The Golden State Dystopia Gets a Reprieve

Gavin Newsom did the right thing for once, but his order is only temporary. If California is to be saved, its absurd environmental regulations need to be permanently repealed.

Southern California has been burning for more than two weeks, causing untold devastation across more than 60 square miles. Twenty-seven people have lost their lives, and thousands of structures, including homes and commercial property, have already been destroyed. While efforts at containment appear to be making progress, the fires continue to burn.

Even before the flames have been fully extinguished, discussions about rebuilding have begun. On January 12, California Governor Gavin Newsom signed Executive Order N-4-25, waiving provisions of the California Environmental Quality Act (CEQA) and the Coastal Act for those rebuilding their homes in the aftermath of the wildfires.

The state has been living under these regulations for a long time. The CEQA was established in 1970, signed into law by then-Governor Ronald Reagan. Over the decades, it has slowly grown more burdensome, requiring developers to prepare extensive reviews of their development plans, produce and publicly circulate detailed environmental impact reports, analyze the impact on traffic, air quality, noise, and wildlife impacts, and implement mitigation measures.

Although these rules are ostensibly about protecting the environment, they have long been criticized for delaying or even halting building projects in California, and making them prohibitively expensive. They are frequently exploited by special interests and residents intent on preventing new projects from moving forward. Labor unions, for example, have frequently used the threat of lawsuits to secure higher wages from developers, while some homeowners leverage the law to slow or block construction they believe would alter their neighborhoods.

Ironically, rigid environmental policies like the CEQA also tend to undercut environmental goals, rather than support them. Limiting housing construction in urban centers frequently causes sprawl, increasing automobile commutes and carbon emissions. Lengthy permitting also stalls efforts to thin overgrown forests or create firebreaks, potentially worsening future wildfire risks. Add in the hostility toward even essential infrastructure projects — like desalination plants or water storage facilities — and one sees how well-intentioned rules can backfire, leaving communities more vulnerable to crises they were meant to prevent.

The suspension of these rules is certainly the right move for those seeking to rebuild. The last thing that anyone needs after suffering a catastrophic personal loss is to deal with heavy-handed, extortionist bureaucrats and pointless project delays.

Newsom’s order does invite a question, though: if these regulations are an unnecessary hindrance for those recovering from the wildfires, why are they necessary at all? If, as we are frequently told, these types of environmental rules are indispensable, why then can they be tossed aside the moment they prove inconvenient?

The answer to both questions is obvious, and by waiving provisions of the CEQA and the Coastal Act, Newsom is unintentionally acknowledging that these rules impede development at a time when the state desperately needs more housing.

Like most of the rest of the country, California has a largely self-created housing crisis, with an insufficient amount of housing supply being available to meet demand. This isn’t a new problem, and it has been festering for years. Yet it is a problem that should not exist.

In virtually any market, including the housing market, supply and demand are regulated by prices, which serve as signals to both consumers and producers. When demand increases, prices rise — as they most certainly have done in housing — signaling to developers that a shortage exists, and providing them a powerful incentive to satisfy the outstanding demand. As supply increases, prices begin to cool off and consumer competition for the limited good decreases, bringing the market to a relative equilibrium. This, of course, works in reverse as well.

In a market like housing, prices have remained high and supply has not come anywhere near meeting demand. There is a reason for this: central planners in the Golden State — and indeed much of the rest of the country — have sought to control as much of the housing market as they possibly can, instituting one counterproductive policy solution after another. California today is overrun with affordable housing mandates, rent control ordinances, constrictive permitting fees, and the aforementioned environmental regulations contained within CEQA. Local governments tend to make the problem even worse, adding in their own permit fees, zoning restrictions, and discretionary reviews, compounding delays and costs.

These policies prevent the equalization of supply and demand by warping price signals and interfering with the production of new housing. By making development more expensive, it disincentivizes builders from building. By slowing projects down, it delays supply from entering the market. As prices remain stubbornly high, consumers are priced out of housing options, increasing demand and exacerbating the problem.

The broken market will then cause consumers to demand politicians “solve” the problem. Politicians, for their part, are all too happy to use these dysfunctions to cast themselves as problem solvers intent on fixing things. Newsom, for instance, talked a lot about the housing crisis in 2017 during his first campaign for governor, promising the people of California that he would “lead the effort to develop the 3.5 million new housing units we need by 2025.”

This is a goal the state has not come anywhere near meeting.

The insidious behavior of the political class doesn’t end with their constant promises to fix problems of their own making. It grows even more reprehensible when they suspend rules that they once labeled essential — as Newsom just did — so they can claim credit for spurring emergency relief. Doing so is meant to position them as both environmental champions and crisis managers, but they are neither. Then, when the cameras turn off and the public stops paying attention, those same rules tend to snap back into place.

This cyclical approach satisfies the short-term need for quick action but does nothing to address long-term affordability problems. So while Newsom’s executive order is, technically speaking, the right move, it is likely all for show, and will do nothing to fix what is broken in California.

The state will only begin to solve its housing problems — including those that affect the victims of the wildfires — when it decides to walk away from the government-centric “solutions” that it has pursued for decades. And there is no better place to start than making Newsom’s suspension of the CEQA permanent.

This post originally appeared in the American Institute for Economic Research’s “Daily Economy” publication