This California Law Will Make Housing More Expensive

Last year, Governor Gavin Newsom signed several bills to reform the California Environmental Quality Act (CEQA), the 1970 statute that has long empowered opponents of development to delay or block new housing. Republicans and Democrats alike heralded the changes as a way to address the state’s chronic housing shortage and offer residents an easier path to the California Dream. “We’ve got to get out of our own damn way,” Newsom declared at the time.

But few noticed that tucked into one of the laws is a provision authorizing state and local agencies to impose substantial fees on new residential projects in the name of fighting climate change. The provision creates a hidden tax on housing that would otherwise be affordable for many families.

This provision, and the regime it sets up, is social policy cloaked in environmental rhetoric. Once again, California is blocking the path to making homeownership attainable, let alone affordable or abundant.

At issue in the law, Assembly Bill 130, is how CEQA treats “vehicle miles traveled” or VMT, associated with new development. Under CEQA, passenger vehicles traveling to or from a project during construction and for the first 20 years of occupancy create “impacts” equal to the estimated total mileage traveled. The “total” VMT for the project are then divided by a “per capita” VMT factor. Only projects with an estimated per capita VMT 15 percent less than the “average” per capita VMT for that city (or the entire county, if outside city boundaries) have “less than significant” VMT impacts, according to the regulation.

Projects that cannot meet the “less than significant” threshold must “mitigate” their VMT impact, either by finding ways to reduce driving below the threshold or, under AB 130, by paying a “mitigation fee” into government-run “mitigation banks.” These banks then disburse the funds to support projects elsewhere—such as transit service or subsidized housing—that in theory will reduce driving. For example, money could subsidize income-restricted apartments that cost more than $800,000 per one-bedroom unit to build in Los Angeles or San Francisco—four times the cost in Dallas. Or it might fund expanded bus service at costs exceeding $1 million annually on the theory that someone elsewhere will ride that bus instead of driving.

This model is an end run around more aggressive methods of reducing driving. Politicians understand all too well the political cost of, for example, raising gasoline prices, already nearing $6 per gallon in California—more than 40 percent higher than the national average. The state is instead using AB 130 to push the costs of reducing driving onto new housing construction. In practice, that means younger and less wealthy households shoulder the burden through even higher prices in a state where housing is already unaffordable.

The costs of complying with VMT mitigation requirements can be substantial. According to the Coalition for Affordable, Reliable, and Equitable Housing, VMT mitigation fees could reach a 20-year total of $324,000 per home or apartment—roughly $16,000 per year, or $1,350 per month.

The burdens of this regime fall disproportionately on middle-income households seeking market-rate housing, thanks specifically to two policy mandates.

First, the law automatically treats housing restricted to low-income residents as generating lower per-capita VMT. This means that median-income households pursuing the dream of homeownership must pay substantial VMT mitigation fees that subsidize “affordable” apartments elsewhere. It’s another income-redistribution scheme that makes homeownership even more unattainable.

Second, the law exempts from VMT mitigation fees any housing built within half a mile of high-frequency transit stops. In theory, residents who live near transit drive less; in practice, most of California’s high-frequency transit corridors run through the state’s most expensive urban areas. Land prices, regulatory barriers, and construction costs make new housing in these locations extraordinarily expensive, with even midrise apartment projects often requiring rents well above $3,000 per month. Meantime, transit ridership—in decline even before the pandemic—accounts for only a small share of daily travel.

The result is a policy framework that favors costly urban rental housing while penalizing homes built in the regions where most Californians actually live and work. Rather than address this regulatory dysfunction, state policymakers have created a system that extracts money from market-rate homebuyers to subsidize dysfunctional affordable-housing and public-transit regimes.

Nor will this anti-driving VMT policy meaningfully affect the global climate. California produces less than 1 percent of global greenhouse gas emissions, though some recent wildfire seasons have wiped out more than a decade of emission reductions achieved in the state through costly regulations. Meantime, California’s own climate agencies acknowledge that migration out of the state—often driven by housing costs—pushes households into regions with much higher per-capita greenhouse-gas emissions. Yet, under California’s climate accounting rules, those departures count as climate “successes” because the emissions occur beyond the state’s borders.

Californians support environmental protection, but not at the cost of making the state unlivable for families. If California truly wants to get out of its own way, it should start by repealing AB 130’s hidden tax on housing before it drives even more families out of the state.

Photo by Kevin Carter/Getty Images