Lawsuit questions legality of San Luis Obispo's inclusionary housing fee

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A civil rights lawsuit was filed against the city of San Luis Obispo, arguing that its inclusionary housing fee, which requires developers to either pay a fee or sell a unit at a discounted price, is unconstitutional. The lawsuit claims the fee does not create or contribute to affordable housing, and instead makes housing more expensive. The Pacific Legal Foundation, a nonprofit public interest law firm, filed the federal lawsuit on behalf of three developers who were required to pay a nearly $100,000 fee to build eight units on a lot.

Why it matters

This case challenges the legality of San Luis Obispo's inclusionary housing policy, which is a common tool used by cities to try to increase the supply of affordable housing. The lawsuit argues that these types of fees actually make housing more expensive, rather than more affordable, raising questions about the effectiveness of such policies.

The details

The three developers, John Ruda, Shahriar 'Rami' Zarnegar, and Jordan Knauer, purchased an uninhabitable home in San Luis Obispo and planned to tear it down and build four homes with accessory dwelling units. However, the city required them to either pay a nearly $100,000 fee or sell one of the units at a discounted price. The developers paid the fee and built the eight units. The Pacific Legal Foundation filed the lawsuit, arguing the fee is unconstitutional and that the developers should receive a refund.

• The lawsuit was filed on March 4, 2026.
• The developers purchased the property and planned to build the homes prior to 2026.

What’s next

The court will need to rule on whether San Luis Obispo's Inclusionary Housing Ordinance is unconstitutional. If the developers prevail, they could receive a refund of the fees they paid.