California’s long-running housing crunch continues to hit hardest for the roughly 14 million residents living in or near poverty, and the state’s soaring rents remain a central culprit. Federal housing officials recently ranked California’s median rent — nearly $2,900 a month — as the highest in the nation, and both the U.S. Census Bureau and the Public Policy Institute of California now factor housing costs directly into their poverty calculations because the connection is so strong.
In response, state leaders have passed a wave of laws aimed at pushing cities to clear the way for more affordable apartment construction. But even in places that have loosened zoning restrictions, the basic economics of building in California remain a stubborn obstacle. According to a 2025 RAND study, the average cost to build an apartment unit in California is about $430,000 — nearly three times the $150,000 average in Texas. For income-restricted units aimed at low-income renters, California’s costs run more than four times higher than comparable projects in Texas, with some developments in expensive coastal cities topping $1 million per unit.
Facing pressure to produce affordable housing without shouldering the cost themselves, many California cities have turned to a strategy known as inclusionary zoning. Under these policies, developers building market-rate apartment complexes are required to set aside a portion of units for lower-income tenants at below-market rents. More than a third of cities in the state have adopted some version of this approach, though the details vary widely from one municipality to the next.
The policy hasn’t been without legal turbulence. In 2009, a state appellate court sided with a developer, Palmer Sixth Street Properties, in a dispute with the city of Los Angeles, ruling that requiring affordable units in a rental project effectively violated California’s ban on rent control. That decision froze cities’ ability to impose inclusionary zoning requirements on rental housing — though it left such rules intact for for-sale housing developments.
The pendulum swung back in 2015, when the California Supreme Court upheld inclusionary zoning for for-sale housing. Then in 2017, state lawmakers passed what became known as the “Palmer fix,” legislation specifically designed to override the earlier appellate ruling and restore cities’ authority to require affordable rental units in new developments.
Since then, cities across California have once again required developers to include below-market apartments in their projects. But nearly a decade later, a new academic study is raising serious doubts about whether the strategy actually works.
Noah Kouchekinia, an economist at UC Irvine, conducted an extensive city-by-city analysis of inclusionary zoning programs and their effects on housing production. His conclusion: the policy tends to backfire, shrinking the overall housing supply rather than expanding access to affordable units.
According to Kouchekinia’s research, a typical inclusionary zoning ordinance reduces annual new residential construction by nearly 32 percent. He estimates that the true cost of producing one affordable unit through inclusionary zoning — factoring in the higher rents paid by market-rate tenants as a result of constrained supply — comes to roughly $800,000. That figure, he notes, exceeds what it would cost to simply fund affordable housing units directly through public subsidy.
The findings raise uncomfortable questions for city officials who have leaned on inclusionary zoning as a politically convenient way to appear responsive to the housing crisis without committing public dollars. Kouchekinia’s data suggests the policy may function less like a solution and more like a hidden tax — one ultimately paid by renters who don’t qualify for the below-market units, while overall housing production slows.
The study also underscores a broader pattern in California policymaking: officials frequently adopt housing measures with confident promises of impact, but rarely circle back years later to rigorously assess whether those policies delivered the results intended.
Original source: CalMatters
