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
Dec 11, 2025
House Passes NAHB-Supported PERMIT ActThe House today passed the PERMIT Act, a legislative package championed by NAHB designed to provide the necessary clarity and confidence needed under the Clean Water Act (CWA) permitting process.
Dec 11, 2025
Alabama Home Builders Foundation Prepares Today’s Students for Tomorrow’s CareersFor three decades, the Alabama Home Builders Foundation (AHBF) has guided high school students and adults statewide toward careers in residential construction.
Latest Economic News
Dec 09, 2025
Mortgage Activity Continued to Climb in NovemberMortgage activity continued to climb in November, posting the largest year-over-year increase in more than five years. Every major category increased on a year-over-year basis as mortgage rates continue to trend lower, led by strong increases in refinancing and adjustable-rate mortgage activity.
Dec 08, 2025
Community Associations: A Growing Trend in 2024In 2024, 65.7% of all new single-family homes started were built within a community or homeowner’s association. This share increased from the 64.8% recorded in 2023, according to data tabulated from the Census Bureau’s Survey of Construction (SOC).
Dec 05, 2025
Mortgage Rates Continue to Trend Lower in NovemberThe average mortgage rate in November continued to trend lower to its lowest level in over a year. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.24% in November, 2 basis points (bps) lower than in October. Meanwhile, the 15-year rate increased 3 bps to 5.51%.