The following is for study only and has NOT been approved by the
Local Governmental Relations Committee, the Land Use and Environmental
Committee, the Executive Committee or the Board of Directors.
Issue:What is inclusionary zoning, why
does C.A.R. oppose it, and how can REALTORS® prepare to deal with this
proposal in their local communities?
Action: For information only.
Options: For information only.
Status/Summary: In recent decades, the issue of inclusionary zoning and
resale price restrictions has come to the forefront in California. Housing
affordability has become a serious problem, and these programs, which
typically require the set-aside of units that are affordable to low income
households, are regarded by many as a solution. This paper explains why
C.A.R. opposes inclusionary zoning ordinances, and why some local
Associations have supported such ordinances in their communities. It
examines some of the common features of inclusionary
zoning ordinances, and reveals some fundamental weaknesses intheir
A. Historical Perspective
With more pressure from the state to provide affordable housing, and fewer
government dollars to subsidize such housing, more local governments have
turned to inclusionary zoning programs, which place the primary burden for
affordable housing on the private development community. In its most recent
list, compiled in 1996, the Governor's Office of Planning and Research
identified over 120 cities and counties withsome form of inclusionary
housing policy. This number represents a steady increase over the previous
B. Statement of Purpose
Given that an increasing number of local entities have adopted or are
considering adopting some form of inclusionary zoning, along with the
possibility of a state requirement, this is an issue which still evokes
much interest on the part of local REALTORS®. This paper closely examines
some of the common features of inclusionary zoning programs, with the
intent of providing sufficient background on this subject to REALTORS®,
should it become an issue in their community.
C. C.A.R.'s Position on Inclusionary Zoning
C.A.R. opposes inclusionary zoning for several reasons:* It is
unfair to place the burden of providing affordable housing solely on
developers. The lack of affordable housing is a societal problem, and as
such, all of society should share the responsibility for addressing
* Inclusionary zoning does not address the factors that contribute to the
high cost of market rate housing, i.e., high land costs, lack of available
sites, developer fees and exactions, cumbersome permitting process, etc.
Moreover, inclusionary zoningonly adds costs to the development of market
* Inclusionary zoning places financial hardships on developers. Ultimately,
developers will no longer be able to provide housing in the community
because the costs are too high, or they will pass the costs on to market
rate buyers, thus making it more expensive for the latter to buy a
* Resale price controls eliminate homeowners' ability to realize a
reasonable profit on the resale of their home and takes away theincentive
for them to maintain their home. This makes it difficult to resell
inclusionary units, which lessens their availability to the housing
* The cost of implementing an inclusionary zoning ordinance for a local
government entityis significantly high. Most local governments cannot
afford the staff resources and experience necessary to implement and
administer an effective program.
* Local government can best provide housing that is affordable for its
constituents at all income levels by making it easier for developers to
build such housing. Incentives such as reduced land costs and land
restrictions, increased availability of housing sites, and reduced fees
make the development process less costly and time consuming.
* Because market rate homeowners and renters ultimately bear the cost of
in-lieu fees, implementing such fees constitutes a tax on homeowners and
* Many jurisdictions collect in-lieu fees, but do not leverage the revenues
tobuild more affordable housing. Instead, in some cases, the money is not
spent to produce new affordable housing.D. Local
Some local Associations have adopted a policy toward inclusionary zoning
that differs from C.A.R.'s. In these instances, REALTORS® in these
communities recognized that some form of inclusionary zoning would probably
be adopted by their respective city councils, and they believed that a
workable ordinance could help the city address its affordability
problems. Rather than oppose an inclusionary ordinance, they offered
their own proposal and worked with city officials to make the final adopted
ordinance acceptable to all concerned. VARIOUS FORMS OF
INCLUSIONARY ZONING PROGRAMS
Inclusionary ordinances can vary in a number of ways. However, these
programs typically contain some or all of the following features:
· an inclusionary set-aside, usually ranging from 10to 25 percent of the
· an exemption from inclusionary zoning requirements for small projects,
most often for projects of less than five or ten units.
· affordability criteria based on a percentage of median income and/or
median home prices;
· provisions for in-lieu fees which allow the developer to pay a fee to the
locality instead of building the units;
· restrictions on the resale of affordable units.
B. Mandatory Inclusionary Programs
Ordinances which require a specified percentage of affordable units in all
new construction projects constitute the majority of inclusionary
programs. Almost all mandatory ordinances contain a threshold at
which the inclusionary requirements kicks in. A few cities have a very low
or no threshold, in order to discourage developers from down sizing their
projects to avoid the inclusionary requirements. Some cities also have a
low threshold because a lack of developable land has resulted in a majority
of construction permits being issued to small projects.
Most inclusionary zoning ordinances apply to projects of five or more
units, and may have a threshold of ten. Cities usually target the larger
projects because they are seen as being strong enough financially to be
able to sustain the lower profit margin that results from including the
below market rate units.
Mandatory inclusionary ordinances also require a specified number of
affordable units to be built in the project. This requirement is a
percentage of the total number of units being built. The percentage can be
as low as 10 percent, or as high as 30 percent in all new multi-family
projects. The percentage sometimes reflects an overall goal for affordable
housing which the local government wants to reach.
Most mandatory programs also have an option to pay in-lieu fees instead of
building the affordable units. This will be discussed in detail
C. Voluntary Inclusionary Zoning Programs
Some local governments do not require developers to build affordable units,
but they offer builders the option of receiving one or more concessions in
exchange for setting aside affordable units on their own volition.
