Glossary

Inclusionary Zoning (IZ)

Also known as: IZ, Affordable Housing Set-Aside, IZ

A land use policy requiring or incentivizing developers of new residential (and sometimes commercial) projects to set aside a specified percentage of units as affordable to households below a defined income threshold, either on-site, at an off-site location, or through an in-lieu fee payment.

Mandatory inclusionary zoning ordinances impose the affordability requirement as a condition of approval regardless of whether the developer seeks a density bonus, while voluntary programs — more common in states without strong mandatory-IZ enabling authority — tie the affordability requirement specifically to opting into a density bonus or other zoning incentive, a distinction that matters because mandatory IZ has faced more sustained legal challenge in some states as an uncompensated exaction, while voluntary programs tied to a requested benefit face a lower legal bar. Sponsors underwriting an IZ-affected site must model the affordability set-aside as a permanent reduction to achievable rental or sale revenue on the designated units, since the affordability covenant typically runs for a lengthy term, commonly 30 to 55 years, and survives a sale of the property, and must diligence whether the jurisdiction allows the in-lieu fee option — paying a per-unit fee into an affordable housing fund instead of building the units on-site — since the in-lieu fee, where available, is frequently the more feasible path for smaller projects where on-site affordable units would be functionally or financially impractical to integrate.