Fees & public finance
Inclusionary zoning
A local requirement that a share of new units, commonly 10–20%, be deed-restricted affordable — on-site or through in-lieu alternatives.
Definition
Inclusionary zoning is a local ordinance requiring that a percentage of units in new residential projects — commonly 10–20% — be restricted to affordable rents or prices. For-sale inclusionary was upheld as an exercise of the police power in CBIA v. City of San Jose (2015). Rental inclusionary was blocked for years by Palmer/Sixth Street Properties (2009), which read Costa-Hawkins to preempt rent-restricting new units, until AB 1505 (2017) — the "Palmer fix" — expressly restored the authority in the Zoning Law (Gov. Code § 65850(g)), provided the ordinance offers alternative means of compliance such as in-lieu fees, off-site units, or land dedication.
Why it matters in an underwrite
Restricted units compress NOI for the life of the covenant, so model the ordinance's actual AMI bands and unit-mix rules rather than a generic haircut, then price the in-lieu alternative against them. Inclusionary units can also do double duty: the same deed-restricted units frequently qualify the project for density bonus units and concessions, which is often what makes the requirement pencil.
Sources & related guides
See also
See the term in the law itself
Read the controlling text in the Code Library, or ask the AI how it applies to your project.
Last reviewed 2026-07-29. General information, not legal advice.