"Inclusionary Zoning" Can’t Make Zoning Inclusionary

Good branding can't replace good zoning rules

The urban planning profession that oversees our housing system is enamored with confused ideas papered over by gentle words that make solving problems harder. Often, these ideas were intentionally branded so as to make them more politically palatable.

“Inclusionary zoning,” as it has come to be defined, may be the best branded phrase of the housing world because it isn’t even zoning at all. It’s a tax imposed on new for-profit housing development that subsidizes rent-controlled, income-restricted housing.

Though generally well intended, the most common forms of inclusionary zoning in the United States often distract local governments from implementing zoning that actually makes cities more affordable.

Background for the Uninitiated: What is Inclusionary Zoning? (zoning nerds skip two sections down)

Inclusionary zoning (IZ) describes laws that mandate all new housing include a minimum portion of “affordable housing”: rent-controlled, income-restricted apartments for lower-income tenants (for more on the definition of “affordable housing,” see my recent post on the topic). IZ policies require for-profit developers to allocate a portion of homes in new housing developments for lower-income tenants or pay a fee.

For example, my hometown of Lafayette, California has an inclusionary zoning rule that requires nine percent of all new rental apartments to “be rented at an affordable price to low-income households and six percent rented at an affordable price to very low-income households.”¹

“Inclusionary zoning” arose in the 1970s in response to “exclusionary zoning.”

Exclusionary zoning describes anti-housing zoning laws that ban apartments from certain neighborhoods. As explicitly racist housing laws became illegal over the course of the civil rights era, cities across the country implemented draconian zoning rules functionally banning new housing.

For example, as recently as 1950, a developer could build an apartment in most residential neighborhoods in California. Over the second half of the 20th century, cities implemented ever-stricter zoning rules banning housing. Today, about 75% of residential neighborhoods across America ban any type of development except single-family homes, limiting housing to one home per lot; in California, a whopping 96% of residential neighborhoods ban multi-family homes.

Cities implemented exclusionary zoning laws for many reasons, many not directly intending to entrench racial segregation. Yet the unintended consequence is U.S. neighborhoods today are more segregated than they were in 1990. Residential segregation dropped briefly over the 1970s and has rebounded since then.

Inclusionary Zoning in Practice

Inclusionary zoning was supposed to desegregate housing and increase affordability by promoting mixed-income housing, putting lower-income and market-rate homes in the same buildings. Since the policy’s inception in the 1970s, more than 1300 jurisdictions have implemented IZ policies of some sort. Those policies have led to the production of hundreds of thousands of homes set aside for lower-income residents across the country.

On the other hand, unfunded inclusionary zoning has unintended consequences by making housing harder to build. Earlier this year, super-blogger Matthew Yglesias summarized:

The problem is best illustrated by this modeling exercise Shane Philips did for the Terner Center, which looks at the impact of different IZ rules on housing production in Los Angeles. He says that with no IZ rule, nearly 400,000 new units would be built. If a 25 percent IZ rule were imposed, that would result in 49,500 new affordable units, but at the cost of creating 200,000 fewer units overall … What’s weird about IZ is that it’s essentially taxing housing in order to subsidize housing, which doesn’t make sense if your concern is the cost of housing.

Other writers have thoroughly discussed the impacts of inclusionary zoning policies on actual housing outcomes. Perennial social media poaster (and thoughtful writer) Sam Deutsch reviewed the benefits and costs and inclusionary zoning. Housing advocate prodigy Darrell Owens described IZ as a bad housing affordability strategy unless governments provide subsidy funded by taxing moneyed interests rather than taxing new homes. Journalist Benjamin Schneider defended IZ when rates are low, participation is voluntary, and the policy pairs with incentives like government subsidy.

Outcomes are only one part of the story though. Inclusionary zoning also warps the politics of housing, muddying the waters about effective strategies to make our cities more affordable.

IZ Confuses Local Governments

Local governments will implement “inclusionary zoning” to prove that they are promoting housing affordability and integration when they are often doing the opposite.