These concessions may be given in the form of an increase in the number of
units provided or lower parking lot requirements, for example, which can
lower the developer's costs and may make the project more profitable.
In many cases, units provided under voluntary inclusionary programs must
also be placed under resale restrictions.
D. Inclusionary Exactions on Commercial Developments - Linkage
Most inclusionary programs apply strictly to residential projects. However,
some cities also require exactions from commercial and/or industrial
developers. These exactions are usually for an in-lieu fee which is placed
in an affordable housing fund to help finance future projects. These
requirements are often referred to as linkage programs because they assume
that a link exists between the construction of a new commercial or
industrial project and an increase in affordable housing needs in the
community, presumably from the new workers that the project brings.
E. Inclusionary Zoning and Growth Control
In order to counter allegations that growth controls exclude low- and
moderate-income buyers from a community's housing market, many cities which
have such ordinances have incorporated an inclusionary component.
A CRITICAL LOOK AT THE BASIC FEATURES OF INCLUSIONARY ZONING
As discussed above, all inclusionary zoning programs share some or all of
several basic provisions. This section examines these features and reveals
some fundamental weaknesses in the concept of inclusionary zoning based on
common problems that have occurred in numerous cities.
A. Resale Controls
In order to ensure that inclusionary units remain affordable, most
inclusionary ordinances contain resale restrictions for ownership units.
These provisions, which typically come in the form of a deed restriction,
require ownership units to be sold to another qualified low- or
moderate-income buyer at a restricted price. The restriction applies to
units that are sold within a certain time frame, usually 30 years.
Resale restrictions include various enforcement mechanisms. Several
cities and counties, for example, have the right of first refusal when an
inlusionary unit is resold. In this case, a city may have 60 days to
buy the unit after an owner decides to put the unit up for sale. The city
will purchase the unit at its appraised value or a value based on the
original purchase price plus an amount tied to the increase in the Consumer
Price Index(CPI) during the time the seller owned the unit, whichever is
In other localities, affordable units can only be resold to someone who
falls into the same low- or moderate-income category as the original buyer.
If after one year the ownercannot find a buyer in his/her income category,
the local government may allow the home to be sold to someone at a higher
A city may also buy back units when owners cannot find buyers who qualify
under low-and moderate-income guidelines. Since sellers do not want to go
through the trouble to find buyers who qualify under the city's guidelines,
the city may use money from in-lieu fees to purchase the units.
Other cities require an equity recapture as opposed to resale
B. In-lieu Fees
As stated earlier, most mandatory programs also have an option to pay
in-lieu fees instead of building the required number of affordable units.
While average housing prices in California certainly vary from region to
region, the amount charged for in-lieu fees varies more dramatically.
Fees may be based on a percentage of the cost of land in the city, or they
may be calculated from a formula that is based on the difference between
the cost of producing the units and the price at which median-income
families can afford to buy them. Other formulas include: a percent of
the gross sales value of the total number of units, or simply a flat
rate per unit.
Many jurisdictions preferthat developers build the required number of units
under the inclusionary ordinance as opposed to paying the fee. However,
because paying the fees is less expensive for developers than building, if
given the choice, developers will often opt to pay the fee. To prevent
this, many jurisdictions have adopted strict guidelines as to when the
in-lieu fee option can be used. Several cities do not allow in-lieu
fees. Others only allow certain projects to pay fees.
C. Density Bonuses and Other Incentives
Because developers sustain a loss of profit when building below market rate
units, cities and counties that have inclusionary zoning ordinances provide
incentives to encourage developers to participate. A common incentive is
the densitybonus. The density bonus allows the developer who builds a
certain percentage of affordable units to include a certain percentage of
market rate units in addition to what would otherwise be permitted under
the zoning restrictions for that particular planning area. This provides
the builder with an opportunity to recoup the loss he takes by
participating in the inclusionary program. One problem that local
governments experience with the density bonus is neighborhood
The staterequires all local governments to provide a density bonus to
developers who provide a certain percentage of affordable units. The state
requires all cities and counties to provide a 25 percent density bonus to
any developer whose project includes 20 percent low-income units, 10
percent very low-income units, or 50 percent senior units.
D. Administrative Costs
Perhaps the most significant drawback to inclusionary zoning programs is
the administrative liability. Inclusionary zoning ordinances require a
great deal of staff supervision in order to make them effective. As one
county official explained, "inclusionary zoning programs are not
The greatest demand for program supervision probably comes from resale
controls and other mechanisms for ensuring long-term affordability. Resale
controls involve many complicated legal and title issues, and they require
After examining all of the above examples, several observations can be made
about inclusionary zoning programs. While these programs were designed to
address communities' affordable housing needs, they present many problems
as well. Localities frequently cite problems with such provisions as
threshold requirements, fees, qualifying buyers, meeting all of the
affordable housing needs of the community, legal and technical issues with
resale controls, enforcement, and administrative time.
Cities and counties that are considering adopting an inclusionary zoning
ordinance must ask themselves if the proposed ordinance will produce enough
affordable housing unitsand meet enough of the affordable housing needs of
the community to justify its existence. REALTORS® who are involved in
discussions of this issue must consider all of the above when determining
their own position and when confronting local officials on the
Should REALTORS® choose to oppose an inclusionary zoning proposal in their
community, they must be prepared to offer alternatives for meeting the
local population's affordable housing needs. Their suggestions should
reflect the specific circumstances of the local community. For
additional information, please contact C.A.R.'s Public Policy Division at
(213) 739-8375, or send an e-mail to Rick Laezman at