By Casi Caldwell, Master of Public Administration

Inclusionary zoning (IZ) is one of the most popular tools cities reach for when housing gets expensive. But it comes with a stubborn question: Is it actually working? That question sits at the center of a lot of housing debates. After spending months studying how these policies are written and implemented in Colorado, I have come to think the candid answer is less satisfying than either side of the debate would like. We cannot yet say with confidence—but the reason is not necessarily that the policies are failing. The problem is that we are barely measuring them.

IZ is a local zoning rule that requires or encourages private builders to make some of their new homes affordable to people earning below a certain amount. A set number of homes in a project are priced below the normal market rate, so households that earn less can still afford to live there. IZ is often described as a response to “exclusionary zoning,” older (but still current) land rules that limit where less expensive homes can be built. Supporters see IZ as a way to put affordable homes in neighborhoods that would otherwise be out of reach for lower-income households.

One quick note on language: Throughout this piece I use the phrase “income-restricted affordable” to describe the homes IZ produces. “Affordable” is a term that gets used loosely in housing conversations. Sometimes it simply means a market-rate home that happens to be within reach for a household earning at or below a city’s Area Median Income (AMI). IZ, on the other hand, creates income-restricted affordable homes: units that are legally bound, through a deed restriction or restrictive covenant, to rent or sell below market rate to households under a set level of AMI — and to stay that way for a fixed number of years. The legal restriction is the entire point. It is the difference between a home that is affordable by law and one that is affordable by a confluence of market factors.

Much of the public conversation about housing happens at the level of big, statewide goals – and for good reason, when local governments struggle to coordinate their responses to a regional and statewide housing shortage. But whether income-restricted affordable homes actually get built usually comes down to small, technical choices that individual cities make in their own ordinances. The fine print is where IZ succeeds in delivering on the promise of more affordable housing – or, in some cases, fails to produce any new housing at all..

To get at that fine print, I conducted a study, in partnership with Housing Forward Colorado (HFC), that reviewed mandatory IZ ordinances across 22 Colorado communities. That is every mandatory IZ policy I could find in the state as of January 2026. I then sat down with people on both sides of these rules: nine local housing officials and six people who work in the building industry — including for-profit developers, an affordable housing developer, architects, and an industry representative. My goal was to compare how these ordinances are written with how they function once a project lands on a city’s desk.

How the math works

IZ rests on a basic math problem. Income-restricted affordable homes bring in less revenue than market-rate homes, so builders generally use the profit from the market-rate units to cover the difference. If the market-rate side of a project is not selling or renting for enough to cross-subsidize the income-restricted units, the financing can stall. For this reason, many economists and developers describe IZ as an added cost on building, sometimes called an “implicit tax.” That cost gets absorbed in one or more of a few ways: higher prices on the other homes, lower payments for land, or thinner profit margins.

For example, picture a builder planning a 100-unit apartment building. Under a common 10 percent IZ rule, 10 of those apartments have to rent at an income-restricted affordable rate, say $1,200 a month. The other 90 rent at the market rate of $2,200 a month. That means the builder takes in $1,000 less each month on each of the 10 income-restricted units, which works out to about $120,000 in lower revenue every year. To secure financing, the developer generally treats that gap as a cost, which can mean charging more for the other 90 apartments or paying less for the land before construction even begins. In other cases, IZ housing projects aren’t financially viable and never break ground.

The current market context

A few market conditions are making it more difficult to build housing in Colorado right now, and they shape how IZ plays out.

First, materials are expensive. Prices for things like structural steel and plumbing fixtures have settled at levels higher than builders saw in past years, and there is no indication that those prices will drop anytime soon.

Second, there is a shortage of skilled trade workers, including electricians and plumbers. The market data I reviewed shows this pushes labor costs up by more than 5 percent a year.

Third, financing is more expensive than it was a few years ago, with borrowing costs higher than they were at any point during the 2010s. This contributes to what researchers call a “feasibility gap,” where the total cost to build a project can exceed the revenue the project is expected to bring in. When that gap is already wide, even a modest added cost can tip a project from buildable to shelved.

In many cases, IZ requirements were adopted under more favorable market conditions, when construction costs were lower and financing was easier to secure. In recent years, market conditions have tightened, yet many of those IZ requirements have not been updated, weakening project feasibility.

Two perspectives: cities and builders

The interviews surfaced two very different ways of looking at the same type of policy.

City staff generally describe IZ as an essential tool for adding income-restricted affordable homes in neighborhoods that would otherwise be out of reach for many households. Most IZ policies give builders two options: 

1. Build income-restricted affordable homes directly on a project site, or 
2. “fee-in-lieu” payments, which is money a builder pays instead of building those homes. Cities put that money into a dedicated housing fund and use it to support fully affordable projects. 

Notably, the officials I spoke with did not treat fee-in-lieu as a loophole. They described it as a core financing tool that lets them fund deeply affordable projects they could not otherwise pay for.

