Court of Appeal Rejects Housing Element Overlay Strategy

In New Commune DTLA LLC v. City of Redondo Beach, 115 Cal.App.5th 111 (2025), the Second District Court of Appeal reversed a judgment upholding Redondo Beach’s housing element and ordered the trial court to issue a writ compelling housing element revision. The court concluded that the city's reliance on a residential overlay applied to multiple commercial and industrial districts to meet its Regional Housing Needs Allocation violated the law because the base zoning still allowed projects with no housing on the sites counted toward the RHNA.

State law requires that the housing element of a city's general plan include the required zoning and building sites that can realistically accommodate the city's RHNA across income levels. In Redondo Beach, the sixth‑cycle RHNA totaled approximately 2,490 units, including 1,444 lower‑income units. After several iterations and correspondence with the Department of Housing and Community Development, the city adopted an amended housing element that HCD later found compliant. A central feature of the plan was a residential overlay allowing up to 55 dwelling units per acre across several commercial and industrial districts. This overlay preserved underlying commercial and industrial entitlements, so developers could still build completely nonresidential projects on sites the city counted toward its lower‑income need. A housing developer challenged the housing element’s use of the overlay and the inclusion of two specific properties in the city’s RHNA inventory.

The court held that Redondo Beach’s overlay approach did not comply with Government Code section 65583.2(h)(2), which requires true minimum density and site‑designation controls on the rezoned sites. Reading the statute as a whole, the court emphasized two independent defects: (1) the overlay failed to guarantee the required minimum residential density because a developer could lawfully construct no housing; and (2) the city did not satisfy the site‑designation rule requiring that at least 50% of the lower‑income need be placed on sites where nonresidential and mixed uses are not permitted. Alternatively, the city could have met the mixed‑use exception by allowing 100% residential and requiring residential use to occupy at least 50% of total floor area, which the overlay did not do. The opinion expanded on the holding from Martinez v. City of Clovis, treating “minimum” density as a mandatory floor rather than an aspirational target, and declined to defer to any contrary reading in HCD guidance where that guidance could not be reconciled with the statute’s text. 

The court split on two site-specific challenges involving nonvacant land. To be counted for RHNA purposes, the city must show “substantial evidence that the [existing] use is likely to be discontinued during the planning period.” The court upheld the inclusion of an underutilized shopping‑center parking field based on substantial evidence of physical and financial feasibility. In contrast, it rejected inclusion of parcels serving a grocery store center because lease provisions created a practical veto on redevelopment and the record did not show that the claimed capacity could be achieved outside that zone. 

The housing overlay holding has statewide implications. Many jurisdictions obtained HCD findings of compliance using residential overlays that sit atop commercial or industrial base zoning. Where those overlays still allow all‑nonresidential buildouts, this decision suggests those elements may be vulnerable to challenge and require corrective rezoning. Cities relying on overlays should re‑evaluate whether their programs guarantee minimum residential yield on the specific sites used to meet lower‑income need or, if relying on mixed‑use sites, satisfy the opinion’s standards for 100% residential permissibility and a substantial residential share of floor area.