A fix for an unfavorable housing element ruling failed. What’s next for the over 100 impacted cities?

By Brady Guertin, legislative advocate (housing)

Last week, the Assembly Local Government Committee failed to advance a legislative fix to a court decision that endangers state-approved housing elements for the 6th Regional Housing Needs Allocation (RHNA) Cycle. This decision exposes over 100 cities that relied on overlays to meet state housing obligations to heightened legal risk.

Zoning overlays allow cities to modify existing zoning to allow for or require certain types of residential development without modifying the standards of the underlying district. These are often combined with incentives and are particularly useful for cities with little or no vacant land for housing.

What would the bill have done?

Asm. Al Muratsuchi introduced AB 2741 in response to New Commune DTLA LLC v City of Redondo Beach, which took the unusual step of overturning a housing element certified by the Department of Housing and Community Development (HCD). The court ruled that Redondo Beach’s housing element had to be revised because it relied on zoning overlays for potential affordable housing sites, although the practice was consistent with HCD’s Housing Element Sites Inventory Guidebook.

AB 2741 would have given cities acting in good faith under a year to respond to court rulings invalidating their HCD-certified housing element before the builder’s remedy, loss of affordable housing dollars, and monthly fines take effect. The Assembly Housing Committee added amendments that would have allowed cities to use zoning overlays in specific circumstances for the current RHNA cycle if they followed HCD’s guidance. The intent was to minimize litigation risk for compliant cities and create space for stakeholders to potentially reach an agreement on the use of zoning overlays in the future.

Cal Cities had a support if amended position on the measure. Cal Cities argued that cities need a grace period if they followed HCD’s guidance and that zoning overlays give cities with little vacant land the flexibility they need to meet state housing mandates.    

Who voted no? And what does this mean for my city?

The measure faced heavy opposition from developers — both affordable and market-rate — and business organizations. Those same organizations supported AB 1886 (Alvarez, 2024), which requires HCD or a court to certify housing elements. Obtaining HCD’s approval requires local agencies to comply with the department's regulations, recommendations, or feedback.

Despite the opposition, it seemed like AB 2741 would pass through committee, as stakeholders were actively discussing policy disagreements and trying to find an early compromise. Lawmakers in the first house often provide courtesy votes on legislation, ensuring that conversations can continue and proposals are ready for full consideration in the second house.

The bill passed out of the Assembly Housing Committee on a 9-0 vote, with an agreement to continue discussions. Despite the agreement, the measure failed a week later in the Assembly Local Government Committee on a 3-0 vote. Asm. Natasha Johnson, James Ramos, Rhodesia Ransom, Blanca Rubio, Tri Ta, Chris Ward, and Lori Wilson abstained from voting, effectively killing the bill for the rest of the year.

As a result, cities that relied on HCD‑approved zoning overlays during the current RHNA cycle may now face increased litigation risk. If a court invalidates their housing element, they could be subject to the builder’s remedy, fines, or other accountability measures. Cities that rely on zoning overlays to meet state housing requirements may be prohibited from using them in the next RHNA cycle.

Cal Cities believes continued stakeholder engagement is essential and that future legislation is necessary to ensure cities are not set up to fail in the 7th RHNA cycle. As the Legislature continues to expand HCD’s authority over housing element review and enforcement and prioritize accountability, it is critical that cities can rely on HCD’s guidance and have adequate time to respond to court rulings without fear of penalties.

Cities concerned about their legal exposure should consult with their city attorney about next steps.