Tuesday, September 25, 2007

Will the California Building Industry Continue to Attack CEQA?

For a number of years, the California Building Industry Association (CBIA) has roamed the halls of the Capitol, shouting “Housing Crisis, Housing Crisis.” This was part of their well-planning campaign to weaken California’s environmental protection and planning laws. Of course, with the median house price in California going through the roof, it was easy to get the attention of legislators who were well aware that more and more of their constituents were being priced out of the housing market.

And because of this valid concern, the developers saw their opportunity. They introduced a series of bills to solve the “housing crisis” by blaming the California Environmental Quality Act (CEQA) and the “red tape” a builder had to go through to get new housing approved.

But Sierra Club California was not buying that argument. We testified that CEQA was not the problem, and that industry has perpetrated a myth that the law is used neighbors and environmental groups to relentlessly sue applicants of proposed projects. In reality, hardly any CEQA actions go to court. But that fact did not deter the developers. They kept blaming CEQA and argued that if this law was “reformed” they could build housing in numbers that would make it more affordable to Californians.

The CBIA philosophy is that we can build ourselves out of the housing “crisis.” They imply that if they build lots of houses, more and more families will achieve the “California Dream” of home ownership. But their roadmap is highly flawed. It’s not just about how many homes are built, but where and how. In their world, environmental and social considerations are secondary to home ownership (and builders profits). However, Californians care a lot about quality of life issues, with their number one concern (above crime, pollution, and education) being traffic congestion. It’s a fact that building traditional low-density sprawling subdivisions far from jobs is significantly contributing to commute times and traffic congestion. This exacerbates global warming by increasing vehicle miles traveled and making a permanent commitment to these auto-centric developments, while eating up farmland and open space at an alarming rate.

The vast majority of builders also do not give potential homebuyers much choice in housing. When was the last time you saw a new home for sale in one of these subdivisions that was “only” 1,500 or 1,800 square feet, thereby making the house more affordable? Save for a few infill builders, the industry has promoted the bigger is better model.

We know that the period of 1999-2005 saw the industry build a lot of homes. But did prices go down? No -- they skyrocketed, with double-digit increases in the median house price every year in nearly all corners of the State. The industry made record profits during these years and the stocks of the publicly traded companies went through the roof. They used some of these profits to fund their lobbying efforts at the State Capitol. They also produced a “road show,” traveling around the State holding news events, often with a concerned locally elected official at their side, citing the awful statistics about housing prices and what the Legislature should be doing about it (pass the BIA’s sponsored bills). It was all an orchestrated effort to have CEQA rolled back and to see if they could get the Legislature to neuter local government’s authority over housing approvals.

We fought the legislation they sponsored and at every hearing testified that CEQA had not been made tougher in its 35 years of existence, and that the real culprit behind the huge rise in housing prices was historically low interest rates. We urged the Legislature to not let the CBIA get the upper hand during this period when there was panic about housing prices. Thankfully, the Legislature did that, rejecting almost all of the bills the CBIA backed; with some damage being done around the edges.

While not an economist, I think my arguments about interest rates make sense. But, let me bring in Alan Greenspan, who is an economist. In a recent interview with an Austrian magazine, he said that low interest rates in the past 15 years were to blame for the house price bubble, and that central banks were powerless when they tried to bring it under control. He went on to say that deregulation and the introduction of market economies in the Communist bloc after the Berlin Wall fell in 1989 had caused a global boom and a worldwide reduction of interest rates, which both helped fuel the property bubble.

In a Yahoo News story Greenspan said "There is no doubt about the fact that low interest rates for long-term government bonds have caused the real estate bubble in the United States. The Federal Reserve began a series of interest rate increases in 2004. We were hoping to bring the speculative excesses in the real estate sector under control. We failed. We tried it again in 2005. Failure; nobody could do anything about it, neither us nor the European Central Bank. We were powerless."

So, it remains to be seen if the CBIA will attack environmental and planning laws again. If they do, they will be particularly brash given what has happened since July of 2005 when the bubble started to burst. In the aftermath of their record profits, developers all over the State are leaving building permits on the table, not wanting to bring more units into a very slow market. I guess I can’t blame them – if I was a builder, I would bring yet another 2,800 square foot home for $600,000 into the market today?

But let’s hope they don’t point their finger at CEQA once again. Instead, I hope they sit down with environmental groups, local government, and affordable housing advocates and seriously tackle true streamlining of the planning and building process and making new development more efficient. And, I hope that the issue of global warming is front and center in these discussions, as this is the issue that truly trumps all others. The current climate change path we are on will lead to economic chaos in California and not just in the housing sector.

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