California cities and counties can require developers to set aside affordable units, pay a fee, or meet another locally defined condition before approving a qualifying residential project. These inclusionary housing requirements are common, but they are not uniform, and they are not unlimited.
The legal question for a developer is rarely whether a city can adopt an inclusionary housing program at all. The more useful question is what a particular ordinance can require, what options exist for meeting that requirement, and where a requirement may cross into a legal challenge.
What Is Inclusionary Zoning in California?
Inclusionary zoning refers to a local ordinance that requires a share of units in a qualifying residential or mixed-use project to be affordable to households at specified income levels. Cities and counties adopt these ordinances under their general zoning and police power authority.
California has no single statewide inclusionary zoning formula. Each city or county sets its own percentage requirements, income targets, project thresholds, and compliance options. A requirement that applies in one jurisdiction may not exist, or may work differently, in a neighboring one.
Local ordinances commonly rely on one or more of these approaches:
- On-site set-aside units: a percentage of the project’s units are built and deeded as affordable.
- In-lieu fees: a developer pays a fee instead of building affordable units on-site, where the ordinance allows it.
- Off-site units: affordable units are built at another location within the jurisdiction.
- Land dedication or acquisition: a developer dedicates land, or acquires and rehabilitates existing units, to satisfy the requirement.
Because these approaches vary so widely, a developer evaluating a project should review the specific ordinance in the jurisdiction where the project sits, rather than relying on assumptions from a different city or county.
Can California Cities Require Developers to Provide Affordable Housing?
Yes, in most circumstances, though the legal basis depends on the type of housing involved.
For ownership housing, the California Supreme Court confirmed in Cal. Building Industry Assn. v. City of San Jose (2015) that a city may use its general zoning authority to require affordable for-sale units, reviewed under the ordinary standard courts apply to land use regulations.
For rental housing, a California Court of Appeal decision once held that inclusionary requirements conflicted with the Costa-Hawkins Rental Housing Act, which lets landlords set initial rents on new units. Assembly Bill 1505 superseded that holding in 2017 and added Government Code section 65850.01, confirming that cities and counties, including charter cities, may adopt rental inclusionary ordinances. Such ordinances are generally paired with an alternative compliance method, such as in-lieu fees, land dedication, or acquisition of existing units.
Whether a particular ordinance is valid still depends on its text, the type of housing involved, and the facts of the project.
What Can a Local Inclusionary Housing Ordinance Require?
Local ordinances typically address several variables, and each one can differ by jurisdiction:
- Percentage of units: the share of a project that must be affordable, which has ranged from roughly 5 to 20 percent across different California cities as of 2026, with some ordinances set at a different figure.
- Income levels served: whether units must serve very low, low, or moderate-income households, or a mix.
- Affordability period: how long the affordability restriction remains in place, often decades for rental units.
- Unit size and bedroom mix: whether affordable units must be comparable in size or bedroom count to market-rate units.
- Location of affordable units: whether units may be dispersed throughout the project or must be built off-site.
- Project thresholds: the minimum project size or unit count that triggers the requirement.
- Alternative compliance and in-lieu fees: whether, and under what conditions, a developer can satisfy the requirement another way.
These figures can also change. In July 2026, San Francisco’s Board of Supervisors reduced its citywide inclusionary rate from 15 percent to 5 percent, citing project feasibility at current construction and financing costs. A developer should confirm each of these terms directly from the applicable municipal code rather than assuming a requirement described for one California city applies elsewhere.
California cities and counties can require developers to set aside affordable units, pay a fee, or meet another locally defined condition before approving a qualifying residential project. These inclusionary housing requirements are common, but they are not uniform, and they are not unlimited.
The legal question for a developer is rarely whether a city can adopt an inclusionary housing program at all. The more useful question is what a particular ordinance can require, what options exist for meeting that requirement, and where a requirement may cross into a legal challenge.
What Are Inclusionary Housing In-Lieu Fees?
An in-lieu fee is a monetary payment that some ordinances let a developer pay instead of constructing affordable units on-site. Not every ordinance offers this option, and where one does, its terms are set locally.
Relevant considerations typically include:
- Calculation method: fees are often calculated per market-rate unit, per square foot, or as a percentage of project value, depending on the ordinance.
- Timing: ordinances specify when the fee is due, such as at building permit issuance.
- Eligible projects: some ordinances limit the in-lieu option to certain project sizes or housing types.
- Use of funds: collected fees are generally directed toward an affordable housing trust fund or similar program.
Local agencies that collect inclusionary in-lieu fees face new disclosure obligations under Assembly Bill 2663, effective January 1, 2026. An agency with a website must post the fees collected each year and whether they are earmarked for a project. It must also publish a five-year accounting of fees collected and the projects they funded.
An in-lieu fee under an inclusionary ordinance is a distinct legal concept from a development impact fee. The two are discussed separately below because they raise different questions.
Are Inclusionary Housing Requirements Limited by Development Feasibility?
Economic feasibility can matter to how an inclusionary requirement is evaluated, but feasibility concerns are not, by themselves, a basis for a developer to disregard a validly adopted ordinance.
