PREVIOUSLY:

• Developer Says Blue Lake’s Nixing of Planned Affordable Housing Project May Have Violated State Housing Law

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The agency that enforces state housing law is reviewing Blue Lake’s recent termination of a planned affordable housing project.

In April, the city terminated a 2022 agreement with Danco Communities to build a 40-unit mixed-use development in the Powers Creek area of the community.

According to a spokesperson for the California Department of Housing & Community Development (HCD), the project is currently under review by HCD’s Housing Accountability Unit, which holds jurisdictions “accountable for meeting commitments” made in housing elements.

Housing elements are state-mandated documents that plan for a city’s future housing across income levels.

“HCD is taking this case through our investigation process, including gathering facts, speaking with relevant parties, and conducting an analysis,” the spokesperson said in an email to the Outpost, adding HCD can’t discuss details at this time.

Danco argued the termination was without factual basis, but the city manger contends the move was a part of the contract process.

“The thing with Danco is not really about affordable housing exactly; it’s more about the contract between them and us, and whether or not they are going to deliver the project,” said Blue Lake City Manager Jennie Short.

She noted she is meeting with Danco this week to discuss the project.

Previously, city letters to Danco pointed to a reduction in commercial space and failure to meet deadlines for the property.

The company in turn noted shifting requirements in the planning process and the city failing to act on the project.

Short, who began as permanent city manager of the city in December 2025 after a spell of temporary managers for the small city, is looking through documentation to learn of the sequence of events prior to her start. This includes permit applications, which ended in the city deeming the documents incomplete.

Short said overall, the city is actively working towards affordable housing efforts. She pointed to a recent workshop related to the latest housing element update.

With the site previously identified as the small city’s main feasible vacant land to host lower-income housing, the California Housing Defense Fund, a pro-housing advocacy organization says the city may have run into issues with laws that require planning for future units.

According to the Blue Lake housing element’s inventory of available land, the only likely developable and vacant land that could host lower-income housing is the city-owned parcel where the terminated project was planned.

Housing could be constructed elsewhere in the city, but municipalities are required to list and plan for parcels that realistically would host housing.

“A key factor in whether a city is in compliance with housing element law is if they maintain an inventory of land specifically for lower-income housing. If the city is relying on this property for the bulk of its projected lower-income housing growth, and they are backing off of the commitment to build on the property, that could [present a] housing element issue for the city,” said Dylan Casey, executive director of California Housing Defense Fund, an advocacy organization that files lawsuits against cities they say violate housing laws.

Across the city, Blue Lake was required to plan for 23 units of housing in the 2019-2027 cycle. The city additionally has a carryover of 11 units from the last cycle.

Blue Lake hasn’t permitted a single lower-income housing unit in this cycle, according to HCD. According to a data dashboard, the city has only seen nine permits for the highest income level of housing, and zero for all other income categories during the eight-year cycle.

This proposed Danco project was designed to house families and seniors making 60% or less of the area median income, according to the development agreement. Income would be capped at about $40,800 annually for a single person or $58,260 for a family of four in Humboldt County.

Casey said there can be serious consequences for municipalities that go down this road, particularly small jurisdictions without big budgets. He said the organization commonly sees cases like this, and is preparing a lawsuit against a different city for a similar situation.

“The city can get itself into trouble, as far as getting sued, if they violate state law. And if the developer chooses to do that, developers are entitled to recover attorneys fees from the city,” said Casey.

Previously, Danco told the Outpost the company is considering its options, when asked about litigation. The council discussed significant exposure to litigation during closed session last week related to the project.

In response to a wide-scale shortage of housing in the state, lawmakers have targeted zoning and planning rules they say have stifled housing supply, and have crafted laws that give latitude to housing developers, particularly on affordable housing projects.

Short said overall, the property is an asset to the community, with huge potential — the city owns the site, and has control over what happens.

“It’s a process to get there, and it’s taken longer than I think anybody thought it was going to,” she said.