This white paper is Part 2 of a series on making California more affordable. Read BESI director Paul Pierson’s series introduction and view other installments:
To view the full white paper, keep reading online or view the PDF.
The primary driver of California’s unaffordability and poverty is our high cost of living. As we discussed in the series’ first installment, California is the highest-cost state in the country. Yes, California has relatively high incomes, which partially explain high costs. But California’s metro areas are systematically higher-cost than similarly affluent metro areas in other states. This leads to all sorts of problems, including poverty and out-migration.
This installment is our first of several offering diagnosis and prescription for reducing California’s high cost of living. In our analysis, the foremost driver of high costs in California is a policy regime that makes it difficult to build the physical infrastructure we need to deliver housing, energy, water, and other essentials. Growth restrictions drive unaffordability primarily by reducing housing supply and increasing housing costs. They also contribute to high energy and transportation costs by increasing the price tag on critical public infrastructure — creating downstream costs for consumers. This paper shows how growth restrictions drive unaffordability and offers a path forward to achieve lower costs.
In short, California must foster sustainable growth. The state has taken important steps in recent years to increase housing supply by addressing onerous zoning and environmental review. The next critical step is lowering the cost to build. Additional regulatory reforms that target, for instance, the high impact fees local governments levy on new developments would lower building costs and generate more units. But there are other important policy levers to reduce the cost to build outside of regulatory reform that the state should pursue.
First, California should adopt a holistic industrial policy to encourage the growth of factory-built housing in California. Incorporating more manufacturing processes into homebuilding has great potential to reduce the cost to build, but current regulatory and financial processes are designed for the conventional site-built model. State policy reforms are critical for achieving the cost reductions — and ultimately, lower housing costs — that factory-built housing can offer.
Second, the state should adopt innovative financing models to spur production of the sorts of housing the state needs most: affordable units in transit corridors. In a context of relatively high interest rates, the cost of capital is a major barrier to the production of affordable units. Following the model of several other states, the California state government could capitalize revolving loan funds that subsidize the cost of capital for developments that address core state needs.
Zooming out from housing, California needs to address broad permitting challenges that increase timelines and costs for critical physical infrastructure. A recent report from the California Assembly Select Committee on Permitting Reform highlights several promising reforms for streamlining permitting and lowering the cost to produce the infrastructure the state needs.
And finally, California needs to bolster statewide land use planning. The last formal statewide land use vision was published in 1978, and several of the state’s main land use planning regimes are uncoordinated. Greater coordination and holistic planning can ensure that California can facilitate growth without compromising on environmental goals or worsening unaffordability by building in wildfire zones.
The politics of growth in California are fraught. The mass public broadly wants lower housing costs, but is uncertain about policies needed to get there. More troubling, the legacy of growth restrictions in California has given rise to a set of powerful organized interests — including unions, nonprofits, and cities — that can benefit from gumming up growth and often advocate against pro-growth policy reforms.
Political science analysis and the lessons of the past decade of reform efforts in California point to two recommendations for overcoming political obstacles and achieving durable reforms. First, it is critical that governors leverage their immense power, particularly in the budget process, to prod the legislature on pro-growth reforms. And second, pro-growth advocates must broaden their coalition by making inroads with organized labor, certain nonprofits, and cities. One way is through policy reforms that can shift the incentives of these actors. For instance, if the state paid cities a dividend for the new housing they produced, city officials would likely be much less averse to pro-growth state policy measures.
High housing costs are the single-biggest driver of unaffordability in California. And the biggest driver of high housing costs is an acute shortage of housing. Estimates of the magnitude of the shortage vary, but there is broad agreement that stabilizing prices will require upping annual production of homes by tens of thousands of units.1
The main culprit behind California’s housing shortage is a set of rules and regulations — mostly at the local level — that make it difficult and costly to build. California grew rapidly from 1900 through 1970, but the negative impacts of growth triggered a powerful backlash that also coincided with a burgeoning environmental movement. The turn against growth, in combination and in concert with other factors like racial exclusion and fiscal zoning, led to the adoption of public policies that made it easier for project opponents to block new development. We present an array of evidence linking growth controls with less homebuilding and higher housing costs.
We also present evidence showing how, apart from housing, growth restrictions have made it difficult and expensive to build all sorts of physical infrastructure needed for our energy, transportation, and other critical systems. This too drives up costs for Californians.
There are political reasons why California has struggled to establish policies that remedy our housing shortage and inability to cost-effectively build physical infrastructure. For one, the public’s attitudes on growth are mixed, despite broad agreement regarding the problem of high housing costs. The legacy of growth restrictions has also empowered a set of organized interests that draw benefits from blocking growth. These groups have regularly leveraged their political power to block pro-growth policies.
An emergent “Yes In My Backyard” (YIMBY) movement capitalized on housing affordability concerns to push critical reforms through in 2025. Among other important measures, California passed laws reforming the California Environmental Quality Act (CEQA) and preventing localities from blocking housing near transit. But there is much more to do. We discuss a number of other avenues for reform from 2026 forward. These include regulatory reforms to reduce the cost of construction, promoting construction innovations like factory-built housing, implementing new financing methods for housing growth, streamlining permitting across sectors, and bolstering statewide land use planning.
Of course, these measures will face political obstacles. We discuss two steps conducive to their success given the political challenges. First, it is critical that the governor leverages their immense power in the budget process to promote sustainable growth, as Governor Newsom did in 2025. And second, advocates need to think creatively about ways to expand the pro-growth coalition — and fragment the anti-growth coalition.
Growth restrictions exist for a reason, but to make California more affordable the pendulum needs to shift towards fostering growth. With that said, not all growth is necessarily good for affordability. For instance, new development in wildfire zones may worsen California’s broader affordability problem by increasing insurance rates. California can and should decide how to grow, but choosing not to grow is a recipe for worsening unaffordability.
In this paper, we start by briefly reviewing the history of California’s turn against growth, and the growth-restricting policies that were put in place. We then review the empirical evidence linking these growth restrictions primarily to high housing costs, but also to high costs for transportation and energy. Next, we discuss how growth restrictions have worked to generate a complex of actors and interests that benefit from blocking development — and that use their political power to resist the streamlining measures California needs to grow. We then move to the solutions. We discuss recent policy progress and propose several areas of continued policy reform. And finally, we propose upstream institutional and strategic measures that can promote durable growth-promoting policy despite the difficult political challenges.
