The Confluence of CEQA, Cortese-Knox, and Proposition 13: How California’s Housing Affordability Crisis Took Root

Since the 1970s, California’s housing landscape has been shaped by a trio of landmark laws: the California Environmental Quality Act (CEQA), the Cortese-Knox Local Government Reorganization Act, and Proposition 13. While each was enacted with good intentions—environmental protection, local government efficiency, and tax relief, respectively—their combined effects have profoundly influenced housing affordability and socio-economic outcomes in the state. Far from achieving a balanced equilibrium, the interplay of these laws has contributed to a chronic shortage of housing, skyrocketing costs, and deepening inequality, cementing California’s status as one of the least affordable places to live in the United States.

The California Environmental Quality Act (CEQA): A Double-Edged Sword

Enacted in 1970, CEQA was a pioneering environmental law aimed at ensuring that development projects undergo rigorous review to mitigate ecological harm. It requires public agencies and developers to assess the environmental impacts of proposed projects and, where feasible, implement alternatives or mitigation measures. While CEQA has undeniably preserved natural landscapes and forced accountability, its broad application has become a significant barrier to housing development.

CEQA’s Achilles’ heel lies in its susceptibility to litigation. Any individual or group can sue to delay or derail a project, citing insufficient environmental review, even if their motives are less about conservation and more about preserving local status quo—think NIMBYism (Not In My Backyard). Housing projects, particularly dense or affordable ones in urban areas, are frequent targets. Legal challenges can add years and millions of dollars to development timelines, driving up costs that are ultimately passed onto homebuyers or renters. A 2015 study by the Holland & Knight law firm found that CEQA lawsuits disproportionately target infill housing projects, with 80% of such suits filed in urban areas where housing shortages are most acute.

Cortese-Knox: Empowering Local Control, Constraining Growth

The Cortese-Knox Local Government Reorganization Act, originally passed in 1985 and later amended, governs the formation and operation of Local Agency Formation Commissions (LAFCOs). These commissions oversee municipal boundaries, annexations, and the provision of public services like water and sewer systems. The intent was to streamline local governance and prevent haphazard urban sprawl, but in practice, Cortese-Knox has empowered cities and counties to resist housing expansion.

Under Cortese-Knox, LAFCOs often prioritize maintaining existing community character and marginally productive agricultural land over facilitating growth. Wealthy municipalities, in particular, leverage their authority to block annexations or infrastructure extensions that would support new housing developments, especially in suburban or exurban areas. This dynamic clashes with California’s pressing need for housing. By decentralizing land-use decisions, Cortese-Knox has enabled a patchwork of restrictive policies that thwart regional solutions to the housing crisis. Cities that could absorb growth often refuse, leaving urban centers like Los Angeles, San Diego, San Jose and San Francisco overburdened and unaffordable.

 Proposition 13: Tax Relief with Unintended Consequences

Passed by voters in 1978, Proposition 13 capped property tax rates at 1% of a property’s assessed value (set at the time of purchase) and limited annual increases to 2%. It was a populist revolt against rising taxes, offering stability to homeowners, particularly the elderly. However, its long-term impact on housing and local government finances has been seismic.

Proposition 13 drastically reduced property tax revenue, a primary funding source for local services like schools, roads, and utilities. Cities, strapped for cash, turned to alternative revenue streams—namely, sales taxes and development fees. This shift incentivized commercial development (think strip malls and big-box stores) over residential projects, as the former generates immediate tax income while the latter often requires costly infrastructure investment upfront. A 2016 Public Policy Institute of California report noted that cities with high reliance on sales tax revenue tend to approve fewer housing units, contributing to the state’s housing shortfall.

Moreover, Proposition 13’s tax benefits disproportionately favor long-term homeowners, discouraging them from selling and freeing up existing stock. With property taxes locked at 1970s levels for original owners, newer buyers face a steeper burden, widening generational wealth gaps.

The Perfect Storm: Housing Affordability and Socio-Economic Fallout

Together, CEQA, Cortese-Knox, and Proposition 13 form a perfect storm of unintended consequences. CEQA delays and inflates the cost of new housing; Cortese-Knox entrenches local resistance to growth; and Proposition 13 distorts fiscal incentives and market fluidity. The result is a housing shortage estimated at 3.5 million units by the California Department of Housing and Community Development in 2025—a gap that has pushed median home prices to over $800,000 and average rents in major cities past $3,000 per month.

The socio-economic fallout is stark. Low- and middle-income families are increasingly priced out, forced into overcrowded living conditions or long commutes from cheaper exurbs—ironically increasing greenhouse gas emissions, contrary to CEQA’s goals. A 2023 UCLA study found that California’s housing costs exacerbate income inequality, with the bottom 20% of earners spending over 60% of their income on rent, compared to 30% nationally. Homelessness has surged, with over 180,000 people unhoused statewide in 2024, a crisis fueled by the lack of affordable options.

Young professionals and essential workers—teachers, nurses, firefighters—struggle to live near their jobs, eroding community cohesion. Meanwhile, the state’s economic competitiveness wanes as businesses cite housing costs as a barrier to attracting talent. Racial and class disparities deepen, as minority and lower-income households bear the brunt of displacement and rent burden.

A Path Forward?

Breaking this cycle requires reform. Streamlining CEQA to limit frivolous lawsuits, incentivizing regional housing plans under Cortese-Knox, and revising Proposition 13 to recalibrate fiscal incentives could unlock supply and ease affordability pressures. Yet, political leadership and solutions remains elusive while our residents suffer. Californians must demand a new path forward