SACRAMENTO — A Sacramento suburb will have to build more affordable housing for residents at risk of homelessness under a settlement announced Wednesday with California Gov. Gavin Newsom’s administration, which comes more than a year after the state alleged in a lawsuit that Elk Grove illegally denied an affordable housing project.

The settlement means the city must identify a new site for affordable housing in an area with good access to economic, educational and health resources by July 1, 2025. The state will also have more oversight over the city’s approval of affordable housing over the next five years, including by receiving regular updates on the status of proposed projects.

Attorney General Rob Bonta, a Democrat, said it should not have taken so long for Elk Grove to agree to build more affordable housing.

“Our housing laws are not suggestions,” Bonta said at a news conference Wednesday. “You have to follow them. And if cities try to skirt them — try to avoid building the housing we need, try to illegally deny housing proposals, discriminate against communities, as Elk Grove did — the DOJ will hold them accountable.”

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State Lawsuit Alleges Violation of Housing Laws

California’s lawsuit alleged the city broke state laws by denying a project to build 66 units in an area known as Old Town for residents who experienced homelessness. The denial violated laws aimed at streamlining housing projects and banning local governments from making discriminatory decisions, the state argued.

The legal battle escalated a growing conflict between the state and local government over how many housing projects cities should approve and how fast they should build them. Newsom in 2022 temporarily withheld funding from local governments who he said failed to adequately reduce homelessness. His administration has also sued the Southern California city of Huntington Beach, accusing it of ignoring state housing laws.

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Elk Grove’s Response and Settlement Terms

Elk Grove has to pay the state $150,000 for attorney and other legal fees under the agreement. Local officials said they were happy with the settlement and that it underscored the city’s efforts to build affordable housing.

“Elk Grove is proud of the role it has played as a leader in the development of affordable housing in the region,” the city said in a statement. “The City is hopeful that in the future the State will work more collaboratively with cities to partner in the development of affordable housing rather than use precious resources in the pursuit of unnecessary litigation.”

The Elk Grove Planning Commission denied the project in 2022, saying having residences on the first floor breached city standards for that part of town.

Elk Grove settled another lawsuit earlier this year over the project in Old Town, called the Oak Rose Apartments, and approved an 81-unit affordable housing project in a different location.

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California’s Housing Crisis and Future Goals

The state needs to build 2.5 million homes by 2030 to keep up with demand, according to the California Department of Housing and Community Development.

Newsom said the legal battle in Elk Grove highlighted “the original sin” in California — its housing crisis.

“There’s no issue that impacts the state in more ways on more days than the issue of housing,” the Democrat said.