The state’s chronic housing shortage has its greatest impact on the roughly 14 million Californians either mired in poverty or nearly so.
In fact, California’s very high housing costs are a leading reason why so many are impoverished. That’s why the Census Bureau and the Public Policy Institute of California calculate real life poverty rates by comparing incomes with costs of living. Recently, the U.S. Department of Housing and Urban Development listed California as having the nation’s highest median rent at $2,895 a month.
Armed with a flurry of new laws, state officials have been pressing local governments to make it easier for developers to build new apartments that cater to low-income families. However, even when artificial barriers such as restrictive zoning are removed, the sheer cost of building such housing impedes progress.
A 2025 RAND study found that building apartments of any type in California averages $430,000 a unit — 2.8 times the $150,000 average in Texas — and housing for low-income renters costs more than four times as much as similar units in Texas. It’s not unusual for such housing to reach or even surpass $1 million a unit.
Rather than directly finance low-income housing projects, many cities have responded to pressure by requiring developers of market rate housing to limit rents for certain units set aside for low-income tenants.
It’s called “inclusionary zoning,” and its application varies among the more than a third of California cities that have adopted it.
Some developers accept the conditions and others balk. In 2009, the state appellate court ruled that the city of L.A. indirectly violated California’s law barring rent control on newly built apartments by requiring a developer, Palmer Sixth Street Properties, to include low-income units.
The decision, in effect, blocked cities from imposing inclusionary zoning as a condition for approving rental projects, thus cutting off what had been one of local governments’ most powerful tools for dealing with the shortage. However, it did not affect inclusionary zoning for housing built for sale.
Six years after the Palmer decision, the state Supreme Court declared inclusionary zoning affecting for-sale projects was legal. In 2017, the Legislature enacted what was dubbed the “Palmer fix” to overturn the Los Angeles case on rental housing.
So for the past nine years, cities have resumed the practice of requiring developers to set aside units for low-income families. The legalities aside, does it work?
An exhaustive new study by UC Irvine economist Noah Kouchekinia concludes inclusionary zoning backfires by reducing the overall production of housing of all types. He and his team delved into programs city-by-city to determine how much housing had been built and found inclusionary zoning “acts as a tax on construction and, all else equal, reduces the overall supply of housing,” potentially reducing overall affordability.
“I find the typical inclusionary zoning ordinance reduces annual new residential construction by nearly a third (31.8%),” Kouchekinia writes, adding, “I estimate the cost of generating an affordable unit with inclusionary zoning to be approximately $800,000 in ‘excess rents’ paid by market rate renters as a result of the policy’s constraint on supply.”
That figure, Kouchekinia notes, is higher than what it costs to directly finance a low-income housing unit.
This research is important since it suggests that inclusionary zoning — while letting local officials off the hook to provide low-income housing — in reality limits construction and is a high tax on other renters.
Dan Walters’ commentary is distributed by CalMatters, a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters.
