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Inclusionary Zoning: Four principles for a targeted, consistent, and balanced policy

February 9, 2026

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The Planning Amendment (Better Decisions Made Faster) Bill 2025 passed both houses of parliament last week. The amendment will streamline building approvals, including allowing low-risk building permits to be processed faster. Changes also include a provision that enables councils and state government to make the use or development of land conditional on the provision of an affordable housing contribution as long as:

  1. the relevant planning scheme identifies a need for affordable housing and
  2. the application exceeds a dwelling number or development value threshold. 

This is a promising change that lays the groundwork for inclusionary zoning (IZ) – a land use planning intervention that either mandates or incentivises the delivery of social or affordable housing or in-lieu financial contributions as part of market rate housing development. This is something local councils, industry leaders, social housing and homelessness experts and researchers have been calling for for years.1

With the correct policy settings, IZ has proven an extremely effective approach to delivering affordable housing. In England, inclusionary zoning delivered 27,400 affordable homes in 2023-2024, accounting for 44% of all affordable homes built in England that year.2 Over 110,000 affordable homes have been produced in the US through IZ programs.3

Despite this, IZ has experienced significant pushback from industry groups in Australia. A common criticism of IZ is that it could make some developments infeasible, reducing housing supply and/or increasing the cost of unsubsidised homes. A separate risk is that developers may avoid IZ requirements by prioritising development in places and building typologies that don’t require IZ. For example, in London, the number of 9-unit dwellings quadrupled the year after a 10-dwelling threshold for IZ was implemented.4

For this reason, the devil is in the detail of how IZ policy is implemented.

Implementing inclusionary zoning

IZ started in the US in the 1970s and rapidly spread to other jurisdictions. Policies vary substantially across jurisdictions.

IZ policy requires a series of decisions that must be embedded in planning schemes, including:

  • Whether it is voluntary (incentive-based) or mandatory. Most programs internationally are mandatory.
  • The goal of IZ.The most common goal of IZ is to produce affordable rental housing for low-income or moderate-income earners. However, in Scandinavia (Denmark, Sweden, and Norway), the primary goal is to achieve social mix – where people with varied socioeconomic status reside in the same local area.5
  • The threshold to trigger an IZ policy e.g. number of units or gross floor area. A study of 550 IZ programs in the US found that small projects below a certain threshold are often exempt, with most US programs only applying IZ to developments over 6 to 10 units (35% of programs), although the threshold can be as high as 50 units.6
  • The percentage of units or floor area required to be affordable or social housing.
  • The geographies it applies to, e.g. across an entire state, local government area, or only in particular development zones. IZ is often applied in areas where zone changes or public investment in infrastructure like train stations are expected to raise land values.
  • The definition of affordable housing, including any means testing of residents, and whether affordable homes are for rent or purchase.
  • Incentives for developers, including increased density allowances or expedited planning approvals.
  • Alternatives to providing affordable housing, such as financial payments in-lieu.

The table below summarises a (non-exhaustive) selection of different IZ schemes across Australia and globally: 

Location, policy  Mandatory /
incentivised 		 Threshold  Percentage of units required to be affordable  Affordable definition  Other incentives and alternatives 
South Australia, Affordable Housing Overlay7  Mandatory  20 or more dwellings  15% of dwellings  Affordable purchase price or sale to a community housing provider  Developers also receive density
bonuses and a land tax concession 
Sydney, In-fill affordable housing, within Housing State Environmental Planning Policy8  Incentivised – floor space and height bonuses  No threshold  10-15% of gross floor area  Rent is affordable for very low to moderate income earners. Must be managed by community housing provider for 15 years.  Bonuses are higher if affordable
housing percentage is higher 
ACT, Housing Supply and Land Release Program9  NA – applies to
government land release 		 NA  15% of land release must be allocated to affordable and social housing  Below market rents or affordable for very low to moderate income earners, or an affordable purchase price  NA 
London, The London Plan10  Mandatory  10 or more dwellings  35 per cent (temporarily 20 per cent)11  Below market rents, social rental housing, or shared equity ownership  Payments in lieu contributions
may be used in limited circumstances 
Copenhagen, Danish Planning Act12  Mandatory  Applies to housing stock in new residential areas  25% of dwellings (of which one-third must be social housing)  Below market rents (with a larger discount for social housing); no income test  Affordable housing development
is co-funded by national and local government subsidies and loans  
US cities, various13  Mixed; typically
mandatory 		 Typically exempt below 6 to 10 units (35% of programs), followed by 5 or fewer units (27% of programs). Threshold can be as high as 50 units.   Typically between 10% and 20% of units.  Typically either for-sale or rentals, available to income-qualified households.  Typically offer additional cost
offsets, such as density bonuses or expedited permitting. Most programs
offer alternatives to on-site affordable housing (~50% allow payments in lieu, ~40% allow off-site units, ~20% allow donated land). 

