Definition
Inclusionary housing (sometimes called an "inclusionary zoning" or "inclusionary set-aside" requirement) is a local program that requires or incentivizes private residential developers to set aside a percentage of their units — or pay an in-lieu fee — to be sold or rented at below-market-rate prices affordable to lower- or moderate-income households.
Unlike public housing or subsidized housing programs that rely on government funding, inclusionary requirements attach to private market-rate developments, requiring developers to cross-subsidize affordable units from their market-rate revenue stream.
How California Cities Structure Inclusionary Programs
California courts (most importantly the California Supreme Court in California Building Industry Association v. City of San José, 2015) have upheld inclusionary requirements as a valid exercise of the police power — the government's general authority to regulate for the public welfare. Under this ruling, cities need not satisfy the constitutional exaction tests (Nollan/Dolan) for their inclusionary requirements because they are not exactions tied to project impacts but general land use regulations.
Common program structures:
- On-site set-aside: A fixed percentage of units (typically 10–20%) must be affordable at specified income levels (very low, low, moderate) and remain affordable for a defined period (typically 55 years for rental, 45 years for ownership).
- In-lieu fee: Instead of providing on-site affordable units, developers may pay a fee per unit (or per square foot) into a housing trust fund. Whether an in-lieu option exists, and at what fee level, varies by program.
- Land dedication: Some programs allow developers to dedicate land for affordable housing development by a nonprofit or public agency.
Interaction with State Density Bonus Law
California's Density Bonus Law is triggered when a project provides affordable units — including units required by an inclusionary program. This creates a critical interaction: a developer who provides 15% affordable units to meet local inclusionary requirements is entitled to a 44% density bonus under state law. The city must grant this bonus on top of the base density, regardless of local preference. Cities that don't account for this interaction when designing their inclusionary programs end up with projects larger than they intended to allow.
Inclusionary housing programs are among the most complex provisions in a city's municipal code — they interact with Density Bonus Law, federal fair housing requirements, state affordability covenant requirements, and local trust fund rules. Legislaide helps cities identify conflicts and gaps in their inclusionary programs before they create unintended consequences in individual project applications.
Frequently Asked Questions
What is inclusionary housing?
Inclusionary housing (or inclusionary zoning) is a local policy requiring developers to include a specified percentage of units priced at below-market rates — deed-restricted as affordable to households at specified income levels — as a condition of residential project approval.
What percentage of units do inclusionary requirements typically mandate?
Inclusionary percentages in California cities typically range from 10% to 20% of total units, affordable to households at 60%–120% of Area Median Income depending on the program. The exact percentages and income targets vary significantly by jurisdiction.
Are inclusionary housing requirements legally enforceable?
Yes. The California Supreme Court upheld inclusionary housing requirements in California Building Industry Association v. City of San José (2015), holding they are general land use regulations — not exactions — reviewed under the rational basis standard. They do not require individualized nexus findings under Nollan/Dolan.
What is an in-lieu fee in the context of inclusionary housing?
An in-lieu fee is a monetary payment developers may make instead of providing affordable units on-site. Cities use these funds for affordable housing projects elsewhere in the city. In-lieu fees must comply with the Mitigation Fee Act's nexus and proportionality requirements.
How does the Density Bonus Law interact with inclusionary requirements?
The Density Bonus Law limits how inclusionary percentages interact with bonus density calculations — affordable units provided to earn a density bonus may also count toward inclusionary requirements in some configurations. The HAA also limits imposing inclusionary requirements that would make a qualifying project financially infeasible.
Published June 1, 2026 by Legal Team at Legislaide.