After Certification: What Housing Element Inventory Designation Means for Your Project

Now that a majority of California jurisdictions have adopted Housing Elements certified as compliant by the state's Department of Housing and Community Development (HCD), a new question has come into sharper focus for developers, landowners and local agencies alike: What does it mean, practically speaking, for a property to be included on a jurisdiction's Housing Element sites inventory? Inclusion on the inventory is not merely a planning abstraction. It carries concrete legal consequences – some that create significant opportunities for housing development and others that impose obligations jurisdictions must carefully navigate. This Holland & Knight alert identifies three key issues that stakeholders should understand.

By-Right Processing for Certain Inventory Sites

California's Housing Element Law requires local agencies to rezone sites identified in the Housing Element sites inventory to allow "by-right" processing – that is, ministerial approval without a conditional use permit or other discretionary review – for housing developments in which at least 20 percent of units are affordable to lower-income households. This requirement applies to certain undeveloped sites identified in prior housing elements (colloquially called "recycled sites") and, separately, to any site's inventory site where the density projections exceed what is available under the preexisting zoning (in other words, sites that need to be upzoned to allow the densities projected in the housing element). See Gov. Code § 65583.2(c).

By-right processing is a powerful tool for project proponents because it removes the discretionary approval process that often invites delay, opposition and costly environmental review under the California Environmental Quality Act (CEQA). For projects that qualify, the entitlement path is significantly streamlined. Notably, this path does not require any labor obligations. HCD has issued technical advisories strictly reinforcing the application of these requirements.

Landowners and developers with properties on a jurisdiction's Housing Element inventory should evaluate whether their sites trigger the by-right rezoning mandate and, if so, whether the jurisdiction has taken the necessary implementing actions. Where a jurisdiction has adopted rezoning providing for by-right processing, it's important to understand the contours of the application process and any potential exclusions. Where a jurisdiction has failed to complete required rezonings, that failure may itself create additional legal exposure and project opportunities.

The "Mini Builder's Remedy"

The term "builder's remedy" has become widely recognized in California land use practice as a reference to the provision in the Housing Accountability Act that allows residential projects, including those with affordable housing components, to proceed when a jurisdiction lacks a compliant Housing Element. Far less discussed, however, is what might be called the "mini builder's remedy" or "baby builder's remedy" – a provision embedded in Gov. Code § 65589.5(d)(5)(A) that offers a distinct avenue for certain housing development projects even when a jurisdiction is in Housing Element compliance.

Under Section 65589.5(d), which applies to housing projects meeting defined affordability thresholds, a local agency may not disapprove a housing development project or impose conditions that render it infeasible unless the agency makes specified written findings based on a preponderance of the evidence in the record. Typically, if a jurisdiction has a compliant Housing Element, such a project may be lawfully rejected based on zoning and general plan inconsistency. The "mini builder's remedy" provision, however, overrides this option if a proposed project is 1) designated for affordable housing in the Housing Element and 2) consistent with the density specified in the Housing Element, even if it is inconsistent with both the zoning and general plan land use designation. In practice, this provision ensures that developers can access the density commitments made in the Housing Element, even if the jurisdiction has not yet updated its zoning or general plan to mirror those commitments.

Project proponents should assess whether their developments meet the criteria set forth in Section 65589.5(d)(5)(A), as qualifying projects benefit from heightened protections against arbitrary denial – and protections do not rely upon Housing Element noncompliance as is the case with the typical builder's remedy and even more remarkably do not require general plan and zoning compliance.

No Net Loss: A Constraint on Jurisdictions and Projects

Though inclusion on the Housing Element inventory opens doors for developers, it also triggers an important obligation for jurisdictions under California's No Net Loss Law. Gov. Code § 65863 requires that a jurisdiction's Housing Element sites inventory maintain adequate capacity at all times to accommodate the remaining regional housing need allocation (RHNA) by income group throughout the entire planning period.

Under the No Net Loss Law, when a jurisdiction approves a housing development (or nonresidential project) on an inventory site, it must check its Housing Element sites inventory to determine the unit count, density and affordability levels designated for that site. If the approved project will result in fewer units than those projected in the sites inventory, the jurisdiction must take certain actions. Critically, these actions are triggered not only when an approved project contains fewer overall units than the sites inventory projections, but also when the approved project contains fewer units for a particular income category relative to the sites inventory.

This matters in practice because many Housing Elements' site-specific affordability projections are not tethered to any proposed or approved project. For example, a Housing Element may project that 100 units of housing will be built on a particular site during the planning period, 50 of which will be restricted for lower-income households and 50 of which will be restricted for moderate-income households. If the jurisdiction then approves a 100-unit project with 80 market rate units and 20 lower-income units, the jurisdiction's No Net Loss obligations are triggered, even though the overall unit count mirrors the site's inventory projections. In this example, the jurisdiction would experience a lost capacity of 50 moderate-income units and 30 lower-income units, triggering its obligations under the No Net Loss Law.

When a jurisdiction's No Net Loss obligations are triggered, it must undertake a two-step process. First, it must confirm whether the lost capacity (by affordability level) does not cause the inventory to fall below the required RHNA targets. Most housing elements include significant "buffers" for each affordability level such that a project-specific capacity reduction will not cause them to fall below their overall RHNA obligations. If the jurisdiction has a "buffer" that can accommodate the lost capacity, then nothing further is required. If, however, the lost capacity causes the site inventory's remaining projections to fall below the jurisdiction's overall RHNA obligations for a particular income category, it must then identify and zone additional sites to backfill the lost units within 180 days.

HCD has issued guidance reinforcing the No Net Loss requirements, including a memorandum on Senate Bill 166 and letter of technical assistance addressing a developer's role in connection with a jurisdiction's No Net Loss obligations. These materials underscore that No Net Loss is not a theoretical constraint – HCD is actively monitoring jurisdictions' compliance and intervening where inventory capacity is at risk of falling short. Importantly, however, HCD has confirmed that jurisdictions may not require developers themselves to make new sites available to address the loss of capacity occasioned by their projects. Additionally, HCD has emphasized that a jurisdiction's need to comply with these requirements cannot serve as a pretext for disapproving a project simply because it will trigger No Net Loss issues.

Taken together, the No Net Loss Law reinforces the importance of inventory sites and may encourage jurisdictions to approve projects at assumed densities rather than risk triggering backfill obligations. However, as a cautionary note, the market dynamics of the past few years have resulted in an increasing number of cities with RHNA shortfalls. Some cities are now actively considering how to find new capacity to make up for sites that have been approved with fewer units than as assumed in the Housing Element. This could even lead to reopening Housing Elements in the midst of the current sixth cycle and create new near-term opportunities.

Key Takeaways

Inclusion on a jurisdiction's Housing Element sites inventory is a designation with real legal weight. Developers and landowners should evaluate their properties for by-right processing eligibility and Housing Accountability Act protections, both of which can materially improve the entitlement pathway. At the same time, all stakeholders should be mindful of the No Net Loss obligations that attach to inventory sites, which shape the framework within which project approvals must occur. As HCD continues to issue technical advisories and engage in active oversight, the practical significance of the Housing Element inventory will continue to grow.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.