We need to talk about inclusionary zoning

For decades, Inclusionary Zoning (IZ) has been Hawaiʻi’s primary policy tool for affordable housing. The idea is straightforward: require developers to include below-market-rate units in exchange for perks like density bonuses or faster approvals. In theory, IZ ensures that new housing serves more than just the wealthy by embedding affordable housing within new subdivisions and correcting some of the harm caused by racist exclusionary zoning policies. 

In practice however, it has failed to deliver. In fact, it’s making housing even less affordable for most residents.

After 50 years of experimentation, the results are clear: IZ is a band-aid solution to a crisis that demands major surgery. It’s time to confront why this policy hasn’t worked—and what we should do instead.

The Broken Promise of Inclusionary Zoning

IZ emerged in the 1970s as a way to address rising housing costs without direct public spending. The logic was simple: if developers wanted to build, they’d have to include affordable units. No big government subsidies, no heavy taxes—just private industry “doing its part.”

But this theory ignored a fundamental truth: there’s no such thing as a free ride when it comes to subsidizing housing. When developers are forced to sell or rent units below market rate, they don’t absorb the cost—they pass it on. Research shows that: 

• Mandatory IZ can increase housing costs by 1 percent per year in markets without existing supply constraints. (Emily Hamilton, 2021)

• In California, IZ raised prices for market-rate homes by 5 percent, while affordable units saw only a 0.8 percent reduction. (Knaap, Bento, & Low, 2008)

In other words, IZ acts as a hidden tax on new housing, making it more expensive for the majority to subsidize a lucky few.

For IZ to work, evidence suggests that it needs certain favorable conditions: a strong development pipeline, flexible zoning, fast permitting, meaningful incentives, consistent compliance options and, most importantly, a broad public investment strategy. 

Hawaiʻi has none of these. Instead, we have:

• A Broken Approval Process

• Even under Hawaiʻi’s “fast-track” 201H program, projects face political delays from county councils.

• Discretionary approvals mean every project is negotiable, leading to uncertainty and stagnation.

• A Patchwork of Conflicting Rules

• Hawaiʻi has at least six different IZ programs (Honolulu’s Ordinance 18-10 and IPD-T additions, HCDA’s Kakaako Makai Reserved Housing Rules, Maui’s Residential Workforce Housing Policy, Hawaiʻi County’s Chapter 11, and Kauaʻi’s Ordinance 860).

• Compliance rules shift frequently, and counties don’t publish required reports, so we can’t even measure success.

• No Real Public Backup

• IZ assumes the private sector will solve affordability alone. But without public funding for housing, we’re relying on a system designed to maximize profit—not equity.

A Better Path Forward

Hawaiʻi builds around 4,000 units per year. If 60 percent are income-restricted rentals, that leaves just 1,600 for-sale homes annually. Even if 25 percent of those are IZ units, we’re producing only 400 or so affordable ownership opportunities per year for a state with 50,000+ households in need.

This isn’t just inadequate—it’s actively harmful. By constraining supply, IZ drives up prices for everyone else.

To truly address Hawaiʻi’s housing crisis, we need bold, systemic solutions:

1. Public Investment in Housing

1. Expand Hula Mae loans to offer below-market interest rates and down payment assistance.

2. Fund social and community-owned housing (e.g., land trusts, limited-equity co-ops) that permanently remove land from speculation.

2. Zoning & Regulatory Reform

1. Legalize housing near jobs, transit, and schools—end exclusionary single-family zoning.

2. Replace discretionary approvals with clear, by-right permitting to stop political delays.

3. Make actionable the 201H-38 Alternative Pathways–which makes possible income blind housing reserved for local residents.

3. Protect Renters & Prevent Displacement

1. Strengthen tenant rights (just-cause eviction, rent stabilization where needed).

2. Invest in anti-displacement programs for vulnerable communities.

4. Alternative Affordable Models

1. Shared-equity homeownership (e.g., community land trusts, leasehold, co-ops) to keep homes affordable long-term.

2. Public development authorities to build housing outside the speculative market.

Kauaʻi recognized IZ’s limits and exempted town cores from requirements to spur growth. Seattle’s experience shows that even with incentives, IZ suppresses housing in areas where it applies.

Hawaiʻi can’t afford to keep pretending IZ will fix our crisis. It helps a few—at the expense of many. Instead, we need policies that increase overall housing supply, not just a trickle of subsidized units; that make rental housing a stable alternative to homeownership; and that remove barriers to building rather than add more red tape.

It’s time for Hawaiʻi to move on from its reliance on inclusionary zoning as a cure-all and, instead, build a future where housing is a right, not a lottery.