Between 1900 and 1970, California saw rapid population and economic growth. In 1900, the population was around 1.5 million — just 2 percent of the U.S. population and approximately the size of the city of Chicago at the time. By 1970, the population had grown 13-fold to nearly 20 million. The whole country grew a lot over this period, but California led the way. As an indication of California’s relative growth, between 1928 and 1968, the state picked up 27 electoral votes, taking it from just 13 to 40.
California’s political leaders at the state and local levels were largely supportive of growth. In his 1959 inaugural address, Governor Pat Brown characterized California’s explosive growth as “magnificent.” Leaders leveraged public policy and public investment to facilitate growth. The Collier-Burns Act of 1946 raised gas and diesel taxes to create a dedicated stream of revenue for highway construction. The California Water Project, a massive system of dams and aqueducts, was constructed in the 1960s to transport water from the north of the state to growing urban areas and farmlands in central and southern California. Between 1957 and 1966, nine state colleges were opened, and the University of California system expanded from two major campuses to eight.
Alongside the benefits, California’s rapid growth carried real costs: the destruction of old-growth forests, air pollution, water pollution, and mounting congestion.2 These costs contributed to a cultural and political shift in the 60s and 70s against growth. This turn was driven in part by a growth-skeptical, burgeoning environmental movement in California. For instance, the Sierra Club’s director David Brower commissioned Stanford biologist Paul Ehrlich to write the Malthusian tract The Population Bomb. Ehrlich’s book quickly became a foundational text for the environmental movement. In 1973, an Atlantic Monthly reporter wrote: “California is caught up in a mood of revulsion for the pace and nature of its own growth.”3
In stark contrast to his father’s pro-growth 1959 inaugural address, in 1975 incoming Governor Jerry Brown claimed that California was entering “an era of limits.” Indeed, in a number of cities, growth-averse challengers unseated pro-growth incumbents.4 In 1973, more than 70 percent of elected officials at an annual meeting of the League of California Cities cited environmental issues as a reason for their electoral victories.5
The turn against growth precipitated political, organizational, and policy changes in the 1970s, 80s, and 90s that would succeed in slowing down California’s growth machine — and also contribute mightily to California’s contemporary affordability problems. It operated alongside other important factors like racial exclusion and a general desire for increased citizen involvement in government decisions to generate a myriad of growth-slowing policies at multiple levels of government. The most consequential were zoning, environmental review, and Proposition 13.
Cities first gained the authority to regulate land use through zoning regulations via the Supreme Court’s landmark 1926 Euclid v. Ambler ruling. But zoning took off in the 1970s, with California leading the charge. Previously, zoning mainly served to delineate different areas for different uses of land (e.g., industrial versus residential). Zoning was also systematically leveraged to enforce racial segregation and exclusion, with cities enacting regulations like minimum lot sizes and apartment bans to keep out lower-income and non-white residents.6 In the 1970s, though, cities started using zoning more aggressively to control the pace of growth.
New zoning regulations in California took three general forms in this period. First, cities enacted explicit limits on growth. This type of regulation was pioneered in the city of Petaluma, which capped new residential construction at 500 units per year in 1972.7
Many other California cities would soon follow suit. Second, cities downzoned residential areas — for instance by lowering maximum floor-area ratios. And third, cities enacted “urban growth boundaries” that contained new development to a determined area, with the intent to preserve “green space.”
All three types of zoning regulations became much more prevalent in California in the 1970s, and research shows that areas of the state where residents were more concerned about the environment, and more concerned about Black-White integration, were more likely to pass restrictive land use regulations in this period.8
In 1970, Governor Ronald Reagan signed the California Environmental Quality Act (CEQA). Inspired by the National Environmental Policy Act (NEPA) signed into law months earlier, CEQA required state and local agencies to study and disclose the environmental impacts of proposed state or local projects by preparing an Environmental Impact Report, and mitigate or avoid those impacts when feasible. A number of other states followed California in enacting ‘mini-NEPA’s’ in this period, but CEQA stands out for its breadth, procedural requirements, and litigant-friendliness.
CEQA has been characterized as “the key to understanding planning in California,”9 but its impact in the first few years after enactment was minor. This changed in 1972 with the California Supreme Court’s Friends of Mammoth v. Mono County ruling. Siding with residents of Mammoth Lakes who were challenging a new condominium development complex, the Court ruled that CEQA applied “not only to situations in which the government itself engages in construction, acquisition, or other development, but also to those instances in which the state regulates private activity.”10
The ruling massively broadened CEQA’s scope. It had immediate effects. San Francisco temporarily halted new building permits until legal issues could be clarified.11 Within two years, California government agencies were processing 4,000 EIRs every year.12
CEQA is enforced via legal challenges from citizens. It gives any resident, group, or business standing to challenge the government’s EIR on the basis that it does not sufficiently consider or plan to mitigate environmental impacts. Opponents of growth quickly recognized CEQA’s potential for blocking unwanted development. Even when they were a stretch, CEQA lawsuits were a vehicle for delay. Delay can have enormous financial costs for developers, often leading them to abandon projects.
The opportunities CEQA afforded, alongside the general turn against growth, led to the creation and growth of organized groups focused on monitoring development and fighting unwanted projects. And as the prevalence of CEQA lawsuits increased, lead agencies began “bullet-proofing” EIRs by providing hugely extensive documentation13 so producing EIRs became costlier and more time-consuming.
Real estate prices in California shot up in the 1970s. Growth restrictions had begun to take hold, while demand for California homes remained high. Nationwide home price increases and general inflation contributed, but the price rise was particularly dramatic in California. In 1970, the median California home was valued at $23,100. By 1980, it had nearly quadrupled in value to $84,500.14 As home prices rose, so did property tax bills, and property taxes became a major concern for middle-class families.
This was the context for Proposition 13, which was put on the ballot in 1978. It was a wide-ranging anti-tax measure, proposing to:
Passed in a landslide, the measure cemented California’s anti-growth turn. At the city level, it dried up revenues for local public infrastructure spending that might mitigate negative consequences of growth. In doing so, it promoted a dynamic whereby government services allocated to one resident might come at the expense of another.
