Red Tape, Real Costs

California’s housing shortage is the cumulative result of decades of legislation — environmental review requirements, local control provisions, anti-density zoning — that made it structurally difficult to build at scale. The deficit isn’t entirely accidental. Entrenched interests including neighborhood groups, certain labor factions, and existing property owners benefit directly from scarcity: limited supply keeps land values high and gives litigation tools like CEQA outsized power to block new development. The people paying the price are renters, first-time buyers, and the construction industry trying to serve them.

Eliminating CEQA review for infill housing projects of 20 acres or less removed the single most powerful litigation tool opponents used to delay or kill urban housing projects. Within less than a year of the law taking effect, over 10,000 units have already been streamlined through the new process — a pace that significantly exceeds expectations. The more important effect for the private sector is the removal of open-ended litigation risk: developers and their lenders can now underwrite to a defined process with a binary outcome rather than an indeterminate timeline.

Construction lenders underwrite to timelines. An unpredictable permitting process — even a fast one — makes it difficult to set loan terms, project carrying costs, or assess completion risk. What lenders need is a defined timeline they can build into their underwriting, with enforceable consequences if a municipality misses it. Shot clock reform creates exactly that: mandatory decision deadlines for permitting authorities, with legal recourse when cities fail to comply. The specific number of days matters less than the guarantee that a decision will actually come. 

California’s impact fees — which can exceed $150,000 to $200,000 per unit before construction begins — are a direct consequence of Proposition 13, which froze property tax assessments at 1978 levels. Because cities are structurally starved of property tax revenue, they have compensated by loading the cost of infrastructure onto new development through impact fees. This creates a feedback loop: high fees make new housing more expensive, reducing production, which further strains city finances and perpetuates the fee structure. It is one of the primary reasons California’s cost per door is dramatically higher than comparable markets in other states.

Factory-built construction reduces cost by shifting labor from expensive urban job sites into controlled manufacturing environments, enabling parallel production, reducing waste, and compressing timelines. In markets like Sweden, where 85% of single-family homes are factory-built, the model has proven it can deliver significant per-unit savings. In California, scaling has been blocked by three specific barriers: 540-plus municipalities with bespoke building codes that force factories to reconfigure for each jurisdiction, a state requirement for CHP escorts on modular transport that competing states don’t impose, and developer reluctance to commit large deposits to manufacturers following the high-profile Katerra collapse.

The California Legislature is considering a proposal to create a state revolving fund designed to protect developers who commit to modular manufacturers if those manufacturers fail to deliver or go out of business. The fund would provide a financial reprieve — effectively a state guarantee — that reduces the counterparty risk that has made construction lenders cautious about financing modular projects since Katerra’s collapse. For lenders, this is a material change: if enacted, it shifts a meaningful portion of manufacturer default risk from the borrower’s balance sheet to the state, potentially making construction-to-permanent financing on modular deals significantly more viable to underwrite.

Modular construction achieves cost savings through repetition and volume — factories build the same configurations at scale to drive down per-unit cost. When each of California’s 540-plus municipalities maintains its own local building codes and reach codes, manufacturers cannot standardize their product across jurisdictions. Every new market effectively requires a new configuration, eliminating the production efficiency the model depends on. Legislation currently moving through Sacramento would establish a unified state code for modular construction that supersedes local variations, enabling factories to build at true scale for the first time.

Proposition 13 caps property tax growth based on past acquisition values rather than real-time market value, which means cities generate far less revenue from existing properties than a market-rate tax system would produce. To fund infrastructure and services required by new development, cities have shifted those costs onto builders through impact fees, exactions, and development charges. This makes new construction more expensive, which reduces the number of projects that pencil, which reduces housing supply, which keeps existing property values — and therefore existing owners’ political incentive to protect Prop 13 — high. It is a self-reinforcing cycle that structurally disincentivizes the housing production California needs.

Winning means a functioning housing market: enough production across all price points — affordable, workforce, missing middle, and market rate — that housing costs stabilize relative to incomes and the homelessness crisis meaningfully recedes. Assemblymember Wicks measures progress by whether young people raise their hands when asked if they think they’ll ever own a home. By that measure, California is not there yet. But the regulatory environment is materially less hostile than it was two years ago, and the legislative momentum — CEQA reform, permitting standardization, modular legislation — represents the most substantive policy shift in decades.

Show up. Wicks is direct that the construction and development industry has historically been less organized and less present in Sacramento than the interests opposing them. The most effective thing industry leaders can do is build direct relationships with legislators — not just through lobbyists, but in person — and bring specific, concrete examples of how current regulations affect real projects. Data matters: cost-per-door breakdowns, project timelines, deals that didn’t get financed because they couldn’t pencil. Legislators respond to constituents with specific stories, not general advocacy.