Rent control is considered by most cities a measure that distorts and inflates housing markets. But many are embracing a similar price control called "inclusionary zoning."

Despite prevailing in a few cities, rent control policies have declined across America, for reasons I mentioned in a previous post.

They have been found—perhaps counterintuitively—to increase housing costs, by taking units off the market, encouraging abandonment by landlords, and preventing construction.

While several cities still enforce rent control for older units, they don’t on newly-built ones, since even public officials now recognize the downsides. But this doesn’t mean that housing price controls have vanished.

Instead, a supposedly more market-oriented solution has arisen to replace rent control, with results that are often just as bad. It is called “inclusionary zoning.”

IZ (Inclusionary zoning) laws, while varying by locality, typically mandate that developers make a percentage of units affordable in exchange for building at higher densities. Other times, developers can pay into affordable housing funds or build affordable units elsewhere, in lieu of building them on-site. Such units are typically preserved for residents making up to 80% of area median income, and encompass 10-30% of a project’s overall stock.

In San Jose, where IZ’s constitutionality is being questioned by the California Supreme Court, developers building more than 20 units must make 15% of them affordable, or pay a fee of $122,000 per inclusionary unit. San Diego’s required affordability set-aside is 10% for developments with 10 units or more. New York City’s much-maligned “poor doors,” where different-income tenants enter separate doors within the same complex, were part of its IZ program. Altogether, over 400 U.S. municipalities have an IZ policy.

Such programs have become popular in expensive cities that struggle with gentrification and inequality.

They are meant not only to increase affordable housing stock, but in a way that mixes the poor with the rich, rather than isolating them.

The term itself is a spinoff from “exclusionary zoning,” a longstanding de facto suburban policy wherein large-lot zoning is used to prevent low-income housing construction.

Most IZ laws are, technically speaking, voluntary. But in expensive and land-constrained markets, where building more units is necessary for a developer to achieve profit, IZ requirements might as well be considered a set business cost. Thus, they function like rent control once did, and, according to the academic literature, have similar downsides.

Indeed, studies show that IZ mandates both prevent new housing starts, and make market-rate housing more expensive.

They prevent housing starts by acting as a tax on new development, thus making certain projects uneconomical; and because affordable units earn less, developers must cover losses by jacking up market-rate housing prices. In the study “Unintended or Intended Consequences?,” economists Tom Means and Edward Stringham define IZ as a price control, before noting that, like with other such controls, it discouraged production and raised prices in California.

Inclusionary Zoning Is Rent Control 2.0 – Forbes.