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San Luis Obispo Developers Sued Over $100K Affordable Housing Fee
Three friends built 8 new homes, but were hit with a hefty fee under the city's inclusionary housing policy.
Mar. 14, 2026 at 2:56am
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Three friends - a chiropractor, an ophthalmologist, and a real estate agent - pooled their resources to purchase a run-down property in San Luis Obispo, California, tear it down, and build four new homes with attached accessory dwelling units, creating a total of eight new livable units. However, the city informed them they had to either pay a $98,900 fee into the affordable housing fund or deed-restrict one of the new homes and sell it at a discounted price. The developers paid the fee under protest and are now suing the city, arguing the fee is unconstitutional.
Why it matters
San Luis Obispo is one of the most expensive housing markets in the country, pricing out young professionals, families, and anyone who didn't establish roots there long ago. The city's inclusionary housing policy aims to address the affordable housing shortage, but the developers argue that adding more homes should actually make housing more affordable, not less.
The details
The three developers - John Ruda, Rami Zarnegar, and Jordan Knauer - purchased a run-down property, demolished it, and built four new homes with attached accessory dwelling units, creating a total of eight new livable units. However, the city informed them they had to either pay a $98,900 fee into the affordable housing fund or deed-restrict one of the new homes and sell it at a discounted price. The developers paid the fee under protest and are now suing the city, represented by the Pacific Legal Foundation, arguing the fee is unconstitutional because it does not relate to any harm caused by the new development.
- In September 2024, the developers paid the $98,900 fee under protest.
- In 2024, the U.S. Supreme Court unanimously reaffirmed in Sheetz v. County of El Dorado that permit fees must relate to the harm caused by the development.
The players
John Ruda
A chiropractor who was one of the three developers.
Rami Zarnegar
An ophthalmologist who was one of the three developers.
Jordan Knauer
A real estate agent who was one of the three developers.
Pacific Legal Foundation
The nonprofit law firm representing the developers in their lawsuit against the city.
City of San Luis Obispo
The city that imposed the $98,900 affordable housing fee on the developers.
What they’re saying
“The city's position that building more homes makes housing less affordable manages to be both economically backward and constitutionally suspect.”
— David Deerson, Attorney representing the developers
What’s next
The judge in the case will decide whether the city's affordable housing fee is unconstitutional.
The takeaway
This case highlights the tension between cities' efforts to address affordable housing shortages and the impact those policies can have on private development. The outcome could set an important precedent on the constitutionality of inclusionary housing requirements.
