What SB 1037 Changes
SB 1037 (Skinner, Chapter 654, Statutes of 2024) amended Government Code § 65589.5 — the Housing Accountability Act — to dramatically increase civil penalties for cities that unlawfully deny or impose conditions that would reduce the density of qualifying housing projects. The bill took effect January 1, 2025 and created a new enforcement regime that city attorneys must understand before the next contested housing denial.
The prior HAA imposed maximum civil penalties of $10,000 per housing unit affected by an unlawful denial. SB 1037 created a tiered penalty structure that replaces this flat cap:
- Baseline penalty: Up to $10,000 per unit, as before.
- Elevated penalty for second violations: Up to $20,000 per unit if the jurisdiction has been found in violation of the HAA within the prior 5 years.
- Willful violation penalty: Up to $50,000 per unit if the court finds the violation was willful — meaning the city acted with knowledge that the denial violated the HAA or reckless disregard of that fact.
Additionally, SB 1037 removed the attorney fee cap that previously limited what a prevailing applicant could recover. Attorney fee awards are now uncapped and mandatory for HAA prevailing applicants.
Who This Matters To In City Hall
| Role | Why This Matters to You |
|---|---|
| City Attorney | SB 1037 fundamentally changed the financial risk calculation for contested housing denials. A 100-unit project denied on grounds a court finds willfully violating the HAA now carries up to $5 million in penalties plus uncapped attorney fees. Counsel must advise council on this exposure before any housing denial is made. |
| City Manager | The political dynamics of housing denials have changed. Elected officials directing staff to deny qualifying projects are now directing the city toward potentially catastrophic financial liability. Brief council on the SB 1037 penalty exposure before any contested housing project comes to a vote. |
| Planning Director | HAA findings for any denial must now be documented in the staff report with specificity — the required findings under the HAA (specific, adverse health/safety impact; objective standards inconsistency) must appear in the record to show the denial was not willful. Conclusory findings create willfulness exposure. |
| City Council | Council members who direct staff to deny housing on grounds not supported by HAA-required findings, or who vote to deny while receiving legal advice that the denial is unlawful, create willfulness exposure for the city. Document all legal advice received on contested housing applications. |
| Finance Director | HAA penalty exposure should now appear in city risk assessments and budget reserve analysis for jurisdictions with active housing development pipelines. |
Legislation Overview
SB 1037 (Skinner) | Chapter 654, Statutes of 2024 | Signed: September 28, 2024 | Effective: January 1, 2025 | Amends: Government Code § 65589.5
The Willfulness Standard
The most consequential addition in SB 1037 is the $50,000-per-unit willfulness penalty. Understanding when a court will find "willful" conduct is essential for every city attorney advising on a housing denial.
Under the statutory language, a violation is willful if the city "acted with knowledge that its conduct violated" the HAA "or in reckless disregard of the legal requirements." California courts will look at:
- Whether city counsel advised that the denial may violate the HAA — and the city denied anyway
- Whether the city had been found in violation of the HAA in prior proceedings
- Whether the denial findings were conclusory, pretextual, or unsupported by the administrative record
- Whether the city imposed procedural delays or additional requirements that had the effect of preventing approval
- Whether the council was responding to neighbor opposition rather than a documented health/safety basis
A city that receives a legal memorandum from its attorney stating that a particular denial likely violates the HAA and denies the project anyway has created strong evidence of willfulness. Document all legal advice carefully.
The HCD Referral Pathway
SB 1037 also strengthened HCD's referral authority. Applicants who believe a city has unlawfully denied or delayed a qualifying housing project may now refer the matter to HCD, which has the authority to review the denial, request documentation from the city, and refer the matter to the Attorney General if it finds a violation. This creates a parallel enforcement pathway alongside private applicant litigation.
What Has NOT Changed
SB 1037 did not change the substantive grounds for HAA-compliant denial. Cities may still deny a qualifying housing project if they make written findings (in the administrative record, not after the fact) that:
- The project would have a specific, adverse impact upon public health or safety that cannot feasibly be mitigated or avoided; or
- The project is inconsistent with objective, written, and duly adopted standards in effect when the application was deemed complete — but only if denial does not reduce density below what is permitted by the regional housing need allocation.
