Inclusionary Zoning: Policy Issue

Overview

Inclusionary zoning, also known as inclusionary housing, policies typically fall into two categories: Voluntary measures that encourage the development of affordable housing by offering incentives such as increased density for the development or mandatory programs that stipulate a percentage of units be set aside and fixed below market rents as a condition of approval for new development.  

Increasingly, the latter is being used by state and local governments to grow affordable housing in communities experiencing high rates of growth. While well intentioned, these policies result in the opposite outcome of its intended aim, as they act as a tax on construction. 

Industry Position

Mandatory inclusionary zoning policies distort the housing market by acting as a deterrent and disincentive to develop rental housing. The National Apartment Association (NAA) opposes mandatory inclusionary zoning as these mandates exacerbate supply challenges and ultimately increase costs for renters. Instead, lawmakers should pursue investment in programs that have a proven track record of benefiting the housing industry, such as the Low-Income Housing Tax Credit (LIHTC), Section 8 Housing Vouchers and project-based rental assistance. 

As an Owner or Operator, How Does this Affect My Business?

Adopted by over 1,000 localities across the country, inclusionary zoning is implemented with the aim of increasing affordability. 

While voluntary inclusionary zoning includes incentives to encourage affordability, they are rarely substantial enough to offset the costs imposed by set-aside requirements, and it's been shown in practice to generate little in the way of affordable housing. Every $100 per month reduction in rent for a single unit translates into approximately $20,000 less per unit in financing.  

Contact Information

To learn more about this issue, please contact NAA's Public Policy team.

Mandatory inclusionary zoning can vary significantly in its implementation, but frequent aspects of the policy include: 

  • A required percentage of units to be rent restricted as a condition of development; 

  • A pay in-lieu fees option for developers, essentially amounting to a tax on new development; 

  • New, bureaucratic processes and agencies created for enforcement and assessing fines. This could include oversight boards that review and regulate prices on restricted units; and 

  • Increased reliance on non-restricted units to compensate for loss of income, increasing rents overall. 

Ultimately, mandatory inclusionary zoning is, at best, an arbitrary government interference in the housing market that increases development and operational costs. At worst, it is a form of rent control that stymies critically needed development. Either way, this policy exacerbates housing supply challenges and increases costs for America’s renters.