White Paper: Inclusionary Zoning in Oregon

Inclusionary zoning (IZ) is a market-based, land-use housing policy that enables lower and moderate-income households to live in new, private developments in middle- or upper-income communities. By integrating affordable units into market-rate projects, IZ creates opportunities for households from diverse socioeconomic backgrounds to live in the same communities and allows people of all incomes to have access to the same amenities, services, and opportunities. This policy not only addresses housing affordability but also promotes social equity and community integration.

Inclusionary zoning policies encourage real estate developers to include units that are sold or rented at below-market prices into market-rate developments in exchange for incentives designed to offset the costs. These incentives can include density bonuses, expedited permit approval, reduced parking requirements, and fee waivers. The goal is to create more inclusive, mixed-income communities that reduce concentrated poverty in other areas by giving low- and middle-income families more opportunities to live in low-poverty neighbourhoods.

Inclusionary zoning programs vary widely in their structure and can be broadly categorized into two types: mandatory and voluntary.

Mandatory ordinances require any new development over a predetermined threshold of units to “set aside” a certain percentage of units as affordable, or pay an “in-lieu-of” fee into a local housing trust or program. For example, Montgomery County, MD, has a Moderately Priced Dwelling Unit (MPDU) Program that requires new subdivisions to set aside between 12.5 percent and 15 percent of new homes as affordable units. This approach ensures a consistent supply of affordable housing but can face challenges in terms of developer acceptance and political feasibility.

Voluntary programs, on the other hand, are sometimes seen as more feasible politically but produce far fewer affordable units and must offer substantial subsidies to the developer. These programs provide incentives to developers to include affordable units in their projects. For instance, Chicago’s Affordable Requirements Ordinance offers developers incentives such as density bonuses and reduced fees in exchange for including a certain percentage of affordable units in their developments. While voluntary programs can be more flexible, they often rely on developer cooperation and may not produce as many affordable units as mandatory programs.

The benefits of inclusionary zoning are multifaceted. By reducing concentrated poverty, IZ can lead to lower crime rates, improved educational outcomes, and better public health outcomes. It also opens more neighborhoods to market-rate development opportunities, fostering economic growth and community development. Additionally, IZ ensures that everyone has access to high-quality housing, recognizing that place matters in terms of access to good jobs, schools, transportation, and healthy living environments.

Despite its potential benefits, inclusionary zoning also faces several challenges. One of the main concerns is the potential impact on the housing market. Some studies suggest that IZ can lead to a reduction in overall housing production, particularly in areas with high land costs and limited developable land. For example, in New York City, the Mandatory Inclusionary Housing (MIH) program has faced criticism for its impact on development in weaker housing markets. Additionally, there are concerns about the potential for IZ to increase market prices for upper-end homes and reduce average house sizes.

The successful implementation of inclusionary zoning requires careful policy design and consideration of local housing market conditions. Identifying the appropriate set of cost offsets is crucial to ensure that developers have strong incentives to participate in the program. This can include density bonuses, reduced parking requirements, and other regulatory relief measures. It is also important to balance the need for affordable housing with the economic realities of the housing market to avoid unintended consequences.

Inclusionary zoning is a powerful tool for promoting housing affordability and social equity. By integrating affordable units into market-rate developments, IZ creates more inclusive communities and provides opportunities for people of all incomes to access the same amenities and services. While there are challenges associated with its implementation, careful policy design and consideration of local housing market conditions can help maximize its benefits and minimize potential drawbacks. As communities across the country grapple with housing affordability issues, inclusionary zoning offers a market-based solution that can contribute to more equitable and sustainable development.