“Is there a reason none of your email addresses got the letter I sent yesterday?” Jessica Pilling calmly asked the members of the Healdsburg Planning Commission as she stood in front of them at the podium.
It was a Tuesday evening in February 2024. All the Pillings had come to the planning meeting: Jessica, her husband Chris, and their three young children. (“We didn’t have anyone to watch the kids,” Jessica remembers.) The kids played at the back of the room.
Instead of letting people build, California prefers to “fix” housing problems with its own convoluted recipes.
Jessica and Chris were upset: They’d been trying to email the commissioners about the $40,000 “inclusionary housing fee” the City wanted to tack onto the family’s homebuilding project. The commissioners said they hadn’t received the emails. Now Jessica looked them in the eyes and laid out the facts: her plan to build a family home, the unreasonable fee, and how the City made it impossible to build much-needed housing in Healdsburg.
She didn’t raise her voice, but her frustration was clear. At times she broke into a wry smile, like she couldn’t believe what was happening.
After Jessica spoke, Chris went up to the podium. “For us, as middle class—we have three kids,” he told the commissioners. “These fees are excessive. It’s the difference between building and not building. It’s as simple as that.”
Inclusionary Housing
The great (and terrible) irony of inclusionary housing is it’s the government’s idea for how to make homes more affordable.
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 policies, including Healdsburg.
There is, of course, an easier way the government could make homes more affordable: Allow homebuilders to build. The law of supply and demand is simple. When there’s high demand for something, you need to increase supply to lower prices. The way to make housing more affordable is to build more housing. That’s it—that’s the magic potion, the miracle cure.
But in California, housing policies aren’t based on the law of supply and demand but on the law of government, which is: The simplest solution is never the best one. (Think of it as the inverse of Occam’s Razor.) Instead of letting people build, California prefers to “fix” housing problems with its own convoluted recipes. A dash of coercion mixed with righteousness, red tape, and other people’s money—that’s politicians’ snake-oil solution to the housing crisis.
And that’s how we get inclusionary housing—a policy that makes homebuilding projects less affordable in the name of affordable housing.
The Pillings’ Story
Jessica and Chris Pilling run a bicycle tour company in Healdsburg, a small town in California’s Wine Country. (“It’s like the crown jewel of Sonoma County,” Jessica says.)
The family owns a duplex: They live in one half and rent out the other. But with three growing kids, the duplex was practically shrinking around them. So the Pillings decided to subdivide their property and build a family home with an accessory dwelling unit on the newly created lot. Then they could rent out both halves of the current duplex.
“If the City truly wanted more housing, they wouldn’t charge outrageous fees to those trying to build more housing.”
Jessica Pilling
Jessica and Chris are an entrepreneurial couple. The bicycle tour company is actually their “fun side business”—Chris, an engineer who used to work at the U.S. Patent Office, also runs a patent agency. Jessica used to run a recruiting company. If any couple could manage a homebuilding project like this, it’s the Pillings—and at first, they did manage it. They successfully subdivided their lot and began designing their new home in consultation with architects.
But to get a building permit, they’d have to pay an inclusionary housing fee.
Jessica tried to figure out how much the fee would be. “It’s very murky with the City,” she says. “I’m very detailed.” When she called, 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. By the standards of Healdsburg—a wealthy town—the Pillings themselves qualify for affordable housing. Inclusionary housing policies are designed to help people like them—yet this fee would make the Pillings’ home decidedly less affordable and achievable.
Frustrated, Jessica emailed the town.
“The City complains on end about the lack of housing,” she wrote, “yet this is exactly why nobody is able to build.”
A Broken Policy
Healdsburg is one of countless American cities that force new homebuilders to subsidize affordable housing through inclusionary housing ordinances.
“Government officials like to call these schemes ‘inclusionary zoning’ as a way of pretending that they are a solution for their exclusionary zoning policies,” my colleague Jim Burling writes in his book Nowhere to Live. “But they have nothing to do with zoning.”
Exclusionary zoning limits development in certain neighborhoods, which drives costs up. It’s popular in California, where, according to one University of California, Berkeley study, 95.8 percent of total residential land is zoned as single-family-only. As Jim says, inclusionary zoning is designed to sound like a shiny antidote to the government’s own restrictions.
But it’s an old con—because inclusionary housing mandates do not work. They don’t make housing more 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.
“[M]ost ‘inclusionary’ programs are ironically titled,” Robert Ellickson, law professor at Stanford University, wrote in 1981. He explained:
These programs are essentially taxes on the production of new housing. [They] will usually increase general housing prices, a result which further limits the housing opportunities of moderate-income families.
And yet, over forty years after Ellickson wrote that, cities like Healdsburg are still clinging to their inclusionary housing policies—and families like the Pillings are paying the price.
In Front of the Commission
In February, Jessica and Chris asked the Healdsburg Planning Commission for an exemption from the fee.
After the couple took turns speaking at the planning meeting, commission chair Phil Luks spoke up.
“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 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.”
More upsetting than the money was the principle of the thing. Healdsburg was binding residents with loopy, acrobatic logic: To solve the problem of affordable housing, the City was demanding thousands of dollars from a couple who qualified for affordable housing and were trying to build their own home.
“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.”
Jessica went to the City office and paid the $20,000 fee—but she also filed a protest letter. The woman at the office didn’t know what to do with the letter.
“She’s like, ‘Well, no one’s ever done anything like this before,’” Jessica remembers. “And I said, ‘Well, I’ve done a lot of things no one’s ever done before.’”
By then, Jessica had heard about the case of George Sheetz, the California homebuilder who sued his county over a $23,420 impact fee. Pacific Legal Foundation represented him at the Supreme Court and won a unanimous decision in April.
Jessica wrote to PLF, figuring it was a shot in the dark. But PLF responded: We wanted to help the Pillings sue the City.
On September 5, we filed the lawsuit.
“Mrs. Pilling’s Project does not have any negative impact on the affordability of homes in the city,” PLF argued in the 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.”
Healdsburg responded days later with a press release to local media. Calling PLF “a legal organization known for challenging government policies,” the City stood by its inclusionary housing policy.
“[Inclusionary housing] is a sound and widely accepted approach to maintaining housing affordability and diversity,” the City argued.
A Surprising Victory
Most lawsuits take years to resolve themselves. George Sheetz was wrapped up in litigation for seven years before his case reached the Supreme Court—and even now, after his victory, George’s case is ongoing in a lower court.
The Pillings’ lawsuit lasted less than two months.
In October, Healdsburg agreed to pay $35,000 to settle the case: $30,000 to the Pillings and $5,000 to PLF for attorneys’ fees. (PLF represents all clients free of charge but sometimes recovers attorneys’ fees from the government.) The Pillings’ $30,000 would not only refund them for the $20,000 inclusionary housing fee they’d paid under protest but would also cover the hardship they’d experienced while fighting.
“Clearly the City is in the wrong and has admitted so in settling my case,” Jessica says.
She feels “fortunate” that PLF represented her. At the same time, she’s frustrated it had to come to a lawsuit: The city could have just listened to her when she tried to make officials see reason. A lawsuit “should not be a necessity,” she says.
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.
And yet the inclusionary housing ordinance stays on the books—like a sign forewarning all other homebuilders: Abandon all hope, ye who enter here.
“If the City truly wanted more housing, they wouldn’t charge outrageous fees to those trying to build more housing,” Jessica reiterates. “It’s simple.”
Economists and housing experts agree with her. So how many more lawsuits, studies, and arguments will it take to knock down inclusionary housing, one of the government’s favorite quack remedies for the housing crisis?
Probably quite a few: Politicians are still hawking rent control, after all, which in 1971 was called “the most efficient technique presently known to destroy a city—except for bombing.” Inclusionary housing, like rent control, seems to have a disappointingly long shelf life.
But just as George Sheetz’s victory gave Jessica Pilling courage to fight, so can Jessica’s victory give courage to other homebuilders.
“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.”
