HCD: Fontana's 'Unit Bank' Doesn't Count — No-Net-Loss Needs Real Parcels

You've got a project that trims residential capacity on a site — a rezone to commercial, a warehouse deal, a downzone the council wanted — and the city hands you a tidy fix: deposit the lost housing units into a "bank," and let someone withdraw them later, somewhere else. No parcels to identify today. No fight over which neighborhood absorbs the density. Just paperwork.

If a California jurisdiction has offered you a version of this, read what HCD told Fontana first.

The setup: units in, parcels TBD

Fontana built its No Net Loss Program in October 2022 as an alternate pathway for meeting the no-net-loss rules in the Housing Crisis Act of 2019. The city runs a "unit bank" that can hold up to 2,200 units. When a city action cuts development capacity — a downzone, say — the lost units get "deposited." Per the letter, they can be held indefinitely until a developer withdraws them and applies them to a residentially zoned parcel at least one acre in size through a 20-percent density bonus.

In June 2023, Fontana approved two projects that rezoned residentially zoned land to commercial zones to facilitate warehouses. Between them, those projects deposited 1,280 units into the bank. As of the letter, HCD understood that no units had been withdrawn.

Here's the thing: HCD says the bank doesn't count

HCD's position is that the deposit doesn't satisfy the law. The Housing Crisis Act, at Government Code section 66300, bars a city from downzoning a parcel or dropping its land-use intensity below what was allowed on January 1, 2018 — unless the city "concurrently changes the development standards, policies, and conditions applicable to other parcels within the jurisdiction to ensure that there is no net loss in residential capacity." And HCD reads "concurrently" to mean "the same meeting of the legislative body."

So the question HCD framed was whether a deposit into the unit bank is that concurrent change. Its answer: The answer is "no."

Verified against the City of Fontana Housing Crisis Act Unit Bank — Letter of Technical Assistance, HCD, April 18, 2025.

Why a "bank" isn't "other parcels"

HCD's core reason is the one to remember:

the unit bank concept does not involve the identification of the specific parcel(s) that will receive the transferred development capacity

HCD reads "other parcels" to mean specific, identified parcels — not all other residentially zoned land in the city. And it reads "concurrent" to require the city to reallocate the shortfall at the time the downzoning happens, not defer it. Under a bank, HCD wrote, "the future location of the increased capacity is unknowable by definition and defers decision-making about where to reallocate residential capacity to some future time."

HCD also flagged that the tied-in density bonus isn't an equal trade for a real upzoning: the receiving site has to clear the program's hurdles — one acre, residential zoning, approval — which HCD described as "trading the legal surety of a zoning district for a merely potential increase in density."

What HCD asked Fontana to do

In its conclusion, HCD found that Fontana had reduced its development capacity by the units sitting in the bank, "which is inconsistent with the HCA." It told the city to fix that immediately by creating residential capacity equivalent to 1,280 units — "most commonly ... accomplished by identifying and upzoning parcels to compensate for the lost capacity." HCD asked for a remedy plan by June 18, 2025, and reminded the city that HCD has enforcement authority over the HCA and may refer a noncompliant city to the California Office of the Attorney General.

What this means for your project

If a city offers banked capacity, a "spend it later" density bonus, or any deferred offset as its no-net-loss compliance, HCD's read is that the mechanism may not hold — and building your unit math on withdrawing those banked units carries real enforcement risk. The barrier and the workaround can both be shakier than they look.

One caution that matters here: this is a Technical Assistance Letter — HCD's interpretive position and clarification, not a court ruling and not settled law. Courts are the final arbiter of what the Housing Crisis Act requires; HCD's letters signal enforcement risk, they don't decide the case. Before you rely on a unit-bank offset — or on the argument that one is invalid — verify with the jurisdiction and your own counsel. Nothing here is legal advice.

What CrossBeam does with it

When the letter lands on your desk, CrossBeam turns it around the same day: what each item is actually asking, the code or law behind it, and a written response you can hand to your team or your attorney — the back-and-forth that used to eat weeks, done in a couple of hours.