diff --git a/mypy/test/testpep561.py b/mypy/test/testpep561.py
index adbbaefb8de4..d30d94c49bee 100644
--- a/mypy/test/testpep561.py
+++ b/mypy/test/testpep561.py
@@ -62,7 +62,7 @@ def install_package(pkg: str,
     working_dir = os.path.join(package_path, pkg)
     with tempfile.TemporaryDirectory() as dir:
         if use_pip:
-            install_cmd = [python_executable, '-m', 'pip', 'install', '-b', '{}'.format(dir)]
+            install_cmd = [python_executable, '-m', 'pip', 'install']
             if editable:
                 install_cmd.append('-e')
             install_cmd.append('.')
@@ -72,7 +72,16 @@ def install_package(pkg: str,
                 install_cmd.append('develop')
             else:
                 install_cmd.append('install')
-        proc = subprocess.run(install_cmd, cwd=working_dir, stdout=PIPE, stderr=PIPE)
+        # Note that newer versions of pip (21.3+) don't
+        # follow this env variable, but this is for compatibility
+        env = {'PIP_BUILD': dir}
+        # Inherit environment for Windows
+        env.update(os.environ)
+        proc = subprocess.run(install_cmd,
+                              cwd=working_dir,
+                              stdout=PIPE,
+                              stderr=PIPE,
+                              env=env)
     if proc.returncode != 0:
         raise Exception(proc.stdout.decode('utf-8') + proc.stderr.decode('utf-8'))