 

Four principles for effective IZ policy

Victorian policymakers should consider the following four principles when IZ policy is being developed: 

  1. The same rules should apply across Victoria and should be prescribed in regulations. This creates policy certainty, avoids negotiation and delays14, and prevents land banking – where landowners withhold development until they can secure a better deal from local governments. It also stops developers just moving over to the next suburb to avoid a local IZ policy.  
  2. Payments in lieu of affordable housing provision should be allowed, with all revenue allocated to a social housing fund. This ensures development can proceed even when affordable housing provision is infeasible, while still capturing additional social value.  
  3. There should be a transition period between announcement of the regulations and the date of implementation. Economic theory suggests that the costs of IZ are mostly imposed on existing landowners, in the form of lower land prices.15 A transition period gives developers time to build on land purchased at higher prices under pre-IZ regulations, so that existing development plans are not stalled. 
  4. Ensure inclusionary zoning policy works to support broader planning and housing priorities in Victoria. IZ would provide an opportunity for Victoria to expand its activity centre program and upzoning policies designed to increase supply near transport and infrastructure16, while creating additional social value through affordable housing. 

Finally, policymakers need to be aware that IZ will not supply housing for the most vulnerable cohorts in Australia on its own. Governments will always need to fund social housing directly, whether through the building of public housing or subsidies for community housing.  

Momentum is building for IZ to be implemented in Victoria. Our four principles offer a framework to create a well-targeted, consistent, and balanced IZ policy.    

 

 

References:

  1. Katrina Raynor et al, ‘The Importance of Institutional Capacity and Negotiation Capacity in Affordable Housing Agreements: The Potential for Collective Action in Melbourne, Australia’ (2023) 40(2) Housing, Theory and Society 133. 
  2. Ministry of Housing, Communities and Local Government, ‘Affordable Housing Supply in England: 2023 – 2024’ (Web Page, November 2024) <https://www.gov.uk/government/statistics/affordable-housing-supply-in-england-2023-to-2024/affordable-housing-supply-in-england-2023-to-2024>. 
  3. Ruoniu Wang and Sowmya Balachandran, ‘Inclusionary Housing in the United States: Dynamics of Local Policy and Outcomes in Diverse Markets’ (2023) 38(6) Housing Studies 1068. 
  4. Fei Li and Zhan Guo, ‘How Does an Expansion of Mandatory Inclusionary Housing Affect Housing Supply?: Evidence From London (UK)’ (2022) 88(1) Journal of the American Planning Association 83. 
  5.  Anna Granath Hansson et al, ‘Contrasting inclusionary housing initiatives in Denmark, Sweden, and Norway: how the past shapes the present’ (2025) 40(4) Housing Studies 892. 
  6. Ruoniu Wang and Sowmya Balachandran, Inclusionary Housing in the United States: Prevalence, Practices, and Production in Local Jurisdictions as of 2019 (Grounded Solutions Network Report, 2021) <https://groundedsolutions.org/wp-content/uploads/2021-01/Inclusionary_Housing_US_v1_0.pdf>. 
  7. ‘Developers’, HomeSeeker SA (Web Page) <https://homeseeker.sa.gov.au/developers>. 
  8. ‘In-fill affordable housing: Housing SEPP’, NSW Government: Planning (Web Page) <https://www.planning.nsw.gov.au/policy-and-legislation/housing/housing-sepp/in-fill-affordable-housing>. 
  9. ACT Government, Housing Supply and Land Release Program: 2025-26 to 2029-30 (Report, 2025) <https://www.planning.act.gov.au/__data/assets/pdf_file/0007/2869117/act-housing-supply-and-land-release-program-2025-26-to-2029-30.pdf>. 
  10. Greater London Authority, The London Plan: The Spatial Development Strategy for Greater London (Report, March 2021) <https://www.london.gov.uk/sites/default/files/the_london_plan_2021.pdf>. 
  11. Greater London Authority, ‘London Social and Affordable Homes Programme 2026-36: Funding Guidance’ (Web Page) <https://www.london.gov.uk/programmes-strategies/housing-and-land/housing-and-land-funding-programmes/london-social-and-affordable-homes-programme-2026-36/funding-guidance>. 
  12. Luise Noring, Financing the Inclusive City: A Case Study of the Danish Model of Affordable and Social Housing (Research Brief, 2018) <https://research.cbs.dk/en/publications/financing-the-inclusive-city-a-case-study-of-the-danish-model-of-/>.  
  13. Ruoniu Wang and Sowmya Balachandran, Inclusionary Housing in the United States: Prevalence, Practices, and Production in Local Jurisdictions as of 2019 (Grounded Solutions Network Report, 2021) <https://groundedsolutions.org/wp-content/uploads/2021-01/Inclusionary_Housing_US_v1_0.pdf>. 
  14. Kate Raynor, Matthew Palm, and Georgia Warren-Myers, ‘Ambiguous, Confusing, and Not Delivering Enough Housing: What Negotiations Theory Can Teach Us About Voluntary Affordable Housing Agreements’ (2021) 87(4) Journal of the American Planning Association 542; Productivity Commission, In need of repair: The National Housing and Homelessness Agreement (Study Report, August 2022) 291 <https://www.pc.gov.au/inquiries-and-research/housing-homelessness/report/>. 
  15. Prosper Australia, Submission No 103 to Parliament of Australia, Inquiry into Housing Affordability and Supply in Australia 2021 (September 2021) <https://www.prosper.org.au/wp-content/uploads/2021/10/Sub103-Prosper-Australia-2.pdf>. 
  16. Premier of Victoria, ‘First Look At Plans For More Homes Near Train Stations’ (Media Release, 10 September 2025) <https://www.premier.vic.gov.au/first-look-plans-more-homes-near-train-stations>.