It also incentivized cities to reach for other sources of revenue in ways that worked against housing production. Revenue-hungry cities began imposing “impact fees” on new development. These fees add to the cost of producing new units, meaning fewer projects are profitable to build, and the ones that do get built are inevitably more expensive for potential buyers and renters.15 Cities also began to favor commercial development, which could generate more revenue in the form of sales and other taxes.
Proposition 13 also reduced homeowners’ incentive to redevelop parcels and add units, since this would trigger reassessment and property tax increases. It also reduced turnover in the housing market by penalizing moves that would cause homeowners to lose their Proposition 13 benefits.16
The land use policy regime that emerged in the 1960s and 1970s in California has played a central role in preventing housing supply from keeping up with demand, thus fueling shortage and unaffordability in the contemporary period.
Housing in California was not always so scarce and expensive. Until the 1970s, increases in the housing supply moderated housing cost growth even as population and housing demand grew. In 1940, the median home value in California was 20 percent more expensive than the median U.S. home value. By 1960, this had risen to 27 percent, and by 1970, 36 percent.17 But by 1980, housing costs in California had begun to diverge from the rest of the country,18 and by 2000, the median home in California was 77 percent more expensive than the median U.S. home.19
Today, California has the most expensive housing in the nation, and it’s not close. According to the BEA’s regional price parity (RPP) data, in 2023, California’s housing costs were 58 percent higher than the national average and 18 percent more expensive than the next most expensive state, New Jersey.20 Buying a home is out of reach for most Californians who don’t already own. As of 2024, to qualify for a mortgage for a bottom-tier home a household would need an annual income of $136,000, about 33 percent higher than median household income.21
Even as California home values have grown at a faster rate than home values in the rest of the country, the number of new housing units produced in California has trended steadily downward since the mid-1980s — as demonstrated in Figure 1 below. What’s more instructive is that California housing production as a share of total U.S. housing production has steadily dropped. This runs counter to basic economic logic, whereby greater home values in California should generate a greater incentive to build.
Studies consistently estimate massive underproduction and shortages in California.22 For instance, economists Kevin Corinth and Hugo Dante estimated the gap between the number of homes that exist and the number that would have existed absent supply-constraining regulations for each U.S. state as of 2022. For California, they estimate a shortage of 4.5 million homes — more than 30 percent of the state’s housing stock and the second-highest shortage rate after Hawaii.
In another recent study, economist Cullum Clark used a wide array of demand-side and supply-side data (including physical constraints like mountainous terrain and coastline) to estimate the housing growth that would have occurred from 2010 to 2023 in all U.S. metro regions if they had roughly similar land-use regulations.23 He then computed housing production scores as the difference between the amount of actual housing growth that occurred and the amount predicted by the model.24 Clark’s finding are displayed in Figure 2 below. They confirm that California metro areas are generally some of the slowest growers.
Zoning, which directly restricts what can be built where, can be considered the first line of defense against housing production. The vast majority of California is still zoned only for single-family structures.25 Given that land is expensive in California, especially in coastal regions, limiting the number of units that can be built on that land inevitably drives up the value and cost of those units.
But zoning is only part of the equation. It interacts powerfully with California’s institutions of environmental review and citizen voice to delay, deter, and block housing production. Because of stringent zoning, developers often must obtain a conditional use permit, variance, or rezoning to build structures that do not conform exactly to existing zoning code. Doing so requires a discretionary review process, meaning local council members or planning commissions decide whether to grant the developer a permit. Indeed, some local governments require discretionary review, such as a site plan review, even for projects that are zoning-compliant.
Discretionary review in turn introduces an avenue for public opposition. It also triggers CEQA review, which opens up a powerful legal avenue for project opponents to delay (although 2025 legislation addressed this for infill housing). All sorts of groups — labor unions, nonprofits, and NIMBY homeowners, to name a few — regularly leverage this process to extract concessions and benefits from new development, causing delay and mounting costs.26
Beyond the zoning constraint, detailed legal analyses of the entitlement process (the process by which developers attain permission to build) in high-cost cities from 2014 to 2017 have shown that discretionary review, and all of the opportunities for blocking and delay it invites, has simply been the norm in many places — regardless of whether projects conformed with existing zoning.27 Between 2014 and 2017, Pasadena, Redondo Beach, Redwood City, Sacramento, and San Francisco all failed to allow any residential development to be permitted through by-right (non-discretionary) review.
These analyses also illuminate just how slow the permitting process is in some of the state’s most important housing markets. San Francisco was the worst offender, with a median entitlement time for multifamily structures of about two years.
Growth restrictions significantly raise housing production costs. A RAND study from 2025 showed the cost to produce the average market-rate apartment in California is about 2.5 times the cost to produce a similar structure in Texas on a square-foot basis.28 The authors point to California’s growth-restricting policies — including zoning and restrictive design requirements, extensive environmental review, and impact fees — as major factors driving California’s higher building costs.
Housing costs represent growth restrictions’ most pronounced contributions to California’s unaffordability problem. Yet by increasing the cost of building public infrastructure, growth restrictions also drive up the cost of other essentials like transportation and energy.
Evidence from public transit and electricity transmission projects highlights how excessive citizen voice and environmental review delay projects and drive up costs. Compared to peer countries, Americans pay a 50 percent premium per mile for transit projects, with our above-ground projects having similar costs as below-ground international projects.29 To be clear, the drivers of high public transit building costs in the U.S. are complex and multifaceted, but growth restrictions unquestionably play an important role.
A recent comprehensive report from the Eno Center for Transportation on U.S. transit costs cites delays generated from local pushback and legal action as contributing to cost discrepancies.30 Perhaps more damning, the study noted how agencies often respond to opposition by selecting routes that lead to less resistance but sacrifice project efficacy and public benefits. A case study of Los Angeles metro expansion finds that requests for project enhancements from neighborhoods and municipalities drove higher costs, while lengthy reviews and litigation associated with environmental review added time and cost.31
A recent study co-produced by UC Berkeley’s Institute of Transportation Studies and the Center for Law, Energy, & the Environment at Berkeley Law focusing on California public transit projects came to similar findings.32 Leveraging case studies of five California rail projects, the researchers found projects were two to three times as expensive as comparable international projects. Costly stakeholder outreach and litigation contribute to this discrepancy. The litigants challenging and delaying projects ranged from local opponents to organized labor to competing developers — showing the likely misuse of environmental regulation.
