Inclusionary Zoning Reform Passes in Oregon Legislative Short Session

By Kimberlee Stafford

During the 2026 Short Session, the Oregon legislature passed SB 1521, to help prevent unintended consequences of inclusionary zoning, like those experienced in Portland, by requiring jurisdictions in the Portland metropolitan area to fully fund their programs.

“Inclusionary zoning” or “IZ” programs require that a share of any new homes in a multi-family development be available at below market rates. Portland passed such an ordinance in 2016, requiring that any new developments of 20 units or more include affordable housing units – or that the developer pay into a fund in lieu of including affordable housing.

Unfortunately, because the mandate was underfunded (meaning that there were not enough incentives to offset the loss of income from below market units), many fewer affordable housing units were constructed than expected, and the number of projects with 19 or fewer units doubled to almost half of all multi-family construction – undoubtedly to avoid triggering the IZ requirements. One example was a phased project consisting of 13 buildings of 16-19 units!

In March 2024, the City of Portland and Multnomah County agreed to drastically increase the tax abatement for projects subject to inclusionary zoning to help offset the revenue owners would lose to discounted rents over a 10-year period. Almost immediately, the number of projects with 20 units or more increased to a higher percentage of all multi-family projects than the pre-inclusionary zoning ratio.

SB 1521, which passed with bipartisan support, requires cities in Multnomah, Washington, Clackamas, Columbia, and Yamhill counties to fully fund any inclusionary zoning ordinances by offsetting mandatory below market rents through structured cash payments, property tax exemptions, or fee waivers, including impact fees and system development charges. This will hopefully prevent the suppression of large multi-family projects that Portland experienced from 2017 to 2024 from happening in the future.