San Luis Obispo City Hall
SAN LUIS OBISPO — A group of San Luis Obispo businessmen with a real estate side gig who want to build what they describe as eight affordable homes are suing their city government, saying city officials are unconstitutionally attempting to force them to choose between paying the city $100,000 in "affordable housing" fees or surrendering one of their new homes to the city to be sold at below-market prices as a condition of securing their needed permits.
On March 4, plaintiffs John Ruda, Shahriar Zarnegar and Jordan Knauer filed suit against the city of San Luis Obispo in Los Angeles federal court.
They are represented in the action by attorneys with constitutional legal advocacy group, the Pacific Legal Foundation.
According to the complaint, none of the three men are homebuilders or real estate developers by trade. Rather, Ruda is a chiropractor; Zarnegar is an ophthalmologist; and Knauer is a real estate agent who sells homes in and around the wealthy Central Coast community.
According to the complaint, however, the three men partnered on a business opportunity, one which they assert was designed also to help meet urgent needs in the community:
So-called "affordable" housing.
According to the complaint, the business partners created a corporate entity, known as 3160 Johnson LLC, a business whose sole purpose was to purchase a "run-down uninhabitable home" in the city and build new housing on the site. Ultimately, the 3160 Johnson partners sought to knock down the house, subdivide the property into four lots and build four new single family homes, together with an "accessory dwelling unit" on each property.
"Thanks to these efforts, San Luis Obispo will now have eight new habitable housing units where before there had been none," the complaint said.
According to the complaint, the partners and their city government seemingly agree on the need to increase the supply of housing in the community, where a limited supply of housing has contributed to a market with some of the highest housing costs in the U.S.
Median home prices in San Luis Obispo are more than $1 million, according to real estate site Redfin.
However, according to the complaint, the city allegedly has taken the wrong approach to addressing the needs, by instituting allegedly unconstitutional policies, under the name of an "Inclusionary Housing Policy."
Under that policy, the city allegedly demanded the partners pay either a $98,900"inclusionary housing" fee or agree to essentially give one of their four single family homes, valued at more than $1.3 million, to the city, to be sold for just $450,000.
If they did not, the city would not give them the land use permits they would need to complete the project.
The partners and Pacific Legal Foundation note the city's policies, ostensibly enacted to increase housing affordability in the community, achieve the opposite result. By tacking on the fees, the city makes housing projects more expensive to complete, resulting in higher prices and less incentive for developers to build new housing in the community, the plaintiffs assert.
But worse, the plaintiffs claim, the policies amount to an unconstitutional taking of property by the city under unjustifiable fees and coercion.
"As a matter of logic, the City cannot make housing more affordable by making it more expensive. As a matter of law, it cannot abuse its land-use permitting authority to take money or property from applicants in order to address problems that those applicants do not create," the complaint said.
To move the project forward, the partners "reluctantly" paid the fees, they said. But they have since filed suit to recover those fees and secure an order striking down the "inclusionary housing" policies altogether.
The partners and their attorneys argue the San Luis Obispo policy is an unconstitutional "exaction." And the Pacific Legal Foundation asserts "the U.S. Supreme Court has said that an improperly applied exaction is little more than 'an out-and-out plan of extortion,'" which cannot be imposed as a condition of a building permit.
“Housing exactions like inclusionary zoning fees don’t solve housing shortages—they exacerbate them,” said David Deerson, an attorney with Pacific Legal Foundation, in a release announcing the lawsuit. “The government needs to stop imposing unconstitutional fees on the Californians building homes where more affordable housing is needed.”
San Luis Obispo has not yet responded to the lawsuit in court.
