Inclusionary Zoning: Pros and Cons of Inclusionary Housing

Inclusionary zoning policies (also known as inclusionary housing policies and IZ policies) aim to create affordable housing units by encouraging or requiring housing developers seeking to construct new market-rate units to set aside a certain number of affordable units for moderate-income to low-income tenants or homeowners. IZ policies are designed to encourage new housing developers to build affordable homes in market-rate housing areas with the goal of creating communities with diverse income levels. Inclusionary housing programs are most prominent in areas that are actively building new residential developments. Some municipalities enact inclusionary zoning policies to counteract exclusionary zoning laws, such as [redlining](https://www.masterclass.com/articles/redlining), and strict land-use policies that have historically prevented mixed-income communities from existing. In 1971, the first inclusionary zoning policy was drafted in Fairfax County, Virginia. State courts ultimately struck down the policy, citing unconstitutionality. However, many of the principles of this first policy attracted the interest of local governments. In 1974, the government in Montgomery County, Maryland, enacted the first inclusionary zoning program in the United States. Since then, municipalities looking to increase the number of units available for low-income families have continued to enact IZ programs. There are two types of inclusionary zoning programs: mandatory and voluntary. - __Mandatory__: Jurisdictions with mandatory programs require new construction developers to set aside a percentage of dwelling units for affordable housing programs. This percentage is usually dictated by the area median income (AMI). In some cases, developers who are unable to meet the affordability requirements may alternatively pay an in-lieu fee or construct off-site IZ units. - __Voluntary__: Density bonuses, expedited approvals, fee waivers, and subsidies are common incentives that voluntary programs offer developers for building affordable units. There are several potential benefits to IZ policies. 1. __Increased supply of affordable housing__: Inclusionary zoning policies help increase the amount of affordable housing available to lower-income and moderate-income households. IZ also offers a path to meeting federal fair housing standards set by the Department of Housing and Urban Development. 2. __Greater opportunity for low-income households__: As housing prices soar, inclusionary zoning ordinances aim to help low-income renters and homeowners afford to live in areas with greater access to employment, schools, and public transportation. 3. __Decrease economic and racial segregation__: Inclusionary zoning can help create economically and racially diverse communities by enabling people to move from high-poverty to low-poverty areas. 4. __Healthier communities__: Living in a mixed-income community can have a positive effect on residents’ health, such as a reduction in stress and overall improved mental health. Inclusionary zoning has several potential limitations to consider. 1. __Potentially accelerates gentrification__: In highly populated urban areas, old buildings with many affordable units may be razed to make room for new developments with comparatively fewer affordable units. This makes housing costs much higher overall. 2. __Discourages multifamily housing production__: In most cases, IZ ordinances only go into effect when a private developer is building rental housing with a large number of units. IZ policies could effectively discourage real estate developers from building new housing developments with multifamily rental units. 3. __Dependent on local housing markets__: Inclusionary zoning policies are based on new housing construction, which is more common in high-income neighborhoods. Depending on market conditions, IZ policies could leave low-income residents with fewer affordable housing options. All you need is a [MasterClass Annual Membership](https://www.masterclass.com) and our exclusive video lessons from prolific entrepreneur Robert Reffkin, the founder and CEO of the real estate technology company Compass. With Robert’s help, you’ll learn all about the intricacies of buying a home, from securing a mortgage to hiring an agent to tips for putting your own place on the market. Inclusionary zoning refers to municipal ordinances aimed at providing affordable housing for low-income residents.