California’s growth restrictions also impede the buildout of essential electricity transmission infrastructure. Building transmission is critically important to affordably meeting California’s aggressive greenhouse gas reduction goals because it allows for the transfer of energy from areas of the state rich in renewable resources to major population centers. Yet, in a 2023 analysis, researchers at Clean Air Task Force (CATF) found that it took over a decade to build new transmission projects in California, and that California was much slower than other western states. A major factor, the researchers found, was the extensive and often duplicative permitting regime.33
The high price tag and long timelines for building public infrastructure in California generate higher costs downstream in two key ways. First, the costs of building infrastructure are often passed through directly to the public. For instance, highway construction and maintenance in California is funded through our relatively high gas taxes. Utilities’ costs for building transmission projects are funded through high
electricity rates.
Second, the high price tag on public infrastructure projects means that the public dollars we do allocate don’t stretch as far, so we end up with less infrastructure than we might if we were able to build at lower cost. This means fewer low-cost public services are available. Without sufficient public infrastructure, Californians must substitute private options, which tend to be more expensive. For instance, with better public transit options, it is likely that Californians would need to own fewer cars, which are costly to buy and maintain.
Prior to the 1970s, California’s growth was bolstered by a political coalition that included developers, labor unions, city planners, and elected officials — all with a shared interest in promoting development. For developers, growth meant profit. Growth allowed unions to expand and negotiate higher wages for their members. Growth filled government coffers so planners and elected officials could expand public services.
The growth restrictions that arose in the 1970s, though, have shifted the preferences of these interests, weakening and fracturing pro-growth coalitions. These restrictions also contributed to the development of a powerful anti-growth complex of actors and interests that use growth restrictions to extract concessions from development — and often block streamlining policies that reduce their capacity to extract.
Perversely, as growth restrictions have worsened California’s housing crisis and driven prices up, the extractable value from potential growth in high-demand regions has risen. With more at stake, groups that extract from growth have become more resistant to streamlining measures. Their efforts are assisted by a mass public that is skeptical of expanding supply as a remedy for high housing costs — despite strong scholarly evidence.
Traditionally, organized labor has been a core element of pro-growth coalitions in the U.S. But over the past decade, and starting with the blockage of Jerry Brown’s housing streamlining proposal in 2016,34 construction labor unions have acted as a core impediment to policies aiming to grow housing supply in California.
Why would construction unions, who are in the business of home-building, object to policies that promote more home-building? What is important to understand is that the vast majority of residential housing is now built using non-union labor.35 This contrasts with the booming post-war era, when nearly all construction workers were in unions.
The disparity between union and non-union wages has grown to the point that most market-rate projects nowadays would not “pencil out” (developer parlance for: be profitable to build) with union labor. As a result, the only projects using union labor are ones where developers are required or encouraged by law to hire union workers or pay union-level “prevailing” wages.36 These generally include publicly subsidized affordable units and large apartment structures in major metro areas. In the latter case, developers may agree to certain labor requirements to facilitate permitting.
Streamlining measures reduce unions’ ability to demand that developers pay prevailing (union-negotiated) wages or use only union labor. To streamline housing production while avoiding union opposition, California lawmakers have passed bills that only streamline projects with labor standards. While this can work politically, the high cost of labor means these policies often fail to meaningfully increase the housing supply.37
Like unions, California’s vast ecosystem of nonprofit groups wields considerable power in the state, and many have worked in coalition to block pro-supply housing policy reforms in California. Different types of nonprofit groups oppose pro-supply housing reforms for different reasons.
First off, organizations representing “neighborhood defenders” concerned about new development near where they live have worked together at the state level to oppose streamlining bills that would weaken their ability to prevent new housing from being built.
Environmental groups have also often opposed pro-supply housing reforms and CEQA reforms. Traditional environmental groups have long used CEQA to block or delay unwanted development. Even CEQA exemptions targeted at infill housing have been viewed skeptically by environmental groups fearing a “slippery slope” towards CEQA’s abandonment. Smaller environmental justice groups and community groups have often leveraged veto points in the permitting system to extract benefits or concessions, including set-asides for deed-restricted affordable units (units that are required to be rented or sold below market rates to individuals at specified levels of income) in new developments.
This all seems innocuous enough when looking at individual projects. But it is detrimental for the housing production system as a whole, adding significant delay, uncertainty, and costs for developers. Delay and uncertainty mean that fewer projects are profitable to build, and the ones that are built must produce strong revenue streams — meaning they must rent or sell at high prices.
Politicians have sought to mitigate opposition from environmental justice and community groups by adding requirements for the production of deed-restricted affordable units as a prerequisite for developers to benefit from streamlining. But, similar to labor requirements, these can erode the effectiveness of the legislation at achieving their core goal: housing production. Set-asides for affordable units reduce the profitability of potential projects for developers, meaning fewer projects will “pencil out” and be built.38
Like unions, the ecosystem of nonprofits engaged in land-use policy and decisions in California formed in a context of growth-restricting policies, and developed niches suitable to that policy regime. Pro-supply reform would erode the niches these nonprofits have carved out. As a result, they often propose a separate set of solutions for California’s housing costs, including rent control expansion and increased public funding for deed-restricted affordable units.
California’s cities have regularly banded together to oppose pro-housing state policy measures. As with unions and nonprofits, the prevailing context of growth restriction has shaped the preferences of cities. Because of Proposition 13, the ability of cities to grow their tax base by building homes is limited. Commercial development often provides a stronger value proposition. What’s more, more homes and more residents can drain public resources made scarcer thanks to Proposition 13.
Cities also may see streamlining measures as a threat to the ability of their community groups to extract benefits from new development, not to mention the ability of city officials to respond to their residents’ concerns about growth. Finally, cities (and particularly wealthy suburbs) may view state-level streamlining measures as a threat to their ability to exclude lower-income residents, who would use public services without padding tax revenue as much as higher-income residents.
