Major Legislative Move to Address Housing Shortage
On July 9, 2025, California Governor Gavin Newsom signed into law significant housing development reforms aimed at accelerating construction and addressing the state’s severe housing shortage. The new laws, designed to streamline the approval process for housing projects, will directly impact the development of new residential units, especially in high-demand urban areas.
The reforms target key elements of California’s complex regulatory framework, including the California Environmental Quality Act (CEQA), which has traditionally been a source of delay in large-scale housing projects. Under the new laws, urban housing developments, particularly those near public transportation hubs, will be exempt from certain CEQA reviews, allowing projects to move forward more quickly. Additionally, the reforms cover wildfire prevention and infrastructure development projects, which are critical to ensuring the sustainability of new housing in the state.
A Step Toward Increased Housing Supply
California is facing a housing deficit of approximately 2 million units, one of the largest housing shortfalls in the nation. The new legislation is designed to close this gap by streamlining the approval process for housing developers, encouraging them to build more affordable homes. According to state officials, this reform will expedite the construction of mixed-use developments and multi-family housing, which are crucial to addressing both the growing demand and the affordability crisis in cities like Los Angeles, San Francisco, and San Diego.
“This is a monumental step in solving California’s housing crisis,” Governor Newsom stated. “By cutting through red tape, we’re enabling the development of more homes where people need them most—closer to transit options, jobs, and amenities.”
The Role of Developers and REITs in the Reform Process
The new laws are expected to have a positive effect on real estate investment, particularly for Real Estate Investment Trusts (REITs) involved in multi-family and mixed-use developments. Large REITs, such as Essex Property Trust and AvalonBay Communities, are well-positioned to benefit from the regulatory changes, which will help reduce costs and timeframes for the completion of housing projects.
These reforms provide developers with greater certainty and faster timelines, encouraging more investment in the state’s real estate sector. The changes are also expected to attract more investment from both domestic and international buyers looking to capitalize on California’s long-term growth potential.
Long-Term Impact on Housing Affordability
While these regulatory changes will not immediately solve California’s housing shortage, they are a significant step in the right direction. Experts predict that the full effects of the new laws will become apparent by 2028 or 2029, as projects that have been delayed by regulatory hurdles begin to break ground.
The broader impact of these reforms could also include more sustainable development practices, as developers are encouraged to build with an emphasis on energy efficiency, environmental impact, and access to public transportation. These changes could ultimately lead to a more diverse and affordable housing market in California.
