Inclusionary zoning is one tool that local governments can use to increase the production of affordable housing units, especially in areas where they are not typically delivered. Based on discussions with local policymakers and a review of the available evidence, this brief probes one component of inclusionary zoning, alternative compliance via in-lieu fees. Jurisdictions face trade-offs when they allow developers to pay in-lieu fees instead of building on-site units. In-lieu fees, if they are not set at an appropriate level, can undermine jurisdictions’ affordable housing goals. To avoid potential negative outcomes, jurisdictions looking to create new inclusionary zoning policies and revise existing policies should carefully weigh factors like a local market and political contexts, as well as feedback from nonprofit developers and residents.

Inclusionary zoning often interacts with other tools that jurisdictions use to create affordable housing units. Some jurisdictions do not have affordability requirements for all new developments but instead require that developers create affordable units in exchange for additional density, requests to change the general land use plan, or receipt of public funding. For example, a jurisdiction might allow a developer to build at increased density in exchange for making a portion of those extra units affordable. This is often referred to as voluntary inclusionary zoning. Under inclusionary zoning, developers are encouraged or required to set aside a share of the market-rate housing they’re creating to be sold or rented at below-market rates. Inclusionary zoning leverages the private market to create housing units that are affordable to households with lower incomes while allowing development projects to produce a return on investment. For that reason, inclusionary zoning policies are more effective in areas where more development is occurring.