state housing shake-up reaches the desert

This spring, Sacramento tied the state’s budget to consequential housing reforms, forcing a contentious showdown in the Legislature. With lawmakers facing a multibillion-dollar budget deficit and mounting pressure to deliver results, a series of long-debated reforms were pushed through. While much of the policy discussion has focused on densely-populated coastal metros, the reform is equally relevant to housing markets like the Coachella Valley.

At the heart of the fight was California’s infamous environmental review law, the California Environmental Quality Act (CEQA). Enacted in 1970, CEQA was initially designed to ensure that public agencies carefully consider environmental impacts before approving projects. Over the decades, however, it became better known as the tool-of-choice for opponents to delay or block housing developments, often leading to heavy costs and protracted legal battles. Housing projects with a CEQA study take on average 2.5 years for approval, and lawsuits (on anything ranging from challenging the results of the study to just seeking additional information) can further tie up the process for years.

For decades, housing development advocates have called for CEQA reform to ease its unintended negative consequences on housing supply. But these efforts have repeatedly stalled amid opposition from environmental groups and local interests. 

This year, Governor Newsom made changes to CEQA a 'poison pill' condition of the state budget, meaning the $321 billion spending plan could not be signed into law unless lawmakers also approved legislation to streamline the environmental review process. 

Here are the key things to know about the CEQA changes, and what they mean for the Desert housing market:

• This year’s reform comes in the form of two bills, AB130 and SB131.  Bill AB130 allows urban infill housing projects up to 20 acres to bypass full environmental review if they meet (relatively lax) zoning and density rules. In effect, the vast majority of new construction in California will no longer be subject to CEQA review. 

• Bill SB131, known as the “near-miss” provision, allows for an alternative streamlined review for projects that fail to meet exemption criteria due to a single disqualifying condition. It further creates exemptions for certain infrastructure and public-use projects, many of which have been historically blocked under CEQA.

• In addition, both bills also introduce new changes intended to streamline the overall entitlement process, such as creating limitations on local agencies to enact modifications to building codes, and making permanent a five-hearing limit on development projects.

• The reform will also impact construction costs, as building trade unions have historically pursued CEQA lawsuits to compel developers to use union labor. This is likely to apply downward pressure on construction wages, and therefore, new housing costs. 

• Given the magnitude of the changes, the reform is likely to unlock stalled projects in the Coachella Valley. Cities like Palm Springs and Cathedral City have sizable underdeveloped parcels, especially in downtown or arterial corridors that would likely qualify for CEQA exemption under AB130. In cases where there are underutilized commercial sites in downtown areas, such as a vacant hotel property or office building, these could be eligible for CEQA-free entitlement if redeveloped into housing.

• Even outside of CEQA exemptions, housing supply in the Desert stands to benefit from the broader streamlining of the entitlement process. As holding costs have climbed and construction expenses soared in recent years, faster approvals could ease pressure on project timelines and improve financial feasibility for builders.