These are narrow grounds that require specific, documented findings — not neighborhood opposition, design preference, or general character concerns.
Compliance Risk Assessment
| Risk | Level | Consequence |
|---|---|---|
| Denying a qualifying project without HAA-required findings | HIGH | Mandatory writ of mandate ordering approval; up to $50,000/unit in penalties (willfulness); uncapped attorney fees. |
| Denying after receiving legal advice that denial violates HAA | HIGH | Strong evidence of willfulness; $50,000/unit exposure. Courts view denials over counsel advice as strong evidence of willful violation. |
| Second HAA violation within 5 years | HIGH | $20,000/unit penalty at minimum. Prior violation findings compound current penalty exposure. |
| Conclusory or unsupported denial findings in staff report | MEDIUM | Findings that do not specifically document health/safety impacts are insufficient under the HAA and create evidence of willfulness. |
| Procedural delays imposed on qualifying projects | MEDIUM | SB 1037 strengthened anti-delay provisions. Imposing procedural conditions that have the effect of preventing approval may constitute a de facto denial. |
Key Dates
| Date | Event |
|---|---|
| September 28, 2024 | Governor signs SB 1037 |
| January 1, 2025 | New penalty tiers and uncapped attorney fees take effect for all HAA violations occurring on or after this date |
| Current (2026) | All HAA denials since January 1, 2025 are subject to new penalty regime; cities should audit denials for compliance |
Action Checklist
Immediate — Complete Now
- City Attorney: Prepare a memo for council summarizing the SB 1037 penalty tiers — particularly the $50,000/unit willfulness exposure — before any contested housing project comes to a vote.
- City Attorney: Review any housing denial issued since January 1, 2025 for HAA compliance. Denials lacking adequate specific findings should be assessed for remedial action.
- Planning Director: Require that all staff reports recommending denial of housing projects include specific, documented findings that satisfy the HAA's grounds for denial — not conclusory statements about character or compatibility.
Near-Term — By June 30, 2026
- City Attorney: Develop a housing denial checklist for planning staff and commission: before recommending denial of any housing project, staff should complete a structured HAA analysis confirming the factual basis for each required finding.
- City Manager: Incorporate HAA penalty exposure into the city's risk management program and annual budget reserve analysis.
- Planning Director: Train planning commissioners on the SB 1037 penalty regime. Commissioners who recommend denial without an HAA factual basis are exposing the city to escalating liability.
Frequently Asked Questions
Do the new penalties apply to denials before January 1, 2025?
No. The new penalty tiers apply to violations occurring on or after January 1, 2025 — the effective date of SB 1037. Denials made before that date remain subject to the prior $10,000/unit cap. However, a city with a pre-2025 violation finding is on notice and will face the $20,000/unit elevated penalty for any violation within the next five years.
Who collects the civil penalties?
HAA civil penalties are imposed by the superior court as part of a writ of mandate proceeding. In practice, the most consequential financial consequences of an unlawful housing denial are: the court orders mandatory project approval, the city must pay the applicant's attorney fees (uncapped under SB 1037), and — if the violation is willful — the court imposes per-unit civil penalties. Together, these mechanisms mean that a contested denial of a large qualifying housing project can result in millions of dollars in combined attorney fees and penalties. The penalty structure is designed as a deterrent to willful violations, not a routine cost of litigation.
What if the council overrides the planning department's recommendation and denies the project on political grounds?
This is exactly the scenario SB 1037 is designed to reach. A council denial that contradicts a staff recommendation of approval — particularly if the denial record shows the council was responding to neighborhood opposition rather than documented health/safety findings — creates strong willfulness evidence. City attorneys should advise council of this risk explicitly before any such vote.
SB 1037 changed the economics of housing denial in California. A 200-unit project denied on indefensible grounds now carries up to $10 million in penalty exposure plus uncapped attorney fees. Cities that have not restructured how they document and advise on housing denials are carrying financial risk that does not yet appear on their balance sheets. Legislaide helps cities build the internal HAA compliance workflows that protect against this exposure before a contested application arrives.
Published April 6, 2026 by Legal Team at Legislaide.