CEQA liberation hits CA builders unevenly

Small to midsize urban housing developers are the winners in California’s rollback of environmental protections this week.

The pair of budget trailer bills that Gov. Gavin Newsom signed into law Monday night exempt housing projects up to 85 feet in height from public review under the California Environmental Quality Act, known as CEQA, so long as they’re located in existing neighborhoods, a type of development known as infill.

That means the exemption will apply broadly to multifamily housing construction in Los Angeles and its sprawling suburbs, but not to high-rise commercial projects — anything more than 85 feet — or new single-family subdivisions.

The details of the adjustments to CEQA appear to be deepening a rift in the industry between infill builders and the Building Industry Association, or BIA, which represents many of the biggest homebuilders in the state and nation, with names such LGI Homes, D.R. Horton and Lennar prominent on its membership rolls.

The BIA put up a fight against the CEQA adjustments that have sparked glowing reports in national and local media. The trade group ran a last-minute ad campaign that labeled the bill package a “housing killer” and warned that it would drive up costs of residential development throughout California.

Karim Drissi, a lobbyist for the BIA, urged lawmakers to vote “no” on the pair of bills in a state senate hearing last week, citing a section of the law that deals with transportation impacts.

“As currently drafted, it would add major unnecessary cost to the construction of housing, lead to fewer housing units being built for California’s working families, and would have a disproportionate impact on working families of color,” Drissi said.

A statement issued by the BIA laid out a broad complaint.

“While the California Building Industry Association appreciates the positive steps taken in the recently signed budget trailer bills, AB 130 and SB 131, we remain committed to working with the governor and legislature on cleanup language to ensure these reforms deliver the greatest possible benefit to Californians,” it said.

The group did not make any officials available to comment further or clarify their comments.

At any rate, it seems to have lost this battle. The historic legislation passed with bipartisan support and goes into effect immediately.

Mott Smith, a commercial builder and the co-founder and executive director of the Council of Infill Builders, an advocacy group, said the reforms are a “game-changer” for its members.

There’s always been some daylight between infill builders and the powerful BIA, according to Smith. He said increasing density in areas that are already largely developed is the gentlest way to add housing, entailing minimal environmental impacts compared to the sort of “greenfield development” that big builders undertake for large residential tracts or even larger master-planned projects.

One company that stands to benefit from the rollback is Cityview, a multifamily developer focused on midsize multifamily developments that range up seven stories or so, the cutoff for steel-frame construction. That’s exactly the type of construction the new exemptions target.

Cityview CEO Sean Burton said the threat of CEQA litigation looms large for the company.

“We think this is one of the most consequential things to happen in many decades,” Burton told The Real Deal.

He said Cityview is taking a fresh look at a few potential development sites that the company previously deemed too risky to pursue.

Others in the industry are going through stages of shock, disbelief and ultimately jubilation about the legislation.

“I’m used to every law like this coming with strings attached,” said John Gregorchuk, a builder in Los Angeles who’s had his fair share of delays and disappointments from claims made under CEQA. “It’s incredible there are no labor provisions. This is amazing news. A part of me is like, ‘is this real?’”

Gregorchuk was not alone in wondering if the reforms are too good to be true. Other housing bills in recent years have been rendered useless in the eyes of the industry, thanks to prevailing wage provisions getting tacked on. SB-6 in 2022, for instance, made it easier to build housing in commercial zones, so long as developers paid workers union wages. It has since faded into irrelevance.

There’s optimism that will not be the case with AB-130 and SB-131, which Gov. Gavin Newsom muscled through the legislature by tying them to the budget bill, due last month.

Dave Rand, a land use attorney with the firm of Rand Pastor Nelson’s and an ardent critic of CEQA, was especially thrilled.

Rand sees the broad, new exemption as a signal that bold change is possible in California. And the coalition that’s underwriting it — led by Assembly member Buffy Wicks and State Sen. Scott Weiner — might just be getting started. It includes San Francisco environmental activist group the Greenbelt Alliance and, crucially, the California Conference of Carpenters, which represents about 80,000 union members across the state.

“The degree of change is unprecedented. I’ve never said that before in my career,” Rand told TRD.