. Specifically, CEQA litigation is being widely used by groups that want to delay or block development for a variety of reasons, many of which have little to do with environmental concerns. …
Moreover, CEQA litigation is used by labor unions and other organizations to extract wage and work-rule agreements, as well as other concessions, from private developers and public agencies. Business interests deploy CEQA challenges to derail the projects of their competitors. Community organizations use CEQA to extract developer amenities and other investments in the community that go beyond the additional costs the development imposes on city services. There are also frivolous lawsuits simply intended to block development. These lawsuits appear to be based on environmental reasons, but the filing parties frequently have no history of involvement in environmental protection, and by making their claims under CEQA they are using it as a veil for their self-interests. The 2015 report found that 85 percent of CEQA lawsuits were filed by organizations with no record of environmental advocacy.44
Regulatory compliance, including CEQA-based lawsuits, drives up construction costs by requiring additional legal fees, delaying projects, and requiring additional studies and reports. One striking example of how regulatory compliance raises costs is the Newhall Ranch development. Permits for this 60,000-resident planned community—including more than 20,000 homes, seven schools, several parks, thousands of acres of open space, and 50 miles of hiking trails—were submitted in 1994. It was not until 2017 that all lawsuits, several of which came under CEQA, were settled. …
The settlement of the last lawsuit included requiring the developer to install electric vehicle charging ports in almost every home in the development, as well as installing charging ports elsewhere in Los Angeles as a carbon offset. Note that only about 1 percent of registered autos in California are electric vehicles … This is the type of gross inefficiency that drives up costs—costs that ultimately are borne by homeowners. This is because developers will not develop unless their costs are covered. …
All told, roughly half of CEQA lawsuits are decided in favor of the plaintiff, which further incentivizes those bringing CEQA-based lawsuits. All of this increases the time, cost, and uncertainty of getting projects done, which in turn reduces developer incentives to initiate projects.
There are several simple and sensible reforms that would remedy some of the worst abuses of CEQA litigation … First, duplicative lawsuits should be prevented, particularly for projects that have already passed the CEQA review. Duplicative lawsuits were one factor in accounting for the unacceptably long 23-year approval process for the Newhall Ranch development. Second, procedural reforms should ensure that delay tactics are not allowed, perhaps by including setting a deadline by which CEQA challenges must be filed—a reform that has been used in San Francisco.46 Third, losing parties in CEQA legislation should pay for court costs and attorney’s fees, as is the default rule in other civil cases.
Read the whole thing here.
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