Inclusionary Zoning

Inclusionary zoning is a tool that facilitates the production of affordable housing units by requiring developers to incorporate a defined percentage of affordable units into market-rate developments. The first inclusionary ordinances were implemented in the 1970s, and their popularity has grown since. According to a Grounded Solutions Network report, as of 2019 there were 162 jurisdictions within California that have inclusionary housing programs that go above the State’s Density Bonus requirements. 

Inclusionary housing ordinances provide opportunities for lower- and sometimes moderate-income households to live in higher resource areas and can also reduce opposition to affordable housing by dispersing it throughout the community. While inclusionary zoning is effective in creating additional affordable units in a community, it cannot generally be relied on to produce a sufficient number of affordable units to meet the entire need for such units in a community. However, in conjunction with other programs and complimentary incentives, inclusionary ordinances can be a key component to increasing the number of affordable units within a community and achieving a jurisdiction’s lower-income RHNA requirements. 

Most inclusionary zoning programs follow a similar framework; however, jurisdictions vary on the application of inclusionary requirements, alternatives offered to developers to meet the requirements, incentives, and waiver procedures. The vast majority of inclusionary programs in California are applied consistently across the entire jurisdiction. However, some larger jurisdictions choose to increase inclusionary requirements within certain geographic areas, for example, within a specific plan area or transit district that is seeing a higher level of development than other areas within the city. When establishing an inclusionary housing program, key considerations include:

  • Percentage requirement: Most inclusionary requirements are a percentage of the total units within a development, with 15 percent being the most commonly adopted requirement in California. With the passage of AB 1505 in 2017, State law allows local jurisdictions to impose an inclusionary requirement on rental projects of 15 percent of units for low-income households without completion of a feasibility study.
  • For-sale versus rental housing: In most cases, affordable for-sale housing requires such deep subsidies that most for-sale inclusionary policies require the affordable units to be provided at moderate-income levels only.
  • Affordability level: The required number of units is usually split between units affordable to low- and very low-income households. Some ordinances include requirements for extremely low-income and/or moderate-income units as well. However, requirements for moderate-income units are only justifiable if the market is not already producing units affordable to those households. Some ordinances provide flexibility in their requirements by allowing a lesser percentage of units if they are affordable to lower-income levels (i.e., very low- or extremely low-income households). An ordinance may also incorporate a sliding scale of incentives based on the number of affordable units provided. 
  • Applicability Threshold: Some programs exempt small projects or allow small projects to pay an in-lieu fee. However, there are also ordinances that place inclusionary housing on all residential projects, including one- and two-unit projects. In those cases, payment of in-lieu fees is typically allowed.
  • Affordability Length: Most inclusionary ordinances in California require a 55-year affordability term for rental units, consistent with State Density Bonus Law. However, some jurisdictions choose to lengthen the term to perpetuity. For-sale units are most typically deed restricted for 45 years with resale or equity share provisions. 

Alternative methods of compliance. Pursuant to California Government Code Section 65850, an inclusionary housing ordinance shall “provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.” In-lieu fees are usually the most preferred alternative method of compliance for developers because it is often cheaper to pay the in-lieu fee than construct affordable units. Therefore, jurisdictions must ensure that in-lieu fees are appropriately set in order to cover the true cost of constructing affordable units. Appropriate in-lieu fees will also ensure that developers only choose this option when it is truly more feasible than providing units on site.

Generally, in-lieu fees are determined by calculating the difference between the cost to develop the affordable unit and the total financed amount that can be covered by an affordable rent. In-lieu fees are typically placed in a housing trust fund for use toward other affordable housing projects. One of the major advantages of including in-lieu fees as a component of an inclusionary program is that these funds can be used to address housing needs that are not otherwise being built through the program, such as housing for special needs populations or housing for extremely low-income households. Additionally, the availability of funds in a housing trust fund allows the jurisdiction to leverage other State and Federal funding sources. 

Jurisdictions may also allow developers to construct affordable units off-site in order to meet the inclusionary requirements. Most ordinances require the developer to provide additional units if they are being constructed off site. Again, this helps to ensure that developers will only select an alternative method of compliance when it is actually more feasible to do so. As dispersion of affordable units throughout a community is a key goal of inclusionary housing programs, it is important that ordinances specify where off-site units are constructed (i.e., within a certain radius of the market-rate development). 

Other lesser used alternatives include preservation of at-risk affordable housing units or purchase of affordability covenants on existing non-affordable units. However, these units usually do not qualify for RHNA credits. Although State law does contain provisions to fulfill up to 25 percent of the lower- and moderate-income RHNA with existing units, the requirements are extremely stringent such that few communities are able to satisfy the requirements.

Development standards for affordable units should be focused on ensuring affordable units are similar to market-rate units within a project. Affordable units should be dispersed throughout the development and should be outwardly indistinguishable from the market-rate units. The mix of unit sizes should also be similar in proportion to the market-rate units. However, some jurisdictions allow for affordable units to be smaller in size if there is an identified need for such units within the community. Finally, the ordinance should require that construction of affordable units be completed simultaneously or prior to completion of the market-rate units. 