A project’s land, construction, and financing costs against its expected revenue can determine whether an affordable set-aside or in-lieu fee still allows the project to move forward on acceptable terms. Some jurisdictions address this directly by commissioning feasibility studies before adopting or amending an ordinance.
For rental inclusionary ordinances, a feasibility study is generally best practice rather than a fixed prerequisite. HCD’s guidance explains that HCD’s own review authority is narrow. It is triggered only if the jurisdiction has permitted less than 75 percent of its above-moderate-income regional housing need, or missed two consecutive annual progress reports, and even then it is limited to confirming the study followed accepted professional practices.
Outside that narrow review process, a developer who believes a requirement renders a project infeasible generally needs a documented, project-specific basis, not simply a preference for a more profitable outcome. Whether that basis supports a legal challenge, a density bonus request, or a negotiated alternative depends on the ordinance and the project’s facts.
How Does Inclusionary Zoning Interact With California Density Bonus Law?
Density Bonus Law, codified at Government Code section 65915, operates separately from local inclusionary ordinances but often applies to the same project.
A project that includes a qualifying share of affordable or senior units under Density Bonus Law can receive a density increase above what local zoning would otherwise allow. It may also receive incentives, concessions, waivers of standards that would physically preclude the project, and reduced parking ratios in some circumstances.
A developer facing a local inclusionary requirement should also evaluate whether the project qualifies for benefits under California Density Bonus Law, since the added density or standards relief can offset some of the cost of compliance. The two frameworks still require separate analysis, since affordable units provided for one purpose do not automatically count toward the other in every circumstance.
How Does Inclusionary Zoning Relate to the Housing Element?
A jurisdiction’s Housing Element can reference its inclusionary housing program as part of a broader strategy for meeting its share of regional housing need. That strategy may also include density bonus incentives, in-lieu fee programs, and other measures intended to support housing production.
Housing Element planning and inclusionary zoning serve related but distinct purposes. For a detailed discussion of what jurisdictions must do to maintain a compliant Housing Element, see the firm’s article on California Housing Element compliance. The focus here stays on how an inclusionary requirement itself applies to a specific development project, not on a jurisdiction’s broader planning obligations.
Can an Inclusionary Requirement Become an Unlawful Exaction?
Whether an inclusionary requirement amounts to an unlawful exaction depends on the nature of the requirement, the legal authority behind it, and the connection between the condition and the development, not on a blanket rule.
In Cal. Building Industry Assn. v. City of San Jose, the California Supreme Court held that an ordinance requiring on-site affordable units is a use restriction, not a property exaction, since it does not require a developer to dedicate property or pay money. The court applied the ordinary rational-basis standard for land use regulations rather than the heightened nexus and proportionality test used for exactions.
Monetary exactions are analyzed differently, and that analysis shifted in 2024. In Sheetz v. County of El Dorado, the United States Supreme Court held that the nexus and rough-proportionality test from Nollan v. California Coastal Commission and Dolan v. City of Tigard applies to legislatively adopted fees the same way it applies to fees set case-by-case. The Court left open how that standard applies to fee schedules not developed project-by-project.
Sheetz did not involve an inclusionary in-lieu fee, and it did not disturb the holding that on-site set-asides are not exactions at all. Even so, it signals that a monetary in-lieu fee may draw more scrutiny than an on-site requirement, and how that plays out for inclusionary fees specifically remains an evolving question. A developer with a serious question about a fee’s validity should evaluate it against the current state of this authority.
Can Developers Challenge an Inclusionary Housing Requirement?
Potentially, yes, though disagreeing with a requirement is not, on its own, a legal basis to invalidate it. A challenge generally needs a specific legal defect, such as a procedural error, a requirement that exceeds the local agency’s authority, or a requirement that fails the applicable constitutional standard.
Depending on the circumstances, options may include:
- Administrative review: raising the issue through the local agency’s own review or appeal process before the decision is final.
- Negotiation: working with planning staff on an alternative compliance method the ordinance allows.
- Development application challenges: contesting a specific condition of approval tied to the inclusionary requirement.
- Administrative mandate: seeking judicial review of a final agency decision through a writ of administrative mandate under California Code of Civil Procedure section 1094.5, where the agency’s decision was arbitrary, exceeded its authority, or failed to follow required procedures.
The available option, and its likelihood of success, depends on the specific ordinance, the agency’s decision, and the facts of the project. General dissatisfaction with a requirement’s cost is unlikely to support relief on its own.
What Other Development Costs Should Developers Consider?
An inclusionary obligation is only one of several cost categories a developer evaluates. Development impact fees, permit fees, infrastructure costs, and other local exactions apply under separate legal frameworks, even though they affect the same project budget.
These categories raise different legal questions. For a detailed discussion of how impact fees are calculated and challenged, see the firm’s article on California development impact fees. An inclusionary in-lieu fee should not be assumed to follow the same rules simply because both involve a payment.
How Do New State Housing Laws Affect Developer Options?
