Victory! City backs down over $20,000 ‘inclusionary housing’ fee
The City of Healdsburg, California, has agreed to settle a lawsuit filed less than two months ago by Jessica Pilling, a local mom represented by Pacific Legal Foundation. Jessica sued the City in September over its “inclusionary housing” ordinance, which tacked a $20,000 fee onto her family’s homebuilding project. The City has now refunded the fee.
Here’s how inclusionary housing (also called inclusionary zoning) works: If you want to get a permit to build a new home or apartment building, you have to pay a fee or dedicate land to affordable housing. About a third of California cities have inclusionary housing ordinances. On paper, these policies are designed to increase affordable housing. In reality, they make housing less affordable: A 2015 study found that California cities with inclusionary housing ordinances ended up with 20 percent higher housing prices and 7 percent fewer homes than cities without.
The Pillings’ experience with inclusionary housing was especially absurd—because they themselves qualify for affordable housing in Healdsburg, which is a wealthy area in Sonoma County. Inclusionary housing is meant to help people like them find homes. But in order for the Pillings to build a home, they had to pay the City a steep inclusionary housing fee—making their homebuilding project decidedly less affordable and achievable.
“I’m like, ‘Should we go sign up on their list to get one of their affordable housing houses and then rent out our new house?’” Jessica asks. “Because it’s just so crazy.”
The Pillings’ story
Jessica runs a bicycle tour company in Healdsburg with her husband Chris. The family owns a duplex: They live in one half and rent out the other. But with their three growing kids, the duplex is practically shrinking around them.
They decided to subdivide their property and build a new family home with an accessory dwelling unit on the newly created lot. Then they could rent out both halves of the current duplex.
But to build, the Pillings would have to pay Healdsburg’s inclusionary housing fee.
When Jessica tried to figure out how much the fee was, Healdsburg officials bounced her around from department to department and gave her vague answers. Finally, someone sent Jessica the fee schedule. For the Pillings to get their building permit, they’d have to pay an inclusionary housing fee of about $40,000.
Jessica couldn’t believe it. Frustrated, she emailed town officials.
“The City complains on end about the lack of housing,” she wrote, “yet this is exactly why nobody is able to build.”
Trying to make Healdsburg see reason
At a February 2024 planning meeting, Jessica and Chris both spoke to the Healdsburg Planning Commission.
“For us, as middle class—we have three kids,” Chris told the commissioners as he stood at the podium. “These fees are excessive. It’s the difference between building and not building. It’s as simple as that.”
The Pillings requested an exemption, pointing out that they qualified for affordable housing themselves and that their project would increase the supply of housing in Healdsburg.
After the couple spoke, commission chair Phil Luks chimed in. “I’m not a big fan of inclusionary housing,” he admitted,
especially the way it works in Healdsburg. I think it’s effectively a tax… and I think our speakers articulated pretty clearly that the very people who are trying to solve the housing problem in Healdsburg are the people who get taxed. It’s almost mind-boggling. It makes no sense.
The main reason inclusionary fees are acceptable, Luks added, “is essentially a political reason.”
And yet, after more discussion, the commissioners decided against exempting homebuilders like the Pillings. Instead, they adopted a revised fee schedule, which dropped the inclusionary housing fee for certain projects by 50 percent. The Pillings would only have to pay $20,000—not $40,000—to get their building permit.
What option did Jessica and Chris have? They decided to pay the reduced $20,000 fee.
“It’s still our biggest fee, even after they cut it in half,” Jessica says. “Like, that’s a big deal. You can do a lot with $20,000.”
The lawsuit
Jessica heard about PLF because of George Sheetz.
George is the California homebuilder who won at the Supreme Court earlier this year with Pacific Legal Foundation’s help. He’d sued his county over a $23,420 impact fee. Figuring it was a long shot, Jessica reached out to PLF about her situation.
We were immediately interested. PLF believes inclusionary housing policies like Healdsburg’s are plainly unconstitutional: The government cannot use land-use permitting to make people pay for problems that the government itself created.
We filed Jessica’s lawsuit in September.
“Mrs. Pilling’s Project does not have any negative impact on the affordability of homes in the City,” PLF argued in our complaint. “On the contrary, elementary principles of economics demonstrate that by building new housing units, the Project increases supply and therefore lowers—not raises—prices.”
Less than two months later, Healdsburg agreed to pay $35,000 to settle with the Pillings—$30,000 to refund the couple for the fee and compensate them for their hardship; $5,000 to PLF for attorneys’ fees. (PLF represents all our clients free of charge but can recover attorneys’ fees from the government.)
The settlement is a solution that makes it easier for the Pillings to build. That’s a clear victory—for Jessica and Chris, for homebuyers and renters in the Healdsburg area, and for the City itself, whether officials realize it or not.
But the City’s inclusionary housing policy stays on the books—and PLF will continue to find opportunities to challenge it and others like it. Just as George Sheetz’s victory helped Jessica Pilling find PLF and fight, so will her victory now help others.
“I hope this is a wake-up call to the City staff and elected officials to start working with their constituents and to take them seriously,” Jessica says. “I also hope this example serves as a push of encouragement to those in a similar situation to keep fighting for what’s right. Don’t give up.”