In terms of individual attitudes, Californians broadly agree that housing is too expensive. In a 2023 PPIC survey, three in four said that housing affordability was a big problem in their part of the state.39 Yet voters are divided on the pro-growth measures that are needed to reduce housing costs long-term.
In a 2024 survey of Californians, PPIC asked, “Which of the following two statements comes closer to your views — even if neither is exactly right: the state government should ease current land use and environmental restrictions to increase the supply of housing or the state government should maintain current land use and environmental restrictions, even if it increases the cost of new housing?” Only 46 percent of Californians selected easing environmental restrictions to increase housing supply, and only 41 percent of homeowners. Renters were more supportive, but just a bare majority of renters chose the more pro-growth response.40
Recent research sheds some light on why Californians might express concern about housing costs, without necessarily supporting pro-growth policy measures. Despite a broad scholarly consensus, voters are skeptical of the link between housing supply and prices.41 Instead of attributing high prices to supply and demand factors, people often attribute high prices to bad behavior or excess profiteering from landlords and developers.42
Despite these political headwinds, the evident urgency of California’s housing crisis has led to significant progress over the past several years to promote greater housing supply. 2025, in particular, was a banner year for pro-housing reformers. We discussed earlier how excessive environmental review and stringent zoning have contributed strongly to California’s housing shortage and unaffordability. Both were addressed, if not fully, in 2025.
AB 130 addressed environmental review by creating a broad statutory exemption from CEQA for qualifying “infill” housing projects. SB 131 limits CEQA review for projects that narrowly miss exemption criteria, exempts required city rezonings from CEQA review, and adds exemptions for advanced manufacturing and daycare centers among other CEQA-softening provisions.
SB 79 preempts local zoning, establishing dense residential zoning near major transit stops. It includes affordable housing set-asides and labor standards, but at levels unlikely to be prohibitive for developers.
SB 79 builds on other steps the state has taken over the past decade to override local zoning. State law now generally requires localities to allow accessory dwelling units (ADUs) and lot-splits by right (that is, without a discretionary approval process). State law also now requires localities to submit zoning plans to the state that show how they will contribute to meeting regional housing production targets. Localities without approved plans may now be required to allow developers to build structures that may be non-compliant with local zoning rules.
It is too soon to determine the effect these bills will have. Even with this progress there is much more to do, both in the housing sector and beyond. Below we discuss a number of potential policy measures the state could take. Our goal is not to provide an exhaustive discussion, but rather to lay out the basic problems needing to be addressed and provide some potential remedies. Most of these proposals have already been suggested by experts or implemented in other parts of the country.
Researchers have found massive discrepancies in the cost to build housing between California and both Colorado and Texas.43 In recent years, the average apartment cost $430,000 to build in California, compared to $240,000 in Colorado and $150,000 in Texas. High costs to build mean that fewer projects are profitable, and the ones that are must generally be sold or rented at high prices.
At a basic level, construction costs include the “hard costs” associated with building itself, like labor and materials, and “soft costs,” which include architect fees, permitting, financing, and legal costs. Both could be reduced with pragmatic regulatory reforms.
On the soft costs side, permitting is a major challenge. Housing permitting in California is comparatively slow, which adds financing and legal costs. A RAND report recommends a “shot clock,” requiring jurisdictions to proceed within 30 days of application receipt.44 The California legislature partially addressed the issue in 2025 with AB 253, which allows home builders to hire certified third-party reviewers if local governments do not complete permit review within 30 days.
Another driver of high soft costs is impact fees. These are fees local governments levy on new development to fund infrastructure and services needed to accommodate growth. Impact fees are comparatively high in California, in part because Proposition 13 constrains tax revenue.45 The state could preempt localities from charging impact fees, and instead compensate them for the new housing they produce using state funds.
Reforming California’s state and local building codes could reduce both soft and hard costs.46 As we will discuss in greater detail in a forthcoming series installment, building code provisions often provide minimal safety, environmental, or quality benefits but can add significant cost. Building codes can drive up architecture, engineering, legal fees, and other soft costs. They can also increase hard costs — primarily materials and labor. For instance, the state building code generally requires midsize apartment buildings to have two stairwells for fire safety, despite the fact that there is little evidence of strong safety benefits. This regulation substantially increases per-unit labor and materials costs to build new housing.47
In the past half-century, the U.S. economy has gotten steadily more efficient at producing energy, medicines, consumer goods, and information technology. But not housing. Building a unit of housing today requires roughly the same amount of labor and capital as it did half a century ago.48 This is one of the core drivers of the high housing costs across the country and in California, in particular.
Productivity in the housing sector has barely budged in 50 years because we build homes today in much the same way as we did in the 1970s. Homebuilding remains highly labor-intensive, with the great majority of production occurring sequentially on-site. Incorporating more off-site manufacturing into homebuilding has great potential to improve productivity, allowing California to produce more units at lower cost and ultimately lower the cost of housing.49
A recent report from the Terner Center for Housing Innovation draws on 65 stakeholder interviews to explore the barriers standing in the way of expanding industrialized construction in California.50 Major elements of the housing production system — regulation, finance, codes, etc. — are oriented toward site-built construction. Adjusting these systems to accommodate factory-built housing can facilitate the sector’s growth.
The report identifies seven categories of state reforms that could help the industry get a stronger foothold in California. All of these should be explored, but we highlight a couple here. For one, accessing private financing for upfront capital investments in housing factories can be difficult. These investments carry significant risk given fluctuations in the housing market and regulatory uncertainty, so many financiers prefer to invest in traditional site-built development. The state could step in to de-risk investments in factory-built housing and draw in more private capital, for instance by giving projects that meet certain criteria access to state bonding.
Second, California’s current affordable housing financing systems align poorly with the realities of factory-built housing. This problem is widespread, but as one example, consider the Low-Income Housing Tax Credit (LIHTC), the state’s largest affordable housing finance program. Developers awarded LIHTC have six months to begin on-site construction, but factory-built housing generally features longer off-site construction timelines followed by shorter on-site installation. As a simple remedy, the state could modify this requirement for units that rely on factory production.
