Understanding why California housing costs so much

Is the problem CEQA, local land-use regulations, both or neither?

Housing costs in the Bay Area and Los Angeles continue to get a lot of attention in the press and academic literature. This New York Times article highlights this recent paper from Ed Glaeser at Harvard and Joe Gyourko at Penn – the paper’s analysis concludes that land-use regulations have significantly increased the price of housing in cities like Los Angeles and the Bay Area.

I don’t want to take issue with the underlying economic analysis in the Glaeser/Gyourko paper, but instead with how the conclusions of that analysis are framed. There are two major sources of regulation for high-density residential construction in California’s urban areas: local land-use regulation that is enacted at the city or county level, and the California Environmental Quality Act (CEQA) which is a state law that requires all state and local government agencies to analyze and mitigate the negative environmental impacts of projects they approve. The question is, which of these regulations is the major source of barriers to construction in California’s urban areas. The article and the paper seem to imply that both local land-use laws and CEQA are significant contributors to the undersupply of development.

Here’s the NY Times article (and a longer version is available here):

The paper argues that most of that difference is caused by regulatory hurdles like design and environmental reviews that can add years to a project’s timeline and suppress the overall housing supply. The result is overpayment on a grand scale for the few homes that do get built.

The paper itself goes into more detail, arguing that in addition to local land-use regulations, the requirements of environmental review pursuant to CEQA are a major driver of the legal barriers to housing construction in California:

To illustrate this point [that California’s regulations do not consider the impacts of forcing construction to other locations], consider environmentally motivated restrictions on building in California. The environmental impact reviews that have been required for larger projects since the 1973 Friends of Mammoth case [a major case significantly expanding the scope of CEQA] consider only the local environmental impact of a new project. Yet, denying a permit also creates an environmental impact because building elsewhere likely is a substitute for building in California.

Together with collaborators here at Berkeley, we are currently examining whether, how, and why local land-use and/or CEQA serve as major legal barriers for residential construction. We have begun by looking at projects in San Francisco and surrounding cities, and will be expanding to look at other cities in California as well. Our research is just beginning, but we hope to have useful insights soon. The answer to these questions are important – if the primary problem is local land-use law, for instance, then making major changes to CEQA would have minimal impacts on our housing crisis, but have major negative impacts on the most important environmental law in the state.

4 Replies to “Understanding why California housing costs so much”

Curtis E. Alling, AICP says:

February 23, 2017 at 4:55 pm

Starting from a premise that land use regulation and/or CEQA need to be the primary targets of evaluation as the causes of high housing costs in California already distracts from the true complexity of this important issue. Multiple studies have been conducted for many years regarding the reasons for housing costs in California. When the studies are comprehensive and most credible, they typically encompass a broader range of factors than just local land use regulations and CEQA. Clearly the reasons behind California’s housing costs are much more complex. Among factors considered in other investigations have been: fiscalization of land use because of Proposition 13; high land values in areas with an abundance of high-wage jobs (e.g., South Bay of SF Bay Area); long distance to more affordable land values; scarcity of land where housing is needed; infrastructure availability, age, and capacity; community resistance to higher densities/Nimbyism; multifamily residential financing challenges; and higher cost of labor and materials. Several existing provisions of CEQA include powerful streamlining opportunities to reduce the time, costs, and redundancy of CEQA documentation for infill and housing projects, but they are often overlooked. Also, economic studies have not attempted to monetize the benefits of environmental protection that result from CEQA review. Housing costs are an important and complex issue, and narrow-topic study efforts can hinder more than help in finding solutions.

For reference, one of the more detailed, recent evaluations was prepared by the non-partisan Legislative Analyst’s Office. http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx
1. Eric Biber says:
  
  February 23, 2017 at 5:02 pm
  
  So I agree with you, and our project is not intended to provide a comprehensive answer to the question of higher housing costs in California. (The problem with blog post titles is that they have to be short and snappy!). But I also don’t think there’s any question that regulations constraining residential development are an important component of the overall issue. The LAO report makes that clear. The question is, what are the regulations that most affect development, how do they do so, and what are the implications of changing them. The two most obvious options are local zoning and CEQA. So our project is trying to understand which of the two is most relevant. You’re right that there are lots of CEQA streamlining opportunities, but one question is why they aren’t used as much as they could be. And I would completely agree that CEQA has lots of benefits that need to be considered as well. (The Glaeser/Gyourko paper argues that the costs of restricting development must far outweigh any benefits, but again, that isn’t what our project is about.)
bqrq says:

February 23, 2017 at 8:38 pm

Eric said;
“…..We have begun by looking at projects in San Francisco and surrounding cities, and will be expanding to look at other cities in California as well……”

Let me respectfully suggest that you also look at cities in Texas such as Houston, Ft Worth, San Antonio, Sugarland and Waco, all of which have a plentiful supply of affordable housing projects that serves the needs of a growing population. Good affordable housing is one of the primary reasons why people leave California and move to Texas and will continue to do so for the foreseeable future. Don’t waste time searching for answers in California, look to Texas.
1. Sean Hecht says:
  
  February 23, 2017 at 8:46 pm
  
  Texas certainly has cheaper housing. There may be other challenges, however: http://www.houstonchronicle.com/business/outside-the-boardroom/article/Texas-economy-ranked-21st-in-nation-9179295.php

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