State legislation can create development pathways that interact with, but are distinct from, local inclusionary zoning. AB 2011, the Affordable Housing and High Road Jobs Act, offers a ministerial, CEQA-exempt approval pathway for qualifying 100-percent-affordable or mixed-income housing on commercially zoned sites.
AB 2011 is not itself an inclusionary zoning law. It sets its own affordability, labor, and site-eligibility conditions for using its streamlined process, and a project that qualifies may still need to evaluate whether a local inclusionary ordinance also applies. Developers should treat each state housing law and local ordinance as a separate layer of analysis, rather than assuming compliance with one satisfies the other.
What Should Developers Review Before Accepting an Inclusionary Requirement?
A practical review before moving forward can include:
- The current text of the local inclusionary housing ordinance
- Whether the project meets the ordinance’s applicability thresholds
- The required unit set-aside percentage
- Applicable income categories and affordability terms
- Affordability period and any recorded restrictions
- Whether an in-lieu fee option exists, and how it is calculated
- Other alternative compliance options, such as off-site units
- Available Density Bonus Law incentives and waivers
- Applicable development standards and conditions of approval
- Relevant Housing Element policies for the jurisdiction
- Any existing development agreement provisions
- Other applicable state housing laws, such as AB 2011
Reviewing these items early can surface conflicts or opportunities before a project is too far along to adjust course.
When Should a Developer Talk to a California Land Use Lawyer?
Legal advice is often useful earlier than developers expect. Situations that commonly warrant a conversation with counsel include:
- A city imposes a substantial or unusual inclusionary requirement
- A developer disputes whether an ordinance applies to a specific project
- An in-lieu fee appears disproportionate or is calculated unclearly
- The requirement creates a significant feasibility concern
- A city rejects a proposed alternative compliance method
- Density Bonus Law rights may offset or interact with the requirement
- A project is subject to multiple, overlapping housing requirements
- The developer is considering an administrative or judicial challenge
- Conditions of approval raise legal concerns beyond the inclusionary requirement
What Should Developers Do When Facing an Inclusionary Requirement?
California local governments can require affordable units, in-lieu fees, or other inclusionary measures from qualifying developments. The specific requirements depend on the local ordinance, the type of housing involved, and current state law. No single statewide formula applies.
Developers should review the applicable inclusionary ordinance before committing to a project. They should also evaluate available in-lieu options, Density Bonus Law incentives, other development costs, and the project’s financial feasibility.
If a requirement appears unclear, unusually burdensome, or inconsistent with applicable law, developers should address the issue before finalizing project plans or accepting conditions of approval. Early legal review can help identify available options and potential challenges.
Kassouni Law advises developers, property owners, and investors on California inclusionary housing requirements, in-lieu fees, Density Bonus Law, and land use disputes with local agencies. Contact the firm to discuss a specific project and its applicable requirements.
Frequently Asked Questions
What is inclusionary zoning in California?
Inclusionary zoning is a local ordinance requiring a share of units in qualifying residential developments to be affordable to households at specified income levels. California has no single statewide formula, and requirements vary by city and county.
Can a California city require developers to build affordable housing?
Generally, yes. Cities and counties can adopt inclusionary ordinances for ownership housing under their general zoning authority, and for rental housing under Government Code section 65850.01, enacted by Assembly Bill 1505. The specific requirement still depends on the local ordinance.
Can developers pay an in-lieu fee instead of providing affordable units?
Only where the applicable ordinance allows it. Not every jurisdiction offers an in-lieu option, and where one exists, its calculation, timing, and eligibility rules are set locally rather than by a single statewide rule.
How does inclusionary zoning interact with California Density Bonus Law?
They operate under separate statutes but can apply to the same project. Density Bonus Law, under Government Code section 65915, can provide added density, incentives, or standards relief that may help offset the cost of meeting a local inclusionary requirement.
Are inclusionary housing requirements the same as development impact fees?
No. Inclusionary requirements address affordable housing production, while development impact fees fund infrastructure and public services tied to new development. An inclusionary in-lieu fee is a distinct legal concept from a development impact fee, even though both involve a payment.
Can an inclusionary requirement make a development project legally infeasible?
A requirement can raise serious feasibility concerns depending on project economics, but feasibility alone does not entitle a developer to disregard a validly adopted ordinance. Addressing a feasibility concern generally involves the jurisdiction’s own procedures, a density bonus application, or, in limited circumstances, a legal challenge.
Is an inclusionary housing in-lieu fee an unconstitutional exaction?
It depends on the fee and how it was adopted. On-site unit requirements are not treated as exactions under California Supreme Court precedent. Monetary fees, including some in-lieu fees, may face a different and evolving level of scrutiny following the U.S. Supreme Court’s 2024 decision in Sheetz v. County of El Dorado.
This page provides general legal information about California inclusionary housing law and does not constitute legal advice. The requirements that apply to a given project depend on the local ordinance, the type of housing involved, and the specific facts. Laws and individual circumstances vary. Please consult a qualified California land use attorney about your specific situation.
