House payments

A new fee on development to pay for housing

The Legislature is on the verge of approving housing regulatory streamlining, part of which will make new housing in California more expensive.

The headline discussion of the budget implementation bill is exempting certain infill housing projects from review under the California Environmental Quality Act, known infamously as CEQA. Many housing projects, as well as other major infrastructure and economic development construction projects, have been delayed or leveraged under CEQA by rent-seeking special interests pursuing aims often with little to do with environmental protection. The effectiveness of this reform will hinge on whether infill housing developers believe the exemption afforded by the legislation is worth the higher construction worker wages and increased labor enforcement risk mandated by the bill.

The Legislature and Governor have appropriately identified CEQA as a culprit contributing to higher housing costs and vanishing housing affordability. The latest swipe at the law is commendable, as long as the trade-offs work to benefit the homebuyers or renters.

Which makes it all the more baffling why this same legislation creates a statewide fund for local governments to charge housing developers a new fee for affordable housing, which could run to hundreds of millions of dollars annually. And in an only-in-California flourish, the new fee is based not on some measure of local need for subsidized housing, but on how much the new housing development will add in automobile trips.

Let me try to unpack this.

For more than a decade, housing developers have been required by local governments, under CEQA, to mitigate the environmental effects of automobile trips, called vehicle miles traveled (VMT). The ostensible reason is that more or longer trips increase automobile emissions of criteria pollutants and greenhouse gases, although the California Air Resource Board has been aggressively regulating auto emissions to the point where, among other rules, in 2035 no new vehicles utilizing internal combustion engines can be legally sold in California.

But under CEQA this is superfluous, since this litigation tool need not account for regulatory efforts by other state agencies under their statutory police powers. It’s like suing to require suspenders when the belt lobby got there first. VMT regulation is aimed at residual emissions, but also sprawl, congestion, environmental justice and other impacts that can be aesthetic and oppressive, but may not be environmental.

Local agencies have long been requiring mitigation for transportation impacts under CEQA, securing agreements from housing developers that, for example, provide rideshare concierges, bicycle lanes, subsidized transit passes, and other amenities in their projects that reduce demand for automobile trips. The larger projects also integrate with nearby commercial and public services, and employment centers.

But when these “feasible” mitigations are exhausted, to use the parlance of CEQA, then the local agency can deem a developer’s obligations to be fulfilled, which makes some sense since the “science” of determining travel impacts from new housing developments are not so much laboratory tested as they are double-bank pool shots. “Feasibility” does a lot of work in CEQA, reasonably holding back the most aggressive impulses of project opponents by creating some constraints on mitigation measures based on whether they can be accomplished successfully within a reasonable timeframe, taking into account economic, environmental, legal, social, and technological factors. In fact, CEQA contemplates approving projects even if significant environmental impacts remain, because California needs hospitals, roads, clean energy generation and, yes, housing.

To this cauldron of uncertainty the Legislature has suggested charging a new fee.

The fee would be levied at the discretion of the local agency on new housing and other new developments, with or without the demand management tools discussed above, and would comprise full mitigation for transportation impacts of new housing.

Nobody knows the amount of this fee, how it would be levied, for how long, and on whom, because the legislation dumps all the important work on the Governor’s Office of Land Use and Climate Innovation, to be completed by July of next year.

But the most audacious part of the proposal is how the proceeds of this fee will be used. To expand local mass transit? No. Provide subsidized transit passes for new residents? Uh uh. For any transportation use or program at all? Nope.

Instead, the fee would be deposited in a state fund to subsidize affordable housing projects. The transportation veneer is that persons who live in subsidized housing apparently drive fewer miles, likely because some of this housing will be built in urbanized areas with transit. But while affordable housing programs are important and needed in expensive California, lawmakers should take a more direct route for the needed subsidies, like a housing bond issue being considered for the 2026 ballot.

When all is said and done, the VMT fee is merely a state version of “inclusionary zoning,” the controversial local practice that requires developers to subsidize a certain percentage of affordable housing units as a proportion of new residential developments. That is, pay for affordable housing by increasing the cost of market-rate housing.

The only certainty is that new fees on vehicle travel can be prohibitive. A 2023 study in Contra Costa County pegged VMT fees up to $20,000 per house, without even identifying which reduction strategies would be used. Government planning organizations, local agencies and law firms throughout California are gearing up for mileage fees. In 2023, the San Diego countywide transportation and planning agency was slapped down for proposing an expensive four cents-per-mile road usage tax.

To be sure, a VMT fee is an appropriate tool for the right uses.** Financing affordable housing is simply not it.

The Legislature and Governor are on the right track when it comes to narrowing the scope of CEQA litigation over vital public works and housing – especially within the merciless California political milieu. But elected leaders will go off the rails if they push through public policy that at the same time increases the cost and reduce availability of middle-market housing.

** I discuss the need to adopt a per-mile road charge to replace the faltering gasoline and diesel taxes that support highway, bridge and road maintenance and operation. This is a true user fee that has a strong nexus and direct benefit to road and highway users.