First, an extreme example: The city of Atherton, California—median home value $8,000,000 dollars—has been in the process of implementing an inclusionary zoning ordinance even though multi-family housing has never been built in Atherton’s history. Requiring 20% of zero new homes to be available for lower-income tenants still means that zero new homes will be available for lower-income tenants.

In fact, Atherton is implementing its inclusionary zoning ordinance in response to California state law requiring cities to promote fair housing and desegregation. The state housing regulator directly approved Atherton’s plans to pursue inclusionary zoning!

Yet in Atherton, the state’s goals to promote fair housing don’t result in zoning that includes people of all economic backgrounds. Atherton’s properties primarily consist of large mansions on lots larger than an acre—because the city has a minimum lot size of one acre per home, meaning residents must be able to afford a lot of land in an expensive area to live there. Though the city recently allowed multi-family homes on a handful of parcels, it imposed such onerous restrictions at such low densities that it’s unlikely any will ever be built.²

Lafayette, California, my hometown, has a well-intended inclusionary zoning ordinance with terrible consequences. Lafayette’s inclusionary zoning ordinance requires that rental housing meet stricter requirements than ownership housing. Since 2016, when Lafayette passed its inclusionary zoning ordinance, not a single rental project has been built in the city. And 98% of Lafayette’s residential land bans multi-family homes in the first place.

In both cases, so-called inclusionary zoning creates exclusionary outcomes. And it does nothing to address the underlying exclusionary zoning that limits apartments to a narrow area, often making them infeasible to build even when theoretically legal because of other onerous requirements.

Inclusionary zoning warps politics in big cities as well. For example, San Francisco and Los Angeles both recently implemented major citywide zoning reforms to promote housing. But with a twist: Rather than simply changing their zoning codes to allow more housing, both cities implemented fancy “density bonuses”, policies offering extra height, density, and other flexibility on housing development standards in exchange for a higher percentage of inclusionary low-income housing.

Density bonuses sound good in theory, and they can have a positive impact in a vacuum. California’s state density bonus law, for example, has been used to build hundreds of thousands of homes across the state in the last decade.

But density bonuses only work when (1) base zoning rules are strict and (2) housing prices are high. Density bonus programs still require developers to bear the high cost of unfunded low-income mandates, which is only possible under circumstances where market rents can cover those costs.

And regardless of the economics or the benefits that inclusionary homes may provide, none of these cities have zoning that is actually inclusive. Even after its pro-housing reforms, 78% of residential land in Los Angeles still bans apartments. (Though state level recent reforms like SB 79, allowing more homes near transit, will make a modest dent!) Where cities allow apartments, additional zoning rules generally constrain them to be short and low density, even with the density bonuses in place. Better than Atherton and Lafayette, but hardly an impressive statistic for America’s second most populous city.

While the state continues to grapple with exclusionary zoning, California’s inclusionary zoning regime has not successfully promoted integration or affordability. Recent Californian emigrants cite housing costs as the number one cause for leaving the state, and a plurality of California expats move to Texas—a state that largely bans inclusionary zoning. Even as high home prices indicate California remains desirable, many of its lower-income tenants have moved to a state that doesn’t purport to include them. It simply allows more building. Texas built almost three times more homes per capita than California between 2015 to 2024.

Toward Zoning That Truly Includes

Despite my gripes, inclusionary zoning is smart branding, and its proponents generally mean well. Who doesn’t want zoning to be inclusionary? It’s certainly less of a mouthful than “unsubsidized low-income housing mandate funded by a tax on new housing, paid primarily by future tenants.”

However, residential zoning as practiced today is inherently exclusionary, no matter how it’s branded. The 1926 Supreme Court court case that legalized the strictest forms of residential zoning, Euclid v. Ambler, refers to apartments and the renters who live in them as parasites on single-family neighborhoods.

A plain language definition of “inclusionary zoning” would broadly mean less residential zoning, period, not a subtle tax on new homes to pay for other homes.

Whatever their opinion on the merits of unfunded inclusionary zoning as a tool, advocates and planners who care about housing affordability need to come up with alternatives fast or a combination of the courts and political pressure will do it for them.