Builders described a different set of pressures. They did not generally object to affordable housing itself, in fact, all of them supported the goal. But they answer to banks and investors who will not finance a project that looks too risky. One factor that came up again and again was the AMI target. When a city sets affordability at a lower income level, it cuts into a project’s revenue more sharply than simply asking for a few more affordable units at a higher income level (e.g. an apartment for a household making 60% of AMI may require a $800 per month subsidy while one for 30% AMI would require a $1,600 per month subsidy). Layered on top of high material and borrowing costs, developers described IZ less as the sole cause of a stalled project and more as a tipping factor, the factor that pushes a marginal project from feasible to infeasible.

A key finding: The “data wall”

Despite the insights gleaned from my 15 one-on-one interviews, my biggest finding was a gap in information: It is stubbornly difficult to evaluate whether IZ is working in Colorado. I started calling this challenge the “data wall.”

Nearly every city official I interviewed said their office tracks income-restricted affordable homes in some internal system. The problem is that those records are usually not built for outside review, so they rarely make it into public or academic hands. Cities also track different things in different ways. Longmont’s laudably accessible reporting, for example, leaned toward projected fee revenue, policy compliance options, and which incentives developers chose. 

On top of that, even the basic question of how many income-restricted units were directly produced by these policies was unclear. Because most ordinances studied were enacted or updated in the past two to four years, municipal staff could only offer ballpark estimates and projected timelines rather than concrete production totals. Additionally, cities do not typically share these numbers in relation to a “denominator,” or total number of market-rate units produced. Without a concrete number of affordable units produced within the context of total housing market growth, a policy might create a high percentage of affordable homes, but if it also leads to fewer homes being built overall, that may not be a successful outcome that aligns with broader housing goals. 

Fee-in-lieu revenue presents its own tracking challenge, and the structure varies from one city to the next. Every municipality I spoke with that accepts these payments directs them into a dedicated affordable housing fund rather than a general municipal account. From there, the approaches diverge. Some cities, including Boulder, manage funds that combine fee-in-lieu revenue with other sources, such as impact fees and selected taxes. Others maintain funds composed primarily of fee-in-lieu revenue. Where the revenue is combined with other streams, it is harder to attribute a specific number of income-restricted affordable homes to fee-in-lieu dollars on their own because the fund draws on several sources at once.

Of  the communities I studied, Boulder stood out for the kind of tracking others lack. Its accessible Affordable Housing Dashboard, alongside shared internal documents, showed project-level production data: total fee-in-lieu contributions, which projects were subject to IZ, the size and tenure of each project (for-rent or for-sale), and how each one complied across every pathway, including fee-in-lieu, on-site units, off-site units, and land dedication. And it does this tracking across more than a decade, from 2013 through 2025. Boulder can even identify its annual fee-in-lieu revenue and trace it back to specific projects. The significance is not just that Boulder has good data; it is that Boulder proves this level of tracking is achievable for a Colorado city.

It would be reasonable to wonder if the state already requires this kind of measurement. It does not, at least not in a way that captures IZ specifically. SB24-174, a recent state law, requires cities to produce a “Housing Action Plan” that summarizes homes built or permitted over a six-year window, along with broad income breakdowns. That is useful information, but it does not require a city to track whether a particular home was built because of IZ, a tax credit, or a grant. The statute even includes the phrase “if such information is available,” which gives under-staffed jurisdictions room to keep reporting in inconsistent ways – or not at all. The law does a good job of requiring cities to report their broad housing inventory. It was simply never designed to measure how IZ performs.

Recommendations to improve the tracking and effectiveness of IZ

Based on what I found, four changes would make Colorado’s IZ programs both more productive and far easier to evaluate. The first comes almost entirely from my data findings; the others lean more heavily on what developers told me and on what wider academic research has shown.

1. Standardize the tracking and report it regionally.

This recommendation is meant to address the “data wall.” If we cannot see the outcomes, we cannot manage them. I recommend that the state, working through an agency like the Colorado Department of Local Affairs alongside groups such as the Colorado Municipal League, set a universal reporting template. It should capture total housing production, both market-rate and income-restricted affordable, so the denominator finally exists; how each unit was delivered, on-site versus fee-in-lieu; and who the units serve, by AMI level, tenure, and size. Boulder already shows this is doable, since it has tracked exactly this kind of project-level data since 2013. Cities should also report where fee-in-lieu money is deposited, when it is spent, and what it funds. And because people who cannot afford housing in the city centers in which they work, they resort to commuting across city lines, leaving housing pressure in one town to spill over into the next, so where an entire county runs an IZ program, such as Eagle County or San Miguel County, the data should be reported at the regional level to capture those shifts. Standardized, periodic reporting presents an opportunity to compare and reassess IZ requirements and, if necessary, adjust them to make the policy more effective and better achieve its intended goals.

