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Inclusionary zoning policies are an increasingly popular tool for addressing affordable housing challenges, with many cities and counties adopting such policies since 2000. But the structure and features of these policies vary. Research suggests that the features of inclusionary zoning matter and need to be tailored to local market conditions.

Inclusionary zoning encourages or requires developers who are creating market-rate housing to set aside a percentage of the housing to be sold or rented at below-market rates. One common feature of inclusionary zoning policies is “in-lieu fees,” which developers can pay as an alternative to building on-site affordable units. (In-lieu fees are the most common name for this method of alternative compliance, but some jurisdictions might refer to this option as “buy-outs,” “opt-outs,” or “cash contributions.”) In-lieu fees are among the most hotly debated parts of inclusionary zoning, in part because little research exists on the variations in their structure and their advantages and disadvantages.

This brief has two goals. The first is to help local decisionmakers determine whether to include an in-lieu fee option in their inclusionary zoning ordinances. The second is to help local decisionmakers understand what variations of in-lieu fees exist and how to structure in-lieu fees. Based on a literature review and interviews with local government staff members, developers, nonprofit practitioners, and advocates, this brief first provides an overview of the goals of inclusionary zoning and the ways that in-lieu fees can advance or undermine those goals. It then discusses the methods that jurisdictions use to set in-lieu fees and details considerations for jurisdictions when they are setting in-lieu fees.