For developers to be able to build, potential projects must “pencil out” — meaning that the expected incomes from selling or renting units produced must exceed costs of production. Relatively high interest rates, a global phenomenon since 2023, cause fewer potential units to make the cut. High interest rates increase the cost of capital for developers, which increases the overall cost to produce a given unit of housing. They also increase mortgage rates for consumers of housing, meaning buyers cannot afford to pay as much. High interest rates thus stress the housing production system from both sides, and are one reason why the slew of streamlining bills California has adopted over the past decade has struggled to move the needle on housing production.
There are policy measures the state could take to lower the cost of capital for projects that align with the state’s sustainability and growth goals. One such tool is the revolving loan fund, which a number of other states have already implemented.51 The California state government could capitalize a fund that provides below-market-rate loans to particular projects — say, for instance, multifamily projects in transit corridors with a percentage of deed-restricted affordable set-asides. Developers could then use these loans to replace higher-cost ones as they raise capital, and they could also use them to secure other sources of private capital.
When loans are paid back, the capital can then be recycled to additional housing developments. Thus, unlike with most state programs that become a line item in the budget each year, the revolving loan fund could become a self-sustaining fountain of low-cost capital for much-needed multifamily housing units in transit corridors.
The revolving loan fund is just one of a number of potential ways that the state government could target capital costs to promote growth broadly aligned with state goals. For instance, the Terner Center has recently published a report on the potential for the state to leverage tax-increment financing to lower capital costs and promote urban development.52 This would in effect subsidize certain forms of development by allowing developers to use incremental tax dollars generated from growth as a source of financing.
In 2025, the California Assembly Select Committee on Permitting Reform released a report that demonstrates the scope of California’s permitting woes. The report shows that California’s permitting challenge extends well beyond housing, driving up costs for consumers and governments.
Based on stakeholder hearings and interviews, the report highlights systematic permitting challenges across four key areas of physical infrastructure: housing, energy, water, and transportation. It offers a number of best practices that, if adopted, could significantly improve California’s permitting regime and better facilitate the growth the state needs to combat unaffordability. Many are straightforward, like providing a clear application process with specific timeframes for review and coordinating better when projects require permits from multiple agencies. More broadly, the report recommends a framework shift towards treating permit applicants as partners and towards emphasizing outcomes over process adherence.
California could also explore the potential to build an integrated web platform for transparent permit tracking. Transparent and integrated permit tracking — which has been piloted in Virginia through the Permitting Enhancement and Evaluation Platform (PEEP) — can help builders manage projects, help agencies identify bottlenecks, and help politicians communicate progress to the public.53
There is already an abundance of land use planning in California. Unfortunately, much of it is uncoordinated and ineffective.
To the state’s credit, recent reforms to the Regional Housing Needs Assessment (RHNA) have made the process much more effective at planning for housing supply growth. In the RHNA process, the state establishes housing needs for each region, and regional planning agencies in turn allocate housing needs to their constituent cities. Cities then must produce plans (“housing elements”) showing how they can meet housing needs. Non-compliant cities face real consequences, including a green light for developers to build units not permitted under local zoning rules.
The other core planning process, the Sustainable Communities Strategy (SCS), has been much less effective. Established in 2008, SCS is meant to help the state achieve greenhouse gas reductions in the transportation sector. Similar to RHNA, the California Air Resources Board (CARB) sets regional targets for emissions reductions, and regional planning agencies generate land-use and transportation plans to meet targets. Unlike RHNA, though, the SCS process has little bite, in part because local governments are allowed to approve development plans inconsistent with the SCS, with minimal enforcement mechanisms.
As Sarah Karlinsky discusses in depth in a recent SPUR report, these two planning processes should be much more integrated, with a shared methodology and model for coming up with housing needs and greenhouse gas reduction targets.54
More broadly, Karlinsky proposes the creation of a planning agency responsible for developing and implementing long-run land use plans for the state. Statewide land use planning is currently done by the Office of Planning and Research, but a statewide planning agency would likely have more authority and capacity to develop and implement plans. This is a large and complex topic, but the sorts of reforms Karlinsky proposes that increase the capacity of California to effectively plan for growth — and balance environmental and other goals — can help the state to deliver durable affordability gains.
Measures like the ones proposed above to foster growth in California are likely to face strong political opposition. As we’ve discussed, a powerful interest group complex tends to resist pro-growth measures, and the public’s attitudes are mixed.
These political problems are not going away. But recent reform efforts have yielded important lessons about dealing with California’s difficult politics of growth.
First, strong leadership from the governor is essential. Indeed, the CEQA reforms pro-supply advocates achieved in 2025 depended on Governor Newsom using hardball budget tactics. Housing supply advocates had sought to reform CEQA for years without success due largely to opposition from politically powerful unions, environmental groups, and cities. In 2025, many of the usual suspects lined up against proposed CEQA reforms, and would likely have succeeded in blocking or weakening the legislation without Newsom’s intervention. The governor refused to sign the budget unless it included AB 130 and SB 131 (discussed above) as trailer bills. This put pressure on lawmakers, who had a hard deadline to pass the budget, and preempted legislative battles that would likely have watered down reforms.
The governor of California has significant institutional powers, particularly with respect to the budget. But until 2025, Newsom was largely unwilling to leverage those powers in service of housing production bills.
Electing a governor who will use their powers to prod the legislature on housing production, and growth more generally, is critical. That’s because the governor is the elected official best situated to make the sustainable growth the state needs a priority. As a general rule, people support the benefits development delivers but object to development near where they live. Localized land use decision-making thus produces a strong bias against growth. The problem is particularly bad in California, where large metropolitan areas like the Bay Area and Los Angeles, which should be major drivers of housing supply, are divided into a number of smaller cities and towns.
This puts the onus on the state government to implement the pro-growth policies needed to set California on a more affordable trajectory. At the state level, individual legislators tend to be more subject to pressure campaigns from organizations with a vested interest in gumming up growth. They are also more subject to the influence of NIMBY groups opposing new development in their districts. The governor, on the other hand, has a greater incentive to represent the broad interests of the state — and capacity to resist pressure from organized interests.
