(The Center Square) – The coastal California city of San Luis Obispo is being taken to federal court.
Homebuilders John Ruda, Jordan Knauer and Rami Zarnegar are suing the city over its policy requiring developers to either pay thousands of dollars in fees or give away homes for the city to sell to its chosen buyers. The homebuilders’ attorneys at Pacific Legal Foundation said the city’s policy violates their constitutional rights by imposing unjust conditions on land-use permits.
Foundation attorney David J. Deerson added that “it’s a strange sort of policy.” While it is trying to make housing more affordable, Deerson said, it actually raises the cost of developing housing in the city.
San Luis Obispo is located halfway between Los Angeles and San Francisco and has a population of about 47,000 to 48,000 people. It’s known for its tourism, proximity to wine country and its annual international film festival.
“In this case, our clients – three longtime friends, longtime residents of California’s Central Coast – saw an opportunity to do a project that would do well for themselves and do good in the community by adding eight new housing units on a piece of land where all that was there was a dilapidated old house that was in an uninhabitable state,” Deerson told The Center Square.
Four of the units are single-family residences. The other four are attached accessory dwelling units.
Before the city would issue building permits, Deeron said the municipality wanted the homebuilders to either give up one of the units to be sold at a massive loss to a buyer of the city’s choosing or pay $100,000 to satisfy San Luis Obispo’s inclusionary housing policy.
Viewing the $100,000 as “less onerous than the deed restriction and price control option,” the homebuilders paid the fee. Still, Deerson is convinced the “backwards policy” is illegal and unconstitutional.
Known as Ruda v. San Luis Obispo, the lawsuit is filed in U.S. District Court for the Central District of California, Western Division.
Meanwhile, this is not the only case of its kind in California for Pacific Legal Foundation.
“We’ve been filing a lot of these cases because, thanks to a recent United States Supreme Court ruling in a case called Sheetz v. County of El Dorado from 2024, which was also a PLF [Pacific Legal Foundation] case, these kinds of impact fees and land-use permit exactions that are imposed at the level of city ordinances are suddenly subject to challenge in a way that they weren’t before because the Supreme Court clarified some rules on that,” said Deerson. “So we filed similar suits in the city of Healdsburg and in the city of East Palo Alto.
“Both of those cases settled very quickly, with the cities determining that our clients would not be made to pay the fees,” Deerson said.
Steven Greenhut, senior fellow at Pasadena-based Pacific Research Institute, said the San Luis Obispo case is just one example of the many ways California makes it difficult for people to build housing. Greenhut added that local governments are part of the problem.
Greenhut noted there are legitimate reasons for local government fees, which are closely tied to the impact of a development on the infrastructure.
“If you build a new subdivision that requires the county to build new roads, fine,” Greenhut told The Center Square. “But the California courts over the years have allowed these fees to just get totally out of hand and not totally be tied to the impact of the project on the local infrastructure.”
Greenhut, who runs PRI’s Free Cities Center, said he has seen projects where the cities will “essentially shake down a development for all sorts of things” they don’t want to fund.
“That’s another thing for some communities,” said Greenhut. “The cost of government fees could be up to 40% of the price of a new single-family house.”
Christine Dietrick, city attorney for San Luis Obispo, said the city has not yet been formally served with the lawsuit and was not advised of the filing prior to the issue of Pacific Legal Foundation’s press release.
“A complaint is merely a statement of the plaintiffs’ assertions and does not reflect any affirmed legal conclusion,” said Dietrick. “The City Attorney’s office is reviewing the allegations in the complaint and will meet with the City Council in closed session once the complaint is served to discuss next steps in the litigation process.”
Dietrick added that the city has not previously been challenged on its inclusionary housing fee. Dietrick also stressed that the city has “long been committed to supporting and advancing the development of affordable housing accessible to those who live and work in our community and support the local economy” of San Luis Obispo.
“Any threat to this integral tool to support affordable housing in our community is obviously concerning and the loss of this important tool for cities would have significant adverse effects on housing affordability in our community, and communities across the state, at a time when residents in all of our communities are experiencing an affordability crisis,” said Dietrick.
