Affordable housing requirements are now a defining feature of residential development in San Diego and across California. These rules, often called inclusionary housing regulations, require certain projects to include below-market units, affordable housing for seniors or a financial contribution toward affordable housing programs Under the City of San Diego’s inclusionary housing ordinance, the requirement applies to new residential developments of 10 or more units outside the Coastal Overlay Zone, 5 or more units within the Coastal Overlay Zone, and condominium conversions of 2 or more units. These thresholds now function as a baseline condition that shapes how a project is planned from the earliest feasibility study.
California continues to face a significant affordable housing shortage, and policymakers have leaned on local inclusionary programs as one tool to increase the supply of these types of units. The legal question of whether cities can even impose these requirements has largely been settled. The California Supreme Court addressed it directly in California Building Industry Association v. City of San Jose, holding unanimously that an inclusionary housing ordinance is a valid exercise of a city’s police power rather than an action that would trigger heightened scrutiny often associated with governmental seizure of private property. The U.S. Supreme Court later declined to review that decision, leaving it as controlling authority and giving San Diego and other cities solid legal footing to keep imposing these requirements through its zoning powers.
While the legal framework has stabilized regarding this issue, the development environment has not followed the same path. Projects must still move through environmental review under the California Environmental Quality Act, navigate community input, and manage construction and financing pressures that have nothing to do with affordability requirements.
For rental projects, the standard requirement is that approximately 10 percent of units be reserved for lower income households, according to the San Diego Housing Commission’s summary of the ordinance. Those units carry long-term affordability restrictions lasting at least 55 years, which affects how a property is valued, financed and managed well after initial leases are signed. Developers who would rather not build the units on site can develop them off site, rehabilitate existing units, dedicate land or pay an in-lieu fee tied to project square footage, though each pathway still requires advance planning and coordination with the city before permits are pulled.
For property owners and developers, the ordinance has its greatest impact at the earliest stages of a project. On the economic side, developers have to factor in either the reduced revenue from rent-restricted units or the cost of in-lieu fees, and those calculations affect pricing, financing structures and investor expectations. On the design side, the need to accommodate affordable units can influence unit mix, building layout and density assumptions. And because compliance is typically imposed as a condition of approval, developers have to demonstrate how they will meet the obligation before permits are issued, which shapes entitlement strategy from the outset rather than as an afterthought.
Large-scale projects in San Diego illustrate how these pieces fit together. The proposed Southwest Village Specific Plan in Otay Mesa, which could provide more than 5,000 homes, shows how large housing projects move through years of environmental review, public hearings and infrastructure planning before construction ever begins, regardless of their affordable housing component. Inclusionary housing functions as one piece of a much larger regulatory framework rather than the main driver of delay.
Once a project is subject to the ordinance, compliance becomes a mandatory part of the approval process, and it is enforced through recorded agreements or covenants attached to the property. Any failure to comply, or any error in calculating or timing an in-lieu fee payment, can delay permits or hold up a certificate of occupancy. These risks are procedural rather than discretionary once the ordinance applies, so effective compliance depends on early coordination with local agencies and consistent documentation throughout the project lifecycle.
San Diego’s inclusionary housing ordinance reflects a broader statewide effort to address housing affordability while maintaining housing production. Property owners and developers who treat these requirements as an early planning consideration, rather than a late-stage compliance issue, are better positioned to manage both cost and timing as they bring projects to market.
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