Risks Remain for Housing Developers After Recent CEQA Reforms

In June 2025, significant reforms to the California Environmental Quality Act (CEQA) were enacted to promote housing projects in a state that desperately needs them. Much of the initial reaction was very positive, focused on how these changes would streamline the approval process and reduce project costs and delays. However, key aspects of the legislation threaten to reduce its potential value.

In particular, the legislation requires compliance with a tribal consultation process, as well as the cleanup of sites impacted by hazardous substance contamination. Motivated project opponents will also still find ways to slow or block projects, particularly through creative litigation claims.

An understanding of these potential pitfalls will assist developers in selecting sites and projects that provide a greater opportunity to take advantage of these CEQA reforms. These pitfalls also highlight the need for further CEQA reforms to encourage housing development.

New Reforms Bypass or Streamline CEQA Review for Infill Housing Projects

The recent CEQA reforms are contained in two new laws—Assembly Bill (AB) 130 and Senate Bill (SB) 131. Both seek to promote urban residential development by allowing projects to either avoid or streamline CEQA review.

AB 130 creates a new CEQA statutory exemption for urban “infill” housing projects and allows some projects to avoid environmental review even if they may have significant environmental impacts. To qualify, a housing project must meet certain requirements to show it will constitute infill development. Proponents of the bill generally expect that urban, multifamily housing projects will satisfy these requirements without significant difficulty.

SB 131 seeks to encourage housing projects that narrowly miss qualifying for a CEQA exemption by limiting the scope of environmental review for certain projects that fail to qualify for a CEQA exemption based on “a single condition.” Where SB 131 applies, it limits CEQA review to the environmental effects caused “solely” by that single condition.

But Potential Roadblocks to Infill Housing Development Remain

These CEQA reforms represent a significant step forward in responding to calls for incentivizing urban residential development. However, two aspects of AB 130 will, in some circumstances, reduce the potential for streamlining approvals and avoiding litigation risk.

Tribal Consultation Requirements

The first potential pitfall relates to residential projects on lands associated with tribal cultural resources. Although AB 130 streamlines the normal CEQA process, it still requires consultation with each California Native American tribe traditionally and culturally affiliated with the project site. The invitation must occur within 14 days of a “complete” application, and the consultation period concludes if no tribe requests consultation within 60 days. If a request is made, the consultation must conclude within 60 days (an initial 45-day period, plus a potential fifteen-day extension).

While this timeline will encourage projects to move through the tribal consultation process more expeditiously, tribal consultation is an important element of traditional CEQA review preserved by AB 130. The process can result in requests for measures to avoid significant impacts to tribal cultural resources that require changes to the project, including modifications to the footprint and design. Such changes may impact project costs and timing and ultimately, a developer’s ability to proceed. Moreover, if the tribe and developer cannot reach a mutually acceptable agreement on mitigation measures, the tribe (or other interested parties) may explore options for stopping or delaying the project, including opposing approval of the project and/or filing post-approval litigation.

Hazardous Substances Study and Cleanup Requirements

The second potential pitfall concerns projects on lands impacted by environmental contamination. AB 130’s statutory exemption does not apply to sites listed on DTSC’s Hazardous Waste and Substances Sites List (aka the Cortese List), which identifies sites with known releases of hazardous substances and cleanup actions. Many of the over 470 sites on the Cortese List are located in the urban areas targeted by AB 130 for infill housing development.

Even for sites not on the Cortese List, AB 130 requires a developer to complete a Phase I environmental assessment and, if necessary, a Phase II environmental assessment. Such assessments evaluate the current and historical uses of a property and the surrounding area to identify “recognized environmental conditions” (Phase I) and, where such conditions are found, require environmental testing to assess those conditions (Phase II).

The developer must also mitigate any hazardous substances contamination at the site per federal and state regulatory standards. This usually requires a developer to engage with governmental agencies to develop a response plan, which can result in significant costs and delays. Further, discovering contamination can also result in community opposition to the project, particularly if there are existing residences nearby, or there is concern about the impact of contamination on the community.

And Significant Potential Litigation Risk Still Exists

Although a CEQA statutory exemption or streamlining provision limits the nature and scope of litigation claims that a project opponent may assert, it does not eliminate litigation risk. An opponent may still challenge the CEQA lead agency’s decision to rely on the AB 130 statutory exemption by arguing that the project does not satisfy the conditions necessary for the exemption. Similarly, a project opponent may challenge the basis for a lead agency to rely on the streamlining provisions of SB 131.

Additionally, the narrowing of available claims under CEQA will only encourage project opponents to identify and file non-CEQA claims. For example, contamination issues can give rise to claims under California tort law (e.g., negligence, nuisance, trespass) as well as under federal law (e.g., a citizen suit under the Resource Conservation and Recovery Act).

Potential Further CEQA Reforms to Encourage Housing Development

While AB 130 and SB 131 reflect a serious effort to address how CEQA hinders development of urban infill housing projects, the limitations of these exemption/streamlining provisions highlight the need for further reform to spur development of such projects. Reforms worth considering include:

• Encouraging the use of mitigated negative declarations (MNDs) over more expensive and time-consuming environmental impact reports (EIRs) by replacing the lenient standard for judicial review of MNDs—which only requires a plaintiff to raise a “fair argument” that the project may have significant environmental effects, even where the record contains substantial evidence to the contrary—with the more deferential standard that is applicable to EIRs (requiring plaintiff to show there is no substantial evidence in the record supporting the EIR’s significance determinations);
• Discouraging meritless NIMBY litigation filed solely to impose costs and delays on a project, by replacing the current fee-shifting paradigm in CEQA litigation—which essentially allows only successful plaintiffs to recover via California’s “private attorney general” statute (Code of Civil Procedure Section 1021.5)—with a prevailing-party paradigm that allows successful defendants to seek recovery of some or all of their fees; and/or
• Creating an alternative state agency approval process for infill residential projects similar to the California Energy Commission’s program under AB 205, which allows renewable energy project developers to choose a consolidated state environmental review and permitting process in lieu of obtaining local land use permits.

The next legislative year will provide the first signs of whether 2025’s CEQA reforms were an isolated effort or the pioneering crack in the levee of traditional resistance to CEQA reform, at least with respect to much-needed urban infill residential development.

Reprinted with permission from the October 22, 2025 edition of The Recorder © 2025 ALM Global Properties, LLC. All rights reserved.