The Effect of Inclusionary Zoning on the Housing Supply in U.S. Cities: A Bunching Analysis

Inclusionary Zoning (IZ) is a policy used in hundreds of U.S. cities and counties in which developers are required to set aside a fraction of units in new residential buildings for low-income tenants and charge below-market rent. A concern about IZ is that it decreases the housing supply by making it less profitable to build. I investigate the regulatory burden IZ imposes on developers by exploiting a common feature of IZ policies, that they only take effect above a sharp threshold of unit count, such as 20+ unit buildings. I study the extent to which developers avoid having to comply with IZ by strategically constructing apartment buildings with unit counts right below these thresholds. I find moderate IZ-driven bunching below the thresholds in some jurisdictions, but in most cities and counties studied there is no bunching under the thresholds.