Already, cities across California and elsewhere are reforming their inclusionary zoning rules in response to tariffs, high interest rates, labor shortages fueled by immigration crackdowns, and other macroeconomic factors that have further increased development costs—meaning fewer and fewer potential housing projects can afford to pay the costs of inclusionary zoning, so they never get built at all. To promote development feasibility, suburban cities like Redwood City lowered their rates earlier this year (from 20% to 15%, a modest reform); San Jose and other larger cities are evaluating steeper reforms.

As cities look at political solutions, lawsuits brought by the libertarian Pacific Legal Foundation in areas across the country strike at the core legal assumptions justifying inclusionary zoning.

A lawsuit brought by a homeowner in the small Bay Area city of East Palo Alto against a de facto 50% inclusionary rate on two-unit developments was recently settled without much fanfare, but other cases continue. In Wyoming, another lawsuit challenges Teton County’s workforce housing fee, a form of inclusionary zoning, which would have required one homeowner to pay $25,000 to build an accessory dwelling unit. In Denver, Colorado, a similar case challenges a $45,000 inclusionary fee leveraged on a project to build two duplexes.

In both cases, the Pacific Legal Foundation argues “Increasing the stock of available housing is a solution to the housing affordability problem, not an issue to be mitigated … Governments cannot force homebuilders to foot the bill for problems they do not create.”

If cities want to reduce segregation, increase housing stability for longtime residents, and promote economic mobility for the future, there are two broad strategies they should pursue that in tandem can better deliver on the promise of inclusionary zoning:

1. True inclusionary zoning means allowing housing in every neighborhood. At the very least, multi-family homes should be allowed in the same building envelope as single-family homes. If a property owner can build a 4,000 square foot single-family home, they should be allowed to build four 1,000 square foot multi-family apartments. As neighborhood needs evolve over time, cities should allow progressively more density, height, and other flexible standards to accommodate rising demand.

2. Offset costs by subsidizing housing for lower-income tenants at below market-rate rents. Subsidies could occur directly, such as government funding for market-rate developers to provide more low-income homes (ideally funded by taxes on wealthier land owners!). Such public-private partnerships would resemble the successful so-called “social housing” models of many European and Asian countries, many of which have substantially more housing development than U.S. cities and correspondingly lower average prices. Subsidies could also include indirect strategies, such as reductions of expensive impact fees or property tax breaks for developments that provide more housing at below market rates for lower-income tenants. The 421-a program in NYC funded tens of thousands of lower-income homes with property tax breaks before it expired in 2022.³

The original goals of inclusionary zoning—ending segregation, promoting stability and mobility for lower-income households, creating beautiful cities accessible to people of all backgrounds—still matter. To achieve those goals, we need more than unclear jargon: We need more homes, in more places, for more people.

Read more by me:

• “Affordable Housing” Alone Can’t Make Housing Affordable

• Zoning Controls Your Life, But It Has Dark Origins

• The Death Knell of “Inclusionary Zoning”

1. The ordinance defines low-income households to be those earning 80% of the median income and very low-income households to be those earning 50% of the median, a standard definition reflecting guidelines from the federal Department of Housing and Urban Development. Again, my recent article contains more information on these definitions.

2. For example, Atherton’s new zoning for multi-family homes requires:

• A 12-foot landscape screening requirement between properties, imposing large landscaping costs on new residents;

• Parking requirements tying the parking minimum to bedroom count, so a one-bedroom home requires one spot whereas a two-bedroom home requires two. As a result, Atherton is disincentivizing family-sized homes;

• Window detail requirements mandating windows on the second story or higher must be elevated at least 54 inches above the floor and made “translucent but not transparent”–essentially eliminating the ability to build windows on second or third stories that future multi-family residents can look out of;

• A maximum of four primary entryways to any one building, disincentivizing townhomes; and more.

3. NYC’s 421-a tax break program may have been too generous; it likely would have produced far more homes if not for NYC’s exclusionary zoning and byzantine permitting process. There’s an interesting discuss to be had regarding how generous incentives for mixed-income housing should be. European countries have broadly solved this problem in their social housing systems by offering incentives to developers and then letting the developers bid on proposing projects, leveraging a market mechanism to discover how much lower-cost housing is feasible to provide.