Two birds, one executive order: Will Newsom's latest order ease the housing crisis?

The California housing crisis has led to home values and rents being among the highest in the nation. As a gubernatorial candidate in 2017, Gavin Newsom pledged to help develop 3.5 million new housing units by 2025. Since taking office in 2018, Gov. Newsom has invested $40 billion in affordable housing production, enacted various housing streamlining bills into law, and championed the creation of a California Department of Housing and Community Development (HCD) Housing Accountability Unit to hold cities and counties accountable to plan and permit their fair share of housing. In 2022, Gov. Newsom tempered his ambitious housing goals, settling on a still aspirational target of 2.5 million new homes by 2030, including at least one million affordable homes. Critics note the state remains far from on track to meet the governor's revised goal despite billions of dollars spent and strenuous efforts expended to eliminate housing obstacles.

In the latest effort to achieve the state's housing goal, the governor announced awards totaling nearly $94 million to build infill housing developments and issued California Executive Order N-2-24 ("Order") on Aug. 2, 2024. The Order builds upon previous legislative and funding efforts to transform undeveloped and underutilized infill sites and buildings into housing. The Order specifically focuses on infill housing development and adaptive reuse to promote creative housing solutions while simultaneously helping to meet the state's climate and sustainability goals. Infill housing is touted as being a potential pathway to reinvigorate downtown corridors, prevent urban sprawl, reduce greenhouse gas emissions by reducing miles traveled, and create homes near community amenities, jobs and schools. Adaptive reuse involves repurposing buildings for housing where the original purpose of the building is no longer productive or useful and is intended to have similar community and environmental benefits. The Order directs state agencies to take actions necessary to lower costs and promote affordable infill housing and adaptive reuse projects in California.

The Order provides policy objectives and direction to relevant state agencies, including the Governor's Office of Land Use and Climate Innovation, California Department of Housing and Community Development (HCD), California State Transportation Agency (CalSTA), and the California Air Resources Board (CARB), among others, to identify and address obstacles to the development of infill housing and adaptive reuse. The Order provides the following general directives to state agencies:

·         Lower costs and increase options for infill housing. The Order directs HCD to identify and explore opportunities to update the 2025 California Building Standards Code to lower the cost of, and increase flexibility for, infill development.

·         Providing more resources for infill housing and adaptive reuse. Various state agencies are directed to investigate available resources for infill housing and adaptive reuse, including leveraging federal and private capital, investigating uses of revolving resources and loan repayments, and identifying available federal transportation funds. The Order specifically directs agencies to consider infill housing and adaptive reuse as important environmental mitigation tools that may be eligible for federal decarbonization or other climate-related funding.

·         Providing tools and opportunities for infill and adaptive reuse. The Order directs state agencies to publish resources and guidance to assist developers and other stakeholders in identifying statutory streamlining opportunities, such as the Site Check tool (https://sitecheck.opr.ca.gov/); publish information about Accessory Dwelling Units (ADUs); and investigate best practices adopted by other states and nations to encourage the revitalization of downtown and urban cores via the reuse of existing buildings.

·         Aligning infill housing development with state climate policies. The Order directs state agencies to develop a framework for a Statewide Mitigation Bank by Dec. 31, 2025, to provide flexibility in the use of infill housing as a mitigation strategy for transportation and housing projects with significant environmental impacts under the California Environmental Quality Act (CEQA). Conceptually, a project could "bank" or potentially purchase environmental mitigation credits through an exchange that may be used to offset unavoidable impacts to natural resources caused by proposed activities or development. The idea is not unprecedented as mitigation banks are already used in the context of wetlands conservation, but several details will need to be worked out, including whether the exchange should be local or regional, the time scale of mitigation efforts, and a system for auditing reduction of environmental impacts.

It remains to be seen precisely how agencies will implement the Order's directives and whether such agency actions will help the governor meet his ambitious housing goals. If successful, the Order may dispatch two birds with one stone by creating new opportunities for infill and adaptive reuse projects for developers and helping local agencies meet their state-mandated housing goals, while simultaneously contributing to the state's climate goals. Interested parties should keep a close watch as more information develops regarding changes to the California Building Standards Code, newly available funding opportunities, and mitigation bank opportunities within the context of infill housing development and adaptive reuse.