Portland's inclusionary zoning mandate caused developers to shrink projects below the trigger threshold, reducing total housing production — the policy meant to create affordable units destroyed more market-rate units than it created

Portland, Oregon implemented a mandatory inclusionary zoning (IZ) policy requiring developers of buildings above a certain size to set aside a percentage of units as below-market-rate affordable housing or pay an in-lieu fee. The policy was designed to produce affordable units without direct public subsidy. Instead, developers responded rationally: they shrank their projects to fall just below the unit-count threshold that triggered the mandate. A building that would have been 25 units was redesigned as 19. A 40-unit project became 29. The net result was fewer total units — both market-rate and affordable — than would have been built without the policy. A 2024 UCLA Lewis Center study of Los Angeles's voluntary IZ program found the same dynamic: 'increasing IZ requirements may not produce substantially more below-market-rate units, and is very likely to reduce future housing production.' A 2025 empirical study covering multiple US jurisdictions found that IZ policies resulted in an average 2.1% increase in home prices while more stringent mandatory policies had an even larger price impact. The Manhattan Institute documented cases where the net loss exceeded twenty market-rate units for every subsidized unit produced. In Portland specifically, the production decline was visible in permit data — developers were building fewer, smaller projects in the years following implementation. Inclusionary zoning persists despite these outcomes because it is politically attractive: it appears to create affordable housing 'for free' without requiring tax revenue or public expenditure. Elected officials can point to the affordable units produced without accounting for the market-rate units that were never built. The counterfactual — housing that would have existed but does not — is invisible to voters. Housing advocates who support IZ are reluctant to acknowledge its supply-side effects because it undermines a policy they fought hard to pass. The result is a policy that makes the affordable housing problem worse in aggregate while creating a small number of visible, politically useful affordable units.