What If Inclusionary Zoning Could Actually Work?
A new report makes the case that the right incentive structure changes everything
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In the past decade, California has enacted more than 100 housing laws to address the state’s housing shortage and affordability crisis. But which of these bills actually moves the needle and helps build more housing – and specifically, more affordable housing?
While I was out in Sacramento a few weeks ago, I attended the Housing California conference and saw Colin Parent, CEO of San Diego-based Circulate Planning & Policy, present some findings from a new report: Win-Win Bonus: How California’s Bonus Law Quietly Transformed Housing Approvals.
The report makes the case that two bills have been particularly helpful in building more housing: AB 2345, a 2020 statute that gives a 50 percent bonus for affordable homes, and AB 1287, which in 2023 provided a second stackable 50 percent bonus, if a project includes even more affordable homes. Together, these bills enable projects to grow to twice the size of their zoning capacity, if they include affordable units.
The report finds that these two laws, known as “Bonus Law” have become the most widely used streamlining laws tracked by the California Department of Housing and Community Development. According to the report, Bonus Law has been used to approve:
More than 140,000 homes overall
More than 69,000 deed-restricted affordable homes
In 2024, 47 percent of all homes approved in multifamily projects
In 2024, 78 percent of all homes in 100 percent affordable projects, and
In 2024, ten times more homes than every other tracked streamlining law.
It’s that last bullet that I find so compelling and worthy of more analysis. Why is Bonus Law so successful, and what aspects of it can be replicated elsewhere?
Inclusionary Zoning Could Actually Work
Inclusionary Zoning (IZ) requires developers to reserve a specific portion of their housing units at below-market rates. IZ has gotten a bad rap over the years as some research has shown that mandated affordable housing results in very few units getting built — often because municipalities offer an option to pay into an affordable housing trust fund instead of building the affordable units. In cases when developers do build the units, the market rate units can cost more to offset including affordable units.
Bonus Law in California essentially rescues inclusionary zoning from its own problems in two ways. First off, it gets the numbers right. From the report:
Bonus Law offers a set of benefits that are conditioned on providing affordable homes, but are more than sufficient to offset those added costs. While adding more affordable units would create further losses for a project, Bonus Law compensates by providing an increasing scale of benefits….Assembly Bill 2345 increased the amount of development capacity a project could receive from 35 percent to 50 percent. That new bonus level would also require an increase for affordable housing set-asides from 11 percent very low-income units, to 15 percent. Pro forma analyses were used to determine the amount of bonus that would be necessary to create a real win-win, and more than offset the costs of providing affordable units. The pro formas showed that the 15 percent threshold ate up some of the proposed surplus, but not all of it. It accurately predicted that many future projects would use the new policy.
But secondly, it provides no option of in-lieu fees. Given that some 170 municipalities in California already have some inclusionary requirements, using Bonus Law makes a ton of sense for projects already in progress:
Bonus Law has no option for in-lieu fees, so with few exceptions, any project taking advantage of it must build affordable units on-site. Courts have held that affordable units under Bonus Law can be used to satisfy local inclusionary obligations. For projects subject to local inclusionary mandates, the use of Bonus Law becomes an easy decision. The costs of the affordable on-site units are already baked into their pro forma, so using Bonus Law does not generate additional costs. Bonus Law then becomes a win-win. The local jurisdictions get the affordable units they require, and homebuilders receive offsetting benefits to help the financial feasibility of their projects.
I’ve got four more key takeaways on why Bonus Law has been successful, below the paywall.