Inclusionary Housing: How Cities Require Affordable Units

Two different mechanisms produce affordable units in a new development, and they are frequently confused. One is voluntary and state-driven: a developer chooses to restrict units in exchange for extra building, described in our explainer on density bonus. The other is mandatory and local: an INCLUSIONARY ordinance adopted by the city that requires a share of new units to be restricted, whether the developer wants the trade or not.

This piece describes how an inclusionary requirement is constructed and administered. It names no application, describes no current local requirement, and takes no position on whether such ordinances are good policy.

What an inclusionary ordinance does

At its core it says that a residential project above a stated size must set aside a portion of its units, affordable to households in specified income categories, restricted for a defined term, and enforced through a recorded agreement.

Every one of those variables is a policy choice, and the choices differ from city to city: which project sizes are covered, whether ownership and rental projects are treated the same, which income categories are targeted, how long the restriction runs, and what compliance alternatives are allowed.

The compliance menu

Most ordinances offer more than one path.

On-site units are the default and the usual policy preference, because they place restricted homes in the same building or subdivision as the market units.

An in-lieu fee lets a developer pay instead of building. The fee goes into a housing fund the city uses for other affordable projects. This path is administratively simple and is also the most contested, because whether the fee produces as many units as it displaces depends entirely on how it is calibrated.

Off-site construction allows the units to be built elsewhere in the city, usually subject to findings that the alternative achieves an equal or better result.

Land dedication conveys a site suitable for affordable development.

The in-lieu fee mechanism resembles other exactions in structure, and our guide to impact fees covers the general framework by which a city justifies charging new development for something.

The legal ground it stands on

Inclusionary requirements have been litigated extensively, and the legal footing differs by tenure.

For ownership housing, California courts have generally treated inclusionary requirements as land use regulation rather than as an exaction, which subjects them to a more deferential standard than a fee imposed on an individual project.

For rental housing, the picture is complicated by state law on rent regulation, and legislation has addressed the question of whether and how cities may impose inclusionary requirements on rental developments. This is an area that has moved more than once.

Because the doctrine here is genuinely unsettled at the edges, no summary should be relied on for a decision. This is a topic for counsel and for the city, not for an article.

How the units are kept affordable

The requirement is only as good as its enforcement, which runs through documents rather than good intentions.

A regulatory agreement and a deed restriction are recorded against the property. They state the income limits, the maximum rents or sale prices, the term, the resale or re-rental procedure, and the city's remedies. Occupancy is typically conditioned on those documents being recorded first.

For ownership units there is usually a resale formula limiting the price on transfer and often a right of first refusal or a buyer selection process administered by the city or a designated agency. Buyers of restricted units need to understand before purchase that the appreciation they can realize is capped by the formula, which is the trade for the reduced entry price.

Ongoing monitoring, income certification, and annual reporting fall to the city or its contractor, and the cost of that administration is itself a policy question.

How it interacts with density bonus

This is where the two mechanisms meet, and where staff reports get technical.

A project may be required to provide inclusionary units by local ordinance and then use those same units, or additional ones, to qualify for a state density bonus. Cities differ on how much of the local requirement may count toward the state entitlement, and state law constrains how a city may treat the interaction.

The practical result is that a single project can carry a locally mandated share, a state bonus, and a set of concessions or waivers, all at once. Reading such a report requires separating what the city required from what the state entitled.

The policy debate, stated fairly

Supporters argue inclusionary requirements produce mixed-income neighborhoods, capture a share of the value created by permitting new housing, and deliver units without public subsidy.

Opponents argue the cost is borne by the market-rate units and by the land, that a requirement set too high suppresses production overall, and that fewer total homes built is a poor trade for a modest number of restricted ones.

Both arguments turn on calibration rather than principle, which is why cities commission feasibility studies before setting the numbers, and why the numbers get revisited. Where the requirement is set is a legislative decision, made through the same hearing process as any other ordinance and subject to the same public participation described in our guide to speaking at a planning commission.

What it means for a buyer or owner

If you are buying a restricted unit, read the recorded agreement before you write an offer, not during escrow. The resale formula, the term, the owner-occupancy requirement, and the city's approval rights on transfer all affect what you own.

If you are selling one, the process usually involves the city or its administrator and takes longer than a conventional sale. Start early.

If you are simply a neighbor, the presence of restricted units in a project is a recorded, enforceable fact rather than a marketing statement, and the county recorder holds the documents.

Where to verify

Whether a city has an inclusionary ordinance, what it requires, and how it interacts with state programs are all local questions that change with legislation and with council action. For anything current in Claremont, ask the City of Claremont planning division, and for a specific restricted property, obtain the recorded agreement itself.

More on how housing requirements are set sits on our city development hub, alongside our guide to housing element sites and programs.

Anthony Grynchal has been licensed in California since November 2009.