But even a pro-growth governor is constrained. A second critical political lesson from the past decade of reform efforts is the importance of building broad pro-growth coalitions. As we discuss above, a major challenge to charting a path towards sustainable growth and housing affordability is the influence of growth-skeptical vested interests. Overcoming this challenge requires expanding the pro-growth coalition and weakening the anti-growth side.
For instance, the participation of the California Conference of Carpenters in the pro-production coalition in 2025 was critical to the passage of streamlining bills. The pro-production position of the carpenters contrasts with the anti-growth position of the umbrella construction union, the State Building and Construction Trades Council. The carpenters’ split with the State Building Trades reflected a fundamental difference in strategy. Whereas the State Building Trades has focused on preserving high wages and employment for its current members, the carpenters took a broader view. They advocated policies that would deliver benefits for their current members and non-unionized construction workers — in part to make it easier to organize those workers in unions down the line.55
The endorsement of a major union made it easier for Democrats to vote for pro-housing legislation without being labeled “anti-worker.” More unions could likely be brought into the broad pro-growth fold. Indeed, major unions outside of the building trades like the Service Employees International Union (SEIU) also have a clear stake in producing greater housing supply, since housing costs are a huge cost for their members. So far, these unions have largely steered clear of housing policy debates out of respect for construction unions’ turf, but this arrangement could prove unstable as union members continue to struggle to find housing at prices they can afford.
Environmental groups represent another opportunity for coalition expansion. Some environmental organizations, recognizing the benefits of infill development for the environment and climate, have warmed to policies promoting infill housing. The range and diversity of environmental groups active in California is very wide, so openness to growth is likely to vary significantly. Having the support of environmental groups, like unions, is critical for Democrats to vote for pro-growth policies without risking the “anti-environment” label.
In addition to creatively organizing different types of groups that support growth measures for different reasons, advocates might consider state policies that shift organizations’ incentives in the direction of growth. For instance, to incentivize cities to support growth, the state could pay cities a housing growth dividend for the new units they produce. Or it could shift the allocation of property tax revenue assessed on new housing stock from the state to local governments. Of course, these both would burden the state budget in a period of structural deficits.
Unlocking growth could greatly ameliorate California’s unaffordability problem. But to be clear, in a broader context of price inflation, growth is unlikely to immediately reduce costs. Rather, if implemented well, policies that facilitate sustainable growth can flatten cost increases as incomes continue to rise — improving affordability over the long run.
What’s more, growth restrictions are not the only cause of unaffordability in California, and unlocking growth, therefore, is not the only solution. California’s cost problem is multifaceted. The other core driver of high costs in California is well-meaning regulations intended to promote safety, sustainability, and quality that too often fall on the backs of lower-income residents — and too often are not implemented effectively. Our next installment discusses how California can reform regressive regulations to improve affordability.
Finally, as we outlined in our first installment in this series, unaffordability is not just about costs — it also depends on people’s incomes and the benefits they receive from the government. Indeed, a powerful recent critique of the supply-focused approach to addressing housing costs argues that supply growth may not be enough to make housing affordable for low-income families in superstar metros like the Bay Area and Los Angeles.56 Future installments in this series will closely examine policy and governance reforms for increasing low-end incomes and more effectively leveraging government programs to combat unaffordability.
Thanks to Eric Biber, Chris Elmendorf, Kate Gordon, Emily Jacobson, David Vogel, and participants at the November 2025 workshop on unaffordability in California at UC Berkeley for helpful feedback. Any errors or omissions are the responsibility of the authors.
Footnotes
1. Lynn La, “So how big is CA’s housing shortage, anyway?” CalMatters, September 26, 2025.
2. Brian Potter, “How California Turned Against Growth,” Construction Physics
3. Jacob Anbinder, “Cities of Amber: Antigrowth Politics and the Making of Modern Liberalism,” Unpublished Dissertation, p. 326.
4. Brian Potter, “How California Turned Against Growth,” Construction Physics, August 8, 2024.
5. Jacob Anbinder, “Cities of Amber: Antigrowth Politics and the Making of Modern Liberalism,” Unpublished Dissertation, p. 371.
6. Richard Rothstein, The Color of the Law: A Forgotten History of How Our Government Segregated America, Liveright Publishing, 2017.
7. John Patrick Sheehy, “The Exclusionary Effects of Petaluma’s Growth Controls,” January 14, 2021.
8. Kristoffer Jackson, “Do land use regulations stifle residential development? Evidence from California cities,” Journal of Urban Economics, January 2016; Joseph Labriola, “The Race to Exclude: Residential Growth Controls in California Cities, 1970-1992,” Housing Policy Debate, December 2023.
9. Elisa Barbour and Michael Teitz, “CEQA Reform: Issues and Options,” Public Policy Institute of California
10. Jacob Anbinder, “Cities of Amber: Antigrowth Politics and the Making of Modern Liberalism.” Unpublished Dissertation, p. 362.
11. Ibid.
12. Ibid.
13. Elisa Barbour and Michael Teitz, “CEQA Reform: Issues and Options,” Public Policy Institute of California, April 6, 2005, p. 15.
14. Ibid.
15. Trevor Stockinger, Shelby Dunagan, Will Steichen, Ariege Besson, George Diamantopoulos, and Bubba Fish, “The Impact of Fees: Rethinking Local Revenues for More Multifamily Housing,” California YIMBY Education Fund, April 2024.
16. Paul J. Fisher, “The Role of Property Tax in California’s Housing Crisis,” May 5, 2023, Lincoln Institute Working Paper
17. Lee Ohanian, “Common-Sense Policy Reforms for California Housing,” Cato Institute, August 31, 2021.
18. “California’s High Housing Costs: Causes and Consequences,” Legislative Analyst’s Office, March 17, 2015.
19. Lee Ohanian, “Common-Sense Policy Reforms for California Housing,” Cato Institute, August 31, 2021.
20. Note that the 58 percent figure is much lower than the differential in median home prices between California and other states. This is in part because many homeowners locked in lower monthly payments by buying when homes were more affordable.
21. Alex Bentz, “California Housing Affordability Tracker (3rd Quarter 2025),” Legislative Analyst’s Office, November 6, 2025.
22. Ben Christopher, “California is losing population and building new houses. When will home prices come down?” CalMatters, May 15, 2023.