2. Build automatic adjustments into the rules.

My conversations with housing developers inspired this recommendation. Across my industry interviews, developers consistently cited predictability as a factor that mattered just as much, if not more than, the policy requirements themselves. Five of the six developers I spoke with said that consistently applied, predictable rules were far easier to work with than rules subject to sudden change, and several pointed to unclear or out-of-date fee formulas as a direct source of financial risk. The research literature echoes this, describing how static requirements that never adjust to shifting markets quietly weaken a program over time. Static fees go stale. So rather than reopening an ordinance every few years through a slow re-codification process, cities should write in automatic annual adjustments tied to a reliable benchmark, such as the Consumer Price Index or a regional construction cost index. This is not a leap for Colorado either, since cities like Vail and Durango already recalibrate their fee schedules on a regular annual or bi-annual cycle. Automatic indexing simply makes that discipline routine instead of optional.

3. Standardize the incentive menu but let cities set the values.

Here the evidence cut in two directions, which is exactly why I landed on a two-part solution. On one hand, the developers I interviewed were skeptical that the incentives cities currently offer do much to offset the added costs created by inclusionary zoning requirements. Four of the six said tools like density bonuses and parking reductions, incentives meant to make projects easier or less expensive to build, provided only limited relief and rarely changed a go or no-go decision. 

On the other hand, a few of those same developers said certain incentives could meaningfully help in the right setting, like parking reductions for an urban multifamily project. The research literature is consistent on this point: IZ programs paired with real offsets – such as fee waivers, design flexibility, and faster approvals – and flexible compliance options tend to produce steadier housing outcomes. 

Therefore, I recommend that the state strengthen its existing requirements by ensuring that cities offer enough flexibility and incentives to make projects economically feasible. The goal should not be for every city to offer the same set of offsets, but for each city to show that its available options meaningfully compensate for the costs created by IZ. That would give developers greater confidence that projects can still move forward while allowing cities to tailor their programs to local conditions. Denver and Broomfield already build this kind of flexibility into their programs, demonstrating how this can work in practice.

One important caveat, drawn from Sightline Institute research, is that incentives alone are not enough. Treating an “upzone,” or the right to build a bigger building, as the “subsidy” does not work on its own. The value of the upzone gets canceled out by the cost of the mandate, and construction stalls anyway. For Colorado, the lesson is that regulatory concessions are helpful, but IZ works best when paired with public funding – which brings me to my next recommendation.

4. Fund the mandate.

The thread running through both my literature review and my developer interviews is that IZ rarely works well as a standalone, unfunded mandate. A 2015 report from Lincoln Institute describes IZ as an implicit tax that, without complementary support like public subsidy, can suppress the very housing production it aims to create. My interviews put a finer point on it: Developers viewed the regulatory incentives cities offer as insufficient to actually offset the cost of the affordability requirement. 

That points toward an approach gaining traction in other states: funded inclusionary zoning, where public dollars, usually in the form of property tax abatements, cover the gap between market-rate and income-restricted affordable units so that a project still pencils. The idea is straightforward. If the public offset roughly matches the revenue a builder gives up on the restricted homes, then those homes stop dragging down the project’s feasibility, and the building gets built instead of shelved.

The evidence for this is no longer hypothetical. As Sightline Institute has reported, Portland, Oregon found that its inclusionary program was quietly suppressing apartment construction while it was underfunded, then saw construction normalize once the city fully funded the program through deeper tax abatements. Baltimore designed an especially clever version, granting each building an annual tax credit equal to its actual forgone rent, so the offset automatically tracks the market instead of relying on a static estimate — which dovetails neatly with my second recommendation. In March 2026, Oregon went a step further and passed Senate Bill 1521, which requires Portland-area cities to keep their IZ mandates fully funded and to re-evaluate them regularly, in exchange for more flexibility in how they design those mandates. Similar funded or partially funded models have appeared in Chicago, New York City, and several Washington cities.

A reasonable objection is cost. But the same reporting points to a counterintuitive efficiency: Because income-restricted affordable units built this way “hitch a ride” on projects that are already being financed, the public cost per home can come in below what it costs to produce a comparable unit through a standalone affordable project. Colorado already has a state funding structure for housing, which makes this less of a reach than it might first appear.

The bottom line

So, is IZ working in Colorado? My honest answer is that it depends, and that we are not yet measuring it well enough to say more than that. Cities consistently told me the units are getting built — and developers, for all their concerns, agreed that IZ does produce income-restricted affordable homes. The trouble is that IZ is not a guaranteed solution on its own. Its results hinge on market conditions, on how carefully the rules are calibrated, and above all on consistent, predictable administration. When a city sets clear targets, applies its rules consistently, funds the mandate, and reports its data openly, IZ can contribute real homes in a way we can actually track over time. Right now, the missing piece is not the policy. It is the data that would let us prove what the policy is doing. Until we build that, the most I can responsibly claim is that inclusionary zoning in Colorado is promising, unproven, and very much worth measuring properly.