Court of Appeal Finds Zoning Overlay Insufficient to Meet Shortfall of State Housing Obligations; Rezoning Required

On October 10, 2025, the California Court of Appeal (Second Appellate District) reversed the trial court in New Commune DTLA LLC v. City of Redondo Beach (B336042). It was ruled that the City of Redondo Beach violated the Housing Element Law due to noncompliance with the mandatory density and residential-use requirements. The Court held that a “residential overlay” zone could not be used to satisfy the City’s Regional Housing Needs Allocation (“RHNA”) obligations where the underlying zoning permits development with no housing. 

Residential Zoning Overlays On Commercial Or Industrial Areas Cannot “Close Gap” of (RHNA) Shortfall When Base Zoning Allows Projects With Zero Residential Units

California’s Housing Element Law requires local governments to periodically assess both existing and projected housing needs and to develop a set of plans to meet those needs. (Gov. Code, § 65583.) These plans comprise a local government’s Housing Element, which must be periodically revised to ensure it meets the jurisdiction's RHNA as determined by the Department of Housing and Community Development (“HCD”). (§§ 65583(a); 65585.03(a).) To meet RHNA obligations, local governments prepare an inventory identifying sites with existing zoning that can accommodate the jurisdiction’s updated RHNA obligations. When existing sites in the inventory are inadequate to accommodate all income levels of a jurisdiction’s RHNA obligation, the local government must include a program in its Housing Element to rezone sites. This rezoning must close the gap between the number of units allowed under current zoning and the number of units required by the RHNA. (§ 65583(c)(1).) 

The Court of Appeal recently provided guidance that is directly relevant to many cities in California. In this case, the City of Redondo Beach submitted its draft Housing Element for the 2021-2029 planning period (sixth cycle) to HCD in July 2021. After a series of amendments, HCD found the Housing Element to be substantially compliant with the Housing Element Law in September 2022. Because the City’s site inventory of pre-existing sites was inadequate to meet the City’s RHNA obligation, the Housing Element proposed a “residential overlay” zone over six commercial and industrial districts to make up the shortfall in planned units.

Petitioner, New Commune, filed a petition for a writ of mandate, arguing the residential overlay zoning violated the Housing Element Law. The Court agreed, finding the residential overlay violated the law in two key ways.

First, the Court found the overlay zoning failed to satisfy the mandatory minimum density requirement of section 65583.2(h)(2). When local governments rezone sites to meet their RHNA obligation, the rezoned sites must have a minimum density of 20 units per acre. The City used a residential overlay zone to allow for the additional density that was necessary to meet its RHNA obligations. The Court found this violated the law because even with the residential overlay, the underlying zoning still permitted development with zero residential units. The Court affirmed the recent ruling in Martinez v. City of Clovis (2023) 90 Cal.App.5th 193, which first held that section 65583.2(h)’s minimum density requirements are mandatory. The Court rejected the City’s arguments that the provision merely permits development of at least 20 units per acre, agreeing with Clovis that section 65583.2(h) is “unambiguous” as the statute’s use of “minimum” sets a binding floor.

Second, when local governments have to rezone, section 65583.2(h)(2) requires that the government rezone using one of two options:

• Under option one, when a local government rezones to meet its RHNA, at least 50 percent of lower-income housing units must be in a zone that is residential only and prohibits non-residential or mixed uses. 
• The second option allows for lower income units to be in a mixed use zone if at least 50% of the total floor area is dedicated to housing. The Court held that the City did not utilize the first option because the City preserved the underlying commercial and industrial zoning, which failed to prohibit nonresidential uses as required by statute. Similarly, the Court rejected the City’s claim that it qualified for the “mixed-use option” (second option) because the base zoning allowed future development with no residential component. 

No Deference to HCD’s Determinations, When HCD’s Determinations Violate State Law

Where HCD has determined a Housing Element to substantially comply with the Housing Element Law, that Housing Element has a rebuttable presumption of validity. (§ 65589.3(a).)  The City argued that since its Housing Element was certified, the court should defer to HCD’s interpretation of the law. The Court rejected this argument. “Courts remain the final arbiters of statutory meaning,” the panel wrote, finding that HCD’s certification cannot override clear statutory defects. Even though the City had relied on HCD’s interpretation of the law in creating its Housing Element and usually HCD’s interpretations are entitled to deference by the courts, in this instance, HCD’s interpretation of the law was contrary to the law and not entitled to any deference. 

Implications

With this ruling, the City’s adopted Housing Element is invalid, potentially exposing the City to remedies such as “Builders Remedy” project applications. The Court’s decision could have significant impacts statewide, as a number of cities have relied on similar strategies as Redondo Beach to meet their RHNA obligations. Cities should proactively review their site inventory and rezoning program to ensure those Housing Elements are not vulnerable to being deemed noncompliant under this ruling. 

For questions on the implications of New Commune DTLA LLC v. City of Redondo Beach (B336042) ruling, please contact your BBK attorney or reach out to Alexander Brand and Michael Ervin.

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