23. J.H. Cullum Clark, “Lessons from America’s fastest-growing cities,” Bush Institute, April 9, 2025.
24. A score of .1, for instance, indicates 10 percentage points more growth than predicted by the model (e.g., a growth in the housing stock of 30 percent versus 20 percent), and a score of -.1 indicates 10 percentage points less growth than predicted.
25. Moira O’Neill-Hutson, Eric Biber, Raine Robichaud, Giulia Gualco-Nelson, and Nick Marantz, “Examining Entitlement in California to Inform Policy and Process: Advancing Social Equity in Housing Development Patterns,” Prepared for the California Air Resources Board and the California Environmental Protection Agency, March 18, 2022.
26. Kate Talerico, “The California Law Blocking Too Much Housing,” Governing, April 21, 2025.
27. Moira O’Neill-Hutson, Eric Biber, Raine Robichaud, Giulia Gualco-Nelson, and Nick Marantz, “Examining Entitlement in California to Inform Policy and Process: Advancing Social Equity in Housing Development Patterns,” Prepared for the California Air Resources Board and the California Environmental Protection Agency, March 18, 2022.
28. Jason M. Ward and Luke Schlake, “The High Cost of Producing Multifamily Housing in California,” RAND Research Report, 2025.
29. Romie Aevaz, Brianne Eby, Paul Lewis, and Robert Puentes, “Saving Time and Making Cents: A Blueprint for Building Transit Better,” Eno Center for Transportation, July 2021.
30. Ibid.
31. Ibid., p. 99
32. Ethan Elkind, Katie Segal, Ted Lamm, and Michael Maroulis, “Getting Back on Track: Policy Solutions to Improve California Rail Transit Projects,” Berkeley Law Center for Law, Energy, & the Environment and Berkeley Institute of Transportation Studies, January 2022.
33. “Transmission Development in California — What’s the Slowdown?” Clean Air Task Force, January 2023.
34. Roland Li, “How construction unions helped kill Gov. Brown’s plan to fight the housing crisis,” San Francisco Business Times, August 23, 2016.
35. Caroline Raffetto, “California Construction Union Rates Hit Record Low,” Construction Owners Club, April 7, 2025.
36. Ken Jacobs and Kuochih Huang, “The Public Cost of Low-Wage Jobs in California’s Construction Industry,” UC Berkeley Labor Center, June 8, 2021.
37. “California’s Streamlining Laws: Lessons from the Field,” YIMBY Law, February 2025.
38. Shane Phillips, “Modeling Inclusionary Zoning’s Impact on Housing Production in Los Angeles: Tradeoffs and Policy Implications,” Terner Center for Housing Innovation, April 2024.
39. Mark Baldassare, Dean Bonner, Lauren Mora, and Deja Thomas, “PPIC Statewide Survey: Californians and Their Government,” Public Policy Institute of California, December 2023.
40. Author’s analysis of “2024 PPIC Statewide Survey: Californians and Their Government,” Public Policy Institute of California, June 2025.
41. Vicki Been, Ingrid Gould Ellen, and Katherine O’Regan, “Supply Skepticism Revisited,” Housing Policy Debate Vol. 35, Issue 1, 2025.
42. Christopher S. Elmendorf, Clayton Nall, and Stan Oklobdzija, “The Folk Economics of Housing,” Journal of Economic Perspectives, Vol. 28, No. 3, Summer 2025, pp. 45-66.
43. Jason M. Ward and Luke Schlake, “The High Cost of Producing Multifamily Housing in California,” RAND Research Report, 2025.
44. Ibid.
45. Trevor Stockinger et al., “The Impact of Fees: Rethinking Local Revenue for More Multifamily Housing,” California YIMBY Education Fund, April 2024.
46. Ben Metcalf, “California’s Building Code Appeals Process: A Quiet but Crucial Lever for Housing,” Terner Center for Housing Innovation, November 24, 2025.
47. “Small Single-Stairway Apartment Buildings Have Strong Safety Record,” Pew, February 27, 2025.
48. Austan Goolsbee and Chad Syverson, “The Strange and Awful Path of Productivity in the U.S. Construction Sector,” Becker Friedman Institute Working Paper.
49. Nick Bertram et al., “Modular Construction, From Projects to Products,” McKinsey and Company, 2019.
50. Stephanie Hawke, Julie Aguilar, and Tyler Pullen, “Potential Pathways to Scale Innovative Construction Methods in California,” Terner Center for Housing Innovation, March 2026.
51. Ashwin Warrior, “States roll out revolving loan funds to accelerate housing production,” Center for Public Enterprise, September 8, 2025.
52. Maria Hart and Ben Metcalf, “The Perils and Promises of Redevelopment: Examining the Use of Tax Increment Financing in California Cities,” Terner Center for Housing Innovation, June 9, 2023.
53. Samuel Roland, “Simple, Cheap, Effective, and Scalable: A Plug-and-Play Model for State Permitting Transparency,” Foundation for American Innovation and Recoding America Fund, October 2025.
54. Sarah Karlinsky, “Structured for Success: Reforming Housing Governance in California and the Bay Area,” SPUR, January 2024.
55. Jeanne Kuang and Ben Christopher, “Why one union became one of the most pro-housing voices in California,” CalMatters, July 10, 2025.
56. Maximilian Buchholz et al., “Inequality, not regulation, drives America’s housing affordability crisis,” London School of Economics and Political Science Working Paper, 2026.
March 12, 2026
California is less affordable and poorer than it should be given the strength of our economy. Part 1 of our white paper series on making California more affordable presents the basic facts on California’s unaffordability problem. Most strikingly, California’s high costs and insufficient incomes give California the highest poverty rate in the country when accounting for cost of living.
March 12, 2026
Read BESI director Paul Pierson’s introduction to our four-part white paper series on addressing California’s affordability problem.
April 24, 2025
Liberal-leaning states governed by Democrats have faced criticism in recent years for their high cost of living. This policy brief draws on rigorous data and evidence to analyze the blue-state cost-of-living problem. We show that the red-blue cost-of-living divide is driven primarily by high housing costs in blue states, which are in turn driven primarily by restrictions on growth in blue-state metro areas.
