Inclusionary Zoning in California: Compliance, Duration, and Density Bonus

Inclusionary zoning in California refers to local ordinances that require residential developers to set aside a percentage of new units — typically between 10% and 20%, with 15% a common benchmark — at prices or rents affordable to lower-income households. Cities and counties adopt these ordinances under state authority, and both for-sale and rental projects can be covered. The specific requirements vary by jurisdiction, but the structure is consistent across the state.

What Local Ordinances Require

Each city or county writes its own ordinance, so the thresholds and percentages differ. Most ordinances apply only when a project exceeds a minimum size, commonly 10 or 20 units. Smaller projects are often exempt or subject to lighter obligations like an in-lieu fee.

The required set-aside of affordable units usually falls between 10% and 20% of the total units in a qualifying project. San Jose’s ordinance, which the California Supreme Court upheld in 2015, requires developers of 20 or more units to sell at least 15% at affordable prices.¹ That 15% figure is a reference point many other jurisdictions have landed near.

The underlying authority comes from Government Code Section 65850, which allows local legislative bodies to require that a percentage of new residential units be affordable to households at specified income levels.²

Who Qualifies as “Affordable”

Affordability is pegged to Area Median Income (AMI) for the county where the project sits. State law sets the income categories local ordinances rely on:

Extremely low income: 30% or less of AMI
Very low income: 50% or less of AMI
Low income: 50% to 80% of AMI
Moderate income: up to 120% of AMI

Rental inclusionary units most often target very low- or low-income households. For-sale units usually target moderate-income buyers, because even a subsidized purchase remains out of reach at the lowest income levels.²

Because AMI varies widely by county, the same category means very different dollar figures depending on location. A low-income household in San Francisco has a much higher income ceiling than one in a rural Central Valley county.

How Developers Can Comply

State law requires inclusionary ordinances to give developers more than one way to meet their obligation.² Four options show up in most ordinances.

On-site construction means building the affordable units within the market-rate project itself. Most jurisdictions prefer this outcome because it produces mixed-income communities rather than concentrating affordable housing elsewhere.

An in-lieu fee lets a developer pay into the local government’s affordable housing fund instead of building the units. The fee is typically set to reflect either the gap between market and affordable pricing, or the estimated cost of producing the units somewhere else. This is where most of the practical tension sits. Set the fee too low and developers always pay rather than build, producing money but no housing. Set it too high and it functions as a tax that discourages development. Local governments recalculate these fees periodically, and the right level depends on local construction costs and land values.

Off-site construction allows the developer to build the required affordable units on a different parcel, usually within the same jurisdiction. Land dedication involves donating a parcel to the local government or a nonprofit housing provider for future affordable housing development.

How Long Affordability Lasts

Inclusionary units don’t stay affordable on their own. Local ordinances record a deed restriction or covenant against the property that limits rents or resale prices for a set number of years. If you buy an inclusionary ownership unit, you cannot sell it at full market price when values rise. The deed restriction controls who you can sell to and at what price.

Under the state Density Bonus Law, the minimum affordability period is 55 years for rental units and 45 years for ownership units.³ Local ordinances may set their own durations, and many either mirror these timeframes or impose longer restrictions. Some require affordability in perpetuity through land trusts or rolling restriction periods that reset at each resale.

Owners and tenants of inclusionary units also face ongoing monitoring. The local housing agency or its designee periodically verifies that occupants still meet income eligibility and that rents or sale prices remain within the allowable range. Annual income recertification for tenants in rental units is standard practice.

Rental Versus Ownership Housing

For years, there was real doubt about whether California cities could impose inclusionary requirements on rental projects. In 2009, a California appellate court ruled in Palmer/Sixth Street Properties v. City of Los Angeles that Los Angeles’s affordable rental requirements conflicted with the Costa-Hawkins Rental Housing Act, which guarantees landlords the right to set initial rents on vacant units.⁴

The legislature resolved the question in 2017 with AB 1505, which added subdivision (g) to Government Code Section 65850. That provision explicitly allows local governments to require affordable rental units as a condition of developing residential rental projects, notwithstanding Costa-Hawkins. It also requires that any such ordinance give developers alternative ways to comply, such as in-lieu fees, land dedication, or off-site construction.²

For ownership housing, the California Supreme Court’s 2015 decision in California Building Industry Ass’n v. City of San Jose settled the constitutional question, treating inclusionary requirements as a permissible land use regulation rather than an exaction requiring individual impact analysis.¹ Both rental and for-sale inclusionary requirements now rest on clear statutory authority.

How Inclusionary Zoning Interacts With the State Density Bonus

California’s Density Bonus Law (Government Code Section 65915) is separate from local inclusionary zoning but connects to it directly. The Density Bonus Law is mandatory statewide — local governments cannot opt out — and it allows developers to build more units than local zoning would otherwise permit in exchange for including affordable housing.³

A developer subject to a local inclusionary ordinance can count those required affordable units toward qualifying for a state density bonus. California courts confirmed this in Latinos Unidos del Valle de Napa y Solano v. County of Napa (2013), which held that inclusionary units qualify as affordable units for density bonus purposes.

A practical example shows why this matters. If a city’s inclusionary ordinance requires 15% of units to be affordable to very low-income households, a developer building 100 market-rate units needs to set aside 15 affordable units. Those same 15 very low-income units entitle the developer to a 50% density bonus under state law, allowing the project to grow to 150 total units. The developer still provides 15 affordable units, but now has 135 market-rate units instead of 85, which changes the project’s economics substantially.³

Developers using the density bonus can also seek concessions, incentives, and waivers of local development standards like height limits, setbacks, and parking ratios when those standards would otherwise prevent the bonus units from being built.⁵ Because the Density Bonus Law is mandatory, a city cannot deny an application simply because it dislikes the resulting project size, which gives developers leverage even when a local inclusionary ordinance imposes substantial affordability obligations.

1
Justia. California Building Industry Association v City of San Jose
2
California Legislative Information. California Code GOV 65850 – Adoption of Regulations
3
California Legislative Information. California Government Code 65915 – Density Bonuses and Other Incentives
4
FindLaw. Palmer Sixth Street Properties v City of Los Angeles
5
Southern California Association of Governments. Density Bonus Law – What Are Incentives, Concessions, and Waivers