Inclusionary Zoning

What Is Inclusionary Zoning?

Inclusionary zoning (IZ) is a local rule that links the creation of affordable homes to the construction of market-rate housing. When a developer builds a new apartment complex or subdivision, a share of the units must be sold or rented below market to income-qualified households. A program might require 10% to 30% of new homes to be affordable, according to Grounded Solutions Network, a national nonprofit.

The name is a deliberate contrast with exclusionary zoning. A 2012 HUD-sponsored Urban Institute review notes that IZ first developed as a response to zoning that severely limited affordable housing.

How Inclusionary Zoning Works

Programs vary widely, but most share a few design choices:

• Mandatory or voluntary. Mandatory programs make set-asides a condition of approval. Voluntary programs offer incentives and let developers decide whether to take them.
• Income targets. Each program sets the income levels served. Some target very low-income households; others serve households earning up to 120% of area median income.
• Cost offsets. Many programs grant a density bonus, reduced parking, or faster permitting to help cover the cost of below-market units.
• Alternatives. Some let developers pay an in-lieu fee, build the affordable units off site, or donate land.
• Affordability term. Units are deed-restricted for a set period. In Montgomery County, Maryland, rental units built since a 2005 amendment carry 99-year terms.

Montgomery County enacted one of the earliest and best-known programs, its Moderately Priced Dwelling Unit (MPDU) law, in 1973, and the law took effect in 1974. It originally required 15% of homes in subdivisions of 50 or more units to be moderately priced, paired with a density bonus of up to 20%.

A Grounded Solutions survey counted 1,019 programs at the end of 2019. The 258 programs that reported production data had created about 110,000 affordable units.

Criticisms and Limitations

Critics have long argued that a mandatory set-aside works like a tax on new housing, which economic theory predicts would reduce construction and raise market-rate prices. The evidence is mixed. A 2021 study of the Baltimore-Washington region published in HUD’s Cityscape journal found some evidence that IZ raised market-rate home prices but none that it reduced new housing supply. The same study found most voluntary programs produced few units.

IZ also depends on private construction: where little is being built, it produces little. And there is a trade-off between depth and volume. Requiring units for very low-income households costs developers more than serving households near the median, so programs must balance how deep the affordability goes against how much they ask of each project. For more, see inclusionary zoning explained.