Oregon Passes Inclusionary Zoning Reform to Prevent Unintended Consequences

New law requires full funding for affordable housing mandates in Portland metro area

Apr. 1, 2026 at 7:38pm by Ben Kaplan

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The Oregon legislature has passed SB 1521 during the 2026 Short Session to address issues with inclusionary zoning policies in the Portland metro area. The new law requires jurisdictions to fully fund any inclusionary zoning ordinances by offsetting mandatory below-market rents through structured cash payments, tax exemptions, or fee waivers. This aims to prevent the suppression of large multi-family projects that occurred in Portland from 2017 to 2024 due to an underfunded inclusionary zoning mandate.

Why it matters

Inclusionary zoning policies are intended to increase the supply of affordable housing, but can have unintended consequences if not properly structured and funded. The new Oregon law seeks to address issues experienced in Portland, where the inclusionary zoning ordinance led to a rise in smaller projects to avoid the requirements, resulting in fewer affordable units being built than expected.

The details

In 2016, Portland passed an inclusionary zoning ordinance requiring that any new developments of 20 units or more include affordable housing units or pay into a fund. However, because the mandate was underfunded, many fewer affordable units were constructed than expected, and the number of projects with 19 or fewer units doubled to almost half of all multi-family construction, likely to avoid triggering the IZ requirements. In 2024, the city and county increased tax abatements for IZ projects, which led to an increase in larger projects subject to the requirements.

  • In 2016, Portland passed an inclusionary zoning ordinance.
  • From 2017 to 2024, the number of smaller multi-family projects increased to avoid the IZ requirements.
  • In March 2024, Portland and Multnomah County increased tax abatements for IZ projects.
  • In 2026, the Oregon legislature passed SB 1521 during the Short Session.

The players

Oregon Legislature

The state legislature that passed SB 1521 to address issues with inclusionary zoning policies in the Portland metro area.

City of Portland

The city that passed an inclusionary zoning ordinance in 2016, which led to unintended consequences like a rise in smaller multi-family projects.

Multnomah County

The county that worked with the City of Portland in 2024 to increase tax abatements for projects subject to the inclusionary zoning requirements.

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What’s next

The new law will go into effect immediately, requiring jurisdictions in the Portland metro area to fully fund their inclusionary zoning programs to prevent the suppression of large multi-family projects.

The takeaway

The passage of SB 1521 in Oregon demonstrates the importance of carefully designing and funding inclusionary zoning policies to avoid unintended consequences like a reduction in overall housing supply. The new law aims to ensure that affordable housing mandates are properly supported to achieve their intended goals.