Zoning is a set of rules that tells you what can be built and where it can go. These rules could change from city to city, state to state or from country to country. But they always have the same goal: To organize buildings and structures into good community space.
If you’re a property manager or investor, you’ll need to understand this code in order to make better decisions. At its core, zoning does just one thing: It separates different building into different types of zoning and land uses. This way factories are kept away from homes, and shops are nearby. But there’s more at work than that. They need to be sure services are in the right places too. For example, schools and parks usually dot residential zones.
Over time though, the zoning rules and laws have become much more complicated as well. They can dictate how tall a structure must stand or how many parking spaces should be available on-site — but we’re just scratching the surface! Knowing what these extra guidelines will either cost or reward you with will either make or break an investment.
When people hear ‘zoning’ thoughts of only ‘residential’, ‘commercial’, ‘industrial’, etc come up inside their head when in reality there’s much more going on! Those terms mentioned above are broad categories based on zoning refers your location, but each category also houses sub-categories as well.
In all honesty, it’s just a big puzzle trying to find out where new housing should go (or shouldn’t go) so that traffic flows smoothly and cleaner areas stay clean for longer periods — who doesn’t want enough schools/parks?
How Zoning Affects Real Estate
Zoning laws place regulations over what property owners can build, whether they can expand, whether they can convert a house into a temporary office, and such other details. For example — if you’d like to build an apartment with over 20 stories but only allowed to construct a small house — your potential profit decreases drastically. But on the flip side, if you’re trying to build a tiny home but only allowed to build an apartment building that’s also a problem!
Investments don’t always just come down to money though as mentioned before. Investors need to think about what zoning laws will do for their quality of life if they go through with purchasing land. Imagine tenants who want a house that can contain a home office for their family business. Now you have to ask yourself, can you offer them that kind of arrangement, as per your municipal or local laws and zoning laws?
Types of zones
Each type of real estate investment is affected differently by zoning ordinances and laws. Here are just some examples.
Residential
In residential properties, zoning determines how many homes can be built on a plot and their types. For example, it’s important for someone investing in this area to know whether they’ll be able to sell more than one home on the property or what kind of income each unit can generate. On top of this, developers could earn tax credits or other benefits if they decide to make low density residential neighborhoods to create affordable housing.
Commercial
If you plan on investing in commercial property, then you’ll have a completely different set of rules compared to residential property. Zoning in this area determines whether or not businesses can go near it and which ones exactly! Developers must comprehend these guidelines so that way there isn’t any trouble down the line when it comes time for construction.
Industrial
What is industrial zoning? It’s the process of the zoning districts and finding places for factories, warehouses and other large buildings to go. Of course, those places need to be far enough away from homes and schools that noise and pollution won’t cause problems. But at the same time, they can’t be so far away that trucks can’t get there.
Raw land
Zoning laws help people figure out where to put buildings, but sometimes they also get in the way. For instance zoning in real estate, imagine you see a big empty field. Maybe you want to turn it into new houses or shopping centers or maybe even a park. Zoning laws might let you do all those things — or none at all.
Special-use properties
Special use properties are designed for specific kinds of activities, like religious buildings, schools, hospitals, railway or bus stations, etc. These spaces usually have different rules about height, layout, location, and design of the surrounding area. Investors who want to develop one of these land use properties will have to work with their local city council or zoning board to get their building approved — or find another property that already allows it.
For example, a school cannot be built close to a liquor store. A school should also have enough space for multiple classrooms and offices, and a playground. Typically, schools also have corridors and common washrooms. These are some unique features that only a school property would have, so it doesn’t fit other categories like residential and commercial districts.
Zoning as a strategic tool
Developers can benefit from knowing where zoning laws don’t let them build something. Instead of getting frustrated, they might be able to use those barriers to find a new solution — one that’s even better. Strategic investors look for opportunities in real estate that others may overlook. For instance, suppose you come across an area that is being rezoned and redeveloped.
Earlier, it may have been reserved for housing and residential properties, but now it is being redesigned as a mixed use zone. So, now you can acquire a property here at a lower cost before your competitors in the real estate industry get to know about this development. Then when the zoning regulations are revised, your property value will appreciate.
This requires nuanced local government comprehensive plans, economic development initiatives and political will driving rezoning trends. At first glace, learning about zoning laws can seem like a boring and tedious task. Think of it as a puzzle that, when put together, allows you to see a big picture, and identify the opportunities that have been hiding in plain sight!
In 2019, the Manhatten Institute published an article about how the current zoning laws in most American states are simply favoring the status quo system of property layouts, and not really making helpful accomodations for affordable housing and sustainable development. The article also talks about how the currrent system of zoning has led to high housing costs in coastal cities and overcrowding in urban spaces.
As you can see, successfully navigating the labyrinth of zoning law requires a deep understