Housing Overlay Zones (HOZs)

A Housing Overlay Zone (HOZ) is a layer of standards in addition to base zoning regulations which provide incentives for developers to build affordable or population-specific housing. The incentives provided can vary depending on the local market conditions and opportunities but often include increased density or intensity (floor area ratio), increased height allowances, lower parking requirements, by-right zoning, project permit and approval streamlining, impact fee deferrals or waivers, or allowing housing in non-residential zones. 

Overlay zones can be applied to underlying residential and non-residential zones; however, the greatest potential may lie with non-residential zones where a jurisdiction may seek to promote infill housing development, spur revitalization efforts, or simply find additional sites to meet housing goals. Application of HOZs to existing residential zones may be less useful given that State Density Bonus Law already provides incentives for projects that include affordable housing, and recent housing legislation requires by-right zoning for most residential projects. A housing overlay atop residential zones could, however, serve as a means of promoting additional affordable housing or population specific housing types beyond what is already authorized by Density Bonus Laws or as a means of marketing existing Density Bonus Law provisions to prospective builders.

A housing overlay ordinance should have four key components: (1) a defined geographic area; (2) thresholds for the number of affordable units and/or affordability levels required for projects to qualify for different overlay zone incentives; (3) defined incentives given to qualifying projects; and (4) streamlined permitting and approval processes. 

An HOZ is a relatively simple zoning tool that can be used to address three best practices, including:

  • Ensuring there is sufficient land designated for housing 
  • Creating streamlined zoning and permitting processes 
  • Reducing impact fees for preferred housing projects

As discussed below, an HOZ may be applied to some but not all properties within a particular commercial zone allowing additional flexibility to find appropriate sites for housing.

Specific site opportunities. HOZs can be applied to specific sites rather than to all properties in a particular zone or zones. This provides an opportunity to target properties that are underperforming, underused, or could otherwise benefit from being redeveloped. This could have the added benefits of using existing infrastructure (i.e., infill development strategy), capturing impact fee credits from demolished buildings, removing blight, and revitalizing an area. It also allows a jurisdiction to target some properties within a zone while avoiding others that may be proximate to incompatible land uses, especially those that are nonconforming uses. If housing is introduced into non-residential zones, care should be taken to ensure that any new commercial uses are appropriately regulated to ensure they are compatible with housing. 

HOZs also provide flexibility. Jurisdictions can tailor overlay zones to allow:

  • Housing in the form of a mixed-use project
  • Housing in the form of a limited mixed-use project (e.g., allow housing but maintain a commercial street frontage in a downtown or commercial corridor) 
  • Housing as an option to commercial development

They can also determine how much housing must be affordable and/or at what level(s).

Relevant State Law

Several recent legislative bills have amended the State’s Density Bonus Law. Density Bonus Law is effectively a Housing Overlay Zone that provides density bonuses, incentives, and concessions to developers that agree to provide certain amounts and levels of affordable housing. 

Senate Bill No. 290 (SB 290) (2021). Density Bonus Law Clean-up.

Assembly Bill No. 2345 (AB 2345) (2021). Planning and zoning: density bonuses: annual report: affordable housing.

Assembly Bill No. 168 (AB 168) (2020). Planning and zoning: annual report: housing development: streamlined approval.


East Bay Housing Organizations. Factsheet: Housing Overlay Zones. 


City of Corte Madera. Affordable Housing Overlay Districts.  

City of Capitola. Affordable housing (-AH) overlay zone.

City of Palm Desert. Housing Overlay District.

Terner Center for Housing Innovation. Affordable Housing Overlay Zones: Oakley.