Study Highlights Housing Tradeoffs in Inclusionary Zoning Policies
A recent report, authored by the UCLA Lewis Center for Regional Policy Studies and published by the Terner Center at UC Berkeley, examines how inclusionary zoning rules impact housing production and affordability. The report notes that although inclusionary zoning can help increase housing for low-income families, the mandates also suppress overall housing production if taken too far.
The report primarily focuses on the city of Los Angeles’ Transit Oriented Communities (TOC) program. This program was implemented in 2017 with a goal of boosting housing production, including below-market rate units, near bus and train stations.
Inclusionary zoning (IZ) refers to local government ordinances that require a certain percentage of new residential construction to be sold or rented at below-market rates. According to the Terner Housing Policy Simulator, Los Angeles’ TOC program, with an IZ requirement of 11%, has likely boosted below-market-rate (BMR) homes with minimal negative consequences for overall housing production.
However, increasing the required percentage of BMR units under IZ policy could sharply reduce overall housing production with declining benefits for overall housing affordability.
This study finds that changing the IZ level entails significant tradeoffs between BMR and market-rate production. As the BMR requirement rises, there are diminishing returns to BMR production and accelerating losses to overall housing production. In simulating increases in IZ requirements, each percentage point increase in requirements between 1% and 16% is associated with a reduction of between 4,600 and 11,900 market-rate units.
Beyond a certain level, higher IZ requirements produce less BMR and less market-rate housing. A 20% IZ requirement, while producing 50,000 BMR units, would reduce market-rate production by over 200,000 units.
Additionally, the study found that even small increases in rent growth in the unrestricted rental market would be enough to negate the value of private IZ subsidies. For example, compared to a no-IZ scenario, additional rent growth of just 0.8% per year in the 16% scenario would negate the value of private subsidies from IZ. The author concludes that two critical aspects of IZ programs are providing development incentives when market-rate developers include BMR units and making program participation voluntary.
This analysis highlights the important tradeoffs policymakers should consider when setting the requirements of IZ policies.
To learn more about inclusionary zoning, visit NAHB's Land Use 101 toolkit.
Latest from NAHBNow
Feb 16, 2026
Florida HBA Helps ‘Fill the Gap’ for Local Trades EducationThe Treasure Coast Builders Association has helped prepare Florida’s future workforce through local Career and Technical Education programming.
Feb 16, 2026
NAHB Mourns the Passing of Past Chairman Dean MonDean Mon, 2020 NAHB chairman, passed away on Sunday, Feb. 15. Actively involved in the New Jersey building industry for more than 30 years, Mon was president of the D.R. Mon Group, Inc.
Latest Economic News
Feb 16, 2026
Cost of Credit for Builders & Developers at Its Lowest Since 2022The cost of credit for residential construction and development declined in the fourth quarter of 2025, according to NAHB’s quarterly survey on Land Acquisition, Development & Construction (AD&C) Financing.
Feb 13, 2026
Inflation Eased in JanuaryInflation eased to an eight-month low in January, confirming a continued downward trend. Though most Consumer Price Index (CPI) components have resolved shutdown-related distortions from last fall, the shelter index will remain affected through April due to the imputation method used for housing costs. The shelter index is likely to show larger increases in the coming months.
Feb 12, 2026
Existing Home Sales Retreat Amid Low InventoryExisting home sales fell in January to a more than two-year low after December’s strong rebound, as tight inventory continued to push home prices higher and winter storms weighed on activity. Despite mortgage rates trending lower and wage growth outpacing price gains, limited resale supply kept many buyers on the sidelines.