When Disneyland opened, Anaheim consisted of industrial land and orange groves. Now Anaheim's population totals more than 344,000, making it bigger than Tampa, Cincinnati, Pittsburgh, Newark, Buffalo, New Orleans, and Orlando. In the 1990s, Anaheim had one of the largest gains in share of Latinos in the United States, from 31 percent to 47 percent. Some of these new arrivals have been middle-class families from Los Angeles seeking better homes; others have been Mexican immigrants attracted by the low-wage service-sector jobs available throughout the resort district.

Disney resort workers do better than many: Some are unionized and receive health benefits. But in a county where the median home price is greater than $570,000, Disney has helped create a demand for affordable housing that's not being met. A city plan meant to address the problem calls for building 1,328 affordable units during the four-year period ending in 2009, but according to the Kennedy Commission, an Irvine advocacy and policy group that studies housing in Orange County, Anaheim needs to more than triple that number to meet existing needs.

Anaheim's poorest workers cope in various ways. An estimated 1,800 motel rooms in the city are being used as permanent shelter for homeless families. Some people commute an hour from Riverside, where housing is cheaper. Others cram into apartments. In one house two miles from the resort, nine people make their home, with two bedrooms being shared by resort employees working different shifts, one man sleeping in the laundry room, and the rest filling living-room couches that were scavenged from a dumpster in nearby Seal Beach.

"It's tough," says 47-year-old Abigail de la Cruz, a banquet server at a Disney hotel, whose family of four occupies a tiny one-bedroom garden apartment about a mile from Disneyland. His teenage boys sleep in a bunk bed in the living room, climbing over de la Cruz and his wife to get to the bathroom.

The Disney dispute stems from the tension between the company's desire to control its own fate and expand and Anaheim's top priority: encouraging landowners to build more housing and retail outlets in order to accommodate the city's growth. While Disney has had its eye off the ball, city officials and developers have pushed ahead.

In 2005, SunCal, a regional developer, quietly signed an option to buy 26 acres, including the two mobile-home parks across the street from a strawberry field that Disney had long regarded as the possible site of a third theme park. The SunCal land, restricted by the provisions of the resort district, was probably worth less than $2 million an acre while it was zoned for hotels. But if a developer won the right to build housing there, it could flip the property and make as much as triple that amount.

The proposed zoning permitted 1,920 condos on the property. To sweeten the deal for city officials, 15 percent of those units would be set aside for affordable housing. SunCal allied itself with labor and housing advocates who saw the affordable-housing guarantee as a high-profile precedent that could be applied to other Anaheim projects in the works.

SunCal's timing appeared to be exquisite. Disney was preoccupied. Its executives were busy with Disneyland's 50th anniversary celebration. Ed Grier, the new Disneyland president, was still commuting between Anaheim and Tokyo, where he had overseen operations of Tokyo Disney Resort. Following Japanese protocol, he was slowly introducing his successor there to local partners. An Atlanta native, Grier had worked at theme parks in Florida and France but never in Southern California. "I was new to the area," he admits.

It took a while, but SunCal's project gained traction, despite Disney's objections. Finally, Disney realized that its walled-off world was under threat. Simply throwing a party—a time-honored Disney tactic—wouldn't be enough. Top executives at the company's headquarters in Burbank joined their Anaheim-based counterparts in shaping a fight plan. Former New York governor George Pataki, who was close to executives at both Disney and SunCal, flew in from New York to negotiate a compromise, but nothing materialized. A high-profile L.A. political consultant and a land-use attorney became part of the Disney war council.