Blue Lake developer disputes city move to kill 40-unit housing project

Blue Lake’s effort to kill the 40-unit Baduwa’t Community Project has turned a stalled housing deal into a legal and financial fight with real stakes for Humboldt County taxpayers. If the project dies, the city loses a planned affordable housing development that would have brought one-, two- and three-bedroom units to a three-acre site in Blue Lake, while Danco Communities says the city’s move to terminate the agreement may not hold up under the contract or state housing law.

The dispute centers on whether Danco lived up to its obligations under the deal the city signed in 2022, when Blue Lake entered a Disposition and Development Agreement with the company. City officials say Danco did not do enough to move the project forward. Danco, by contrast, has argued that Blue Lake’s election to terminate the agreement after notice and opportunity to cure is not allowed under the contract’s terms. The city’s June 10 special-meeting agenda said the council would discuss anticipated litigation tied to that claim, underscoring how quickly the project moved from planning dispute to possible courtroom battle.

The fight lands in a city that has already been under heavy pressure from state housing regulators. In June 2025, the California Department of Housing and Community Development warned Blue Lake it could face monthly fines of $10,000 to $100,000 for persistent noncompliance with housing law, along with possible loss of state funding eligibility and even loss of local land-use authority to a court-appointed agent. Blue Lake adopted an updated housing element in July 2025 after HCD pushed the city to move faster. City housing-element materials also show Blue Lake received a $65,000 Local Early Action Planning Grant in 2021 to help update that plan.

Blue Lake’s own housing studies show how long the city has lagged. The initial study for the 2019-2027 housing element said the last adopted housing element dated to the 4th cycle, covering 2007-2014, and that a 5th-cycle draft was never adopted or certified. The same study said the city’s vacant lot inventory could support up to 89 new units at full buildout. A housing-progress tracker now lists Blue Lake as out of compliance and behind on its RHNA targets.

The city’s Danco Q&A materials had framed the Baduwa’t project as mixed-use affordable housing on the Blue Lake Opportunity Zone site, and said the land was not in the 100-year flood zone. The materials also projected public benefits including tax revenue, infrastructure improvements and eventual compliance with state housing mandates after 15 years of noncompliance. For Blue Lake, the question now is whether ending the project brings relief or a more expensive fight.