Inclusionary zoning—using land use regulation to link development of market-rate housing units to the creation of affordable units—is an appealing policy because it shifts some or all of the direct cost of building and operating affordable housing from the government to market-rate development, particularly when that development benefits from government investments and policy changes. The policy only works, however, if the market-rate units produce enough income to make the entire development, including the affordable units, financially attractive.

In other words, the market-rate units need to “cross-subsidize” affordable units that charge below-market rents. While the city has had a voluntary inclusionary zoning program (the Inclusionary Housing Program) since 1987, there are a number of open questions about how a mandatory program would operate and what effect it might have on the city’s housing market. Under a voluntary inclusionary zoning policy, where a developer receives a density bonus for participating, a developer elects to participate if the benefit obtained from the bonus outweighs the cost of rent-restricting the required number of affordable units.