Incentives and concessions provided to developers of inclusionary units may be applied in conjunction with density bonus incentives to maximize benefits and feasibility. The types of incentives provided in inclusionary ordinances are generally similar to State density bonus law, and may include density bonuses, relaxation of development standards and parking requirements, and fee waivers. 

Allocating the administrative resources necessary to successfully implement an inclusionary housing program can be a considerable challenge, particularly for smaller jurisdictions. Resources must be dedicated to tracking affordability terms, ensuring tenants/buyers meet income requirements, and maintaining an up-to-date inventory of affordable units. 

Administration of inclusionary programs can be further complicated by issues such as resale controls for owners that want to sell a unit within the affordability term and tenants/owners whose income grows out of the required income category. Restrictions and guidelines addressing these situations should be addressed within the ordinance or within the deed restriction.

Reliance on the private market. Inclusionary housing programs, by nature, rely on private market development to produce affordable units. Opponents of inclusionary housing programs argue that they are essentially a tax on developers which is ultimately passed on to consumers in the form of higher rents and sales prices. Additionally, this reliance on the private market means that the success of the program depends to some extent on favorable market conditions, and programs may not perform as expected or desired during an economic downturn. Conducting a feasibility study, as discussed in the Recommendations section may address these concerns. 

Relevant State Law

Government Code Section 65850. 

Assembly Bill No. 1505 (AB 1505) (2017) Land use; zoning regulations. Also known as the “Palmer Fix” bill, this legislation restored local government’s authority to impose inclusionary requirements on rental housing. AB 1505 also authorizes HCD to review a city’s inclusionary ordinance and require a city to conduct a feasibility study to ensure that the ordinance does not constrain development, under certain circumstances. 

California Supreme Court case, CBIA v. City of San Jose (2015). Affirmed local jurisdiction’s ability to implement inclusionary housing programs. 

Survey Results

Only one of the 33 survey respondents, the City of Oakdale, said it does have an inclusionary housing ordinance. In contrast, 78 percent of respondents without an inclusionary housing ordinance simply answered “no,” as opposed to the alternative option, “no, but think it would be a good tool.”  This may indicate a hesitancy among San Joaquin Valley jurisdictions regarding inclusionary zoning policies. Along the same lines, inclusionary zoning was not selected as a tool for addressing housing supply and costs. Only 12 percent of responding jurisdictions have inclusionary zoning policies in progress. 

Stakeholder Interviews

Stakeholders did not address inclusionary housing. Though inclusionary zoning is rare in the Valley, one MPO Director noted that the City of Ripon adopted a 10 percent inclusionary housing requirement, but it is too early to assess its impact.


Jamboree, Grounded Solutions Network, Inclusionary Communities. Inclusionary Housing in the United States. 

Local Government Commission, Western Center on Law and Poverty, and California Rural Assistance Foundation. Meeting California’s Housing Needs: Best Practices for Inclusionary Housing. 

Health Affairs, Tuller, David, Housing and Health: The Role of Inclusionary Zoning (June 7, 2018). 

The World Bank, Inclusionary Zoning. 

McFarland, CA – Municipal Code, Code of Ordinances, Supplement 5. 

Local Government Commission, Meeting Housing Needs: Best Practices for Inclusionary Housing. 

Grounded Solutions Network, Inclusionary Housing. 


The following San Joaquin Valley cities have inclusionary zoning programs: 

City of McFarland. Municipal Code Chapter 17.150. Inclusionary Zoning. 

City of Patterson. Municipal Code Chapter 18.86. Inclusionary Housing.  

City of Escalon. Municipal Code Chapter 17.50. Affordable Housing. 

City of Ripon. Municipal Code Chapter 16.194. Affordable Housing. 

Case Study

The City of McFarland has a great example of an inclusionary zoning code that is relevant to the San Joaquin Valley. At least 15 percent of units from every new multiple-family residential project of 15 units or more are required to “be affordable to very low, and/or low-income households.” Also, at least 20 percent of units from every new single-family residential project of 15 units or more are required to be affordable. The City also includes a “special consideration” qualification for projects that include a significant percentage of very low- and low-income units. McFarland’s inclusionary zoning provisions (Chapter 17.150) refer to the affordable units as “inclusionary units.” The City’s code specifies that housing projects subject to inclusionary zoning requirements “include, but are not limited to, single-family detached dwellings, townhomes, apartments, condominiums, or cooperatives provided through new construction projects, and/or through conversion of rentals to ownership units.”  To mix income types together, the City requires that inclusionary units be dispersed throughout a project. To promote equity and cohesive design, inclusionary units are required to be constructed with the same exterior materials and exterior architectural design as their market-rate neighbors within the project. Overall, the McFarland zoning code is very specific and extensive and should be considered exemplary for other jurisdictions in the San Joaquin Valley region.