New CA Law May Make Your Next Home Search Easier, More Affordable

Forbes

08-07-2025

New California law can make housing supply more available and affordable.
The road to hell and housing shortages is paved with good intentions. In this case, those intentions came in the form of the California Environmental Quality Act, passed into law in 1970 to protect the state's fragile eco systems from development. It's not just developers though who identify CEQA as a significant contributor to record-setting homelessness, housing shortages and housing costs. Elected leaders have too, and last week, they were finally able to do something about it. On June 30, Governor Gavin Newsom signed legislation reforming CEQA as part of the state's mandatory budget, ensuring the changes would take place without delay. A headline in the influential Cal Matters publication announced on that same day: 'One of the biggest obstacles to building new CA housing has now vanished.'
Housing Market Effects
'The impact of these bills will be most pronounced in the state's major metropolitan regions, where the housing crisis is most acute and the supply of infill-eligible land is most plentiful,' comments Meredith Parkin, environmental practice leader with multi-disciplinary national consulting firm Environmental Science Associates.
She sees redevelopment being unlocked in underused commercial corridors in Los Angeles and Orange counties, 'allowing exactly the kind of infill construction this legislation was crafted to accelerate.' For central California cities like Sacramento, Fresno and Bakersfield that have been attracting residents from higher priced markets, 'the CEQA exemptions are designed to lower development costs primarily by shortening the schedule.'
As Cal Matters pointed out in the headlined article, this reform means 'most urban developers will no longer have to study, predict and mitigate the ways that new housing might affect local traffic, air pollution, flora and fauna, noise levels, groundwater quality and objects of historic or archeological significance.' Will this heavy legislative lift have the desired effect of adding more housing? Its backers are optimistic. CEQA reform makes the development of more downtown condos possible with their short commutes and walkability more likely. (It will do the same to an even greater extent for rentals.)
CEQA reform does not eliminate single family zoning in the state, as some had feared it might, but it makes conversions from empty suburban malls into multifamily projects near single family communities faster and easier too. Dean Wehrli, a Northern California-based principal with John Burns Research & Consulting, and host of the real estate-focused firm's New Home Insights podcast, theorizes about this possibility: 'Typically, a developer will look to maximize the unit yield, however, so again this might skew a bit more in favor of rental, but there will certainly be denser for-sale options too (e.g., attached townhomes).'
San Francisco real estate pro Arezou Shadabadi calls CEQA 'one of the biggest obstacles to housing development — even for small- and mid-scale residential projects that are otherwise aligned with local planning goals.' Over the last two decades she recalls, 'I've seen CEQA weaponized by local groups not for environmental reasons, but to block new housing.'
In San Francisco, she adds, CEQA reviews have led to 'absurd delays, which then translate into 'increased carrying costs, reduced project feasibility, and ultimately, higher prices for buyers. In Marin, where zoning is already restrictive and land is limited, CEQA has become a tool for litigation rather than conservation.'
New Home Purchase Potential
Many areas of that northern San Francisco Bay county are ripe for infill development, Shadabadi, says. If the new rules restrict what she calls legal abuse, 'we could finally see progress in increasing ownership housing stock in areas that have resisted growth for decades.' It may also have an effect on pricing, she adds. 'Anything that shortens the timeline and reduces uncertainty helps reduce costs. That may not lead to immediate price drops, especially in high-demand markets like San Francisco, but it should help temper price escalation and encourage more builders to re-engage stalled projects.'
San Diego real estate professional Michelle Silverman notes that in the coastal markets she has been specializing in for 35 years, 'builders will still need approval from the California Coastal Commission, which can take years.' She anticipates that the CEQA reform impacts will show up first on urban and inland areas near transit. 'I don't see more homes being developed in our coastal neighborhoods any faster than they are now.'
Parkin also anticipates that CEQA reforms will likely spur more rental units than for sale stock. 'It is plausible that for-sale condominium and townhouse projects that have been stalled in the past by CEQA litigation could move forward now,' she suggests, qualifying that they were likely begun when market conditions like interest rates were more favorable to homebuyers. 'While AB 130 and SB 131 are designed to immediately move these projects forward, potentially creating a small, short-term wave of for-sale construction, this effect could be limited and brief.'
Environmental Concerns
Parkin also cautions that there is still the potential for delays at the local level, and that the CEQA revisions could be challenged in courts.
One of the organizations that has already opposed aspects of the CEQA changes during the legislative process – while broadly supporting the need for more housing – is environmental nonprofit USGBC California. This is due to what it sees as 'thwarting the effective momentum and decades-long leadership in building energy efficiency by the State of California.'
CEQA reform has been a major legislative issue every year, executive director Ben Stapleton notes, 'We ourselves co-sponsored a bill earlier this year that would have provided exemptions for housing that was leveraging green building principles around reduced energy and water use, healthy materials, improved air quality, resilience, and community engagement.'
Acknowledging that CEQA has been misused in the past, he sees this reform as swinging the pendulum too far in the opposite direction. 'In particular, it remains to be seen what the intended and unintended consequences of freezing residential codes will be over time,' Stapleton contemplates. If it's successful in delaying residential building code updates until 2031, as intended, he anticipates it having huge implications on halting the state's progress toward carbon reduction and slowing or stopping building innovation. (California has long been a leader in supporting sustainable technology advancement through regulatory processes; the mainstreaming of ultra-efficient LED lighting is one illustrative example.)
Conclusions
Asked to predict whether these CEQA changes will empower more Californians to become homeowners, Wehrli responds that it's difficult to quantify, 'but unquestionably, these changes will help with affordability. Every housing unit realized that would otherwise not have occurred is an increase in supply that will help with pricing.' More generally, he adds, 'these changes are welcome in how they signal that California is more amenable to housing development.'
***
Author's Note: All interviews were conducted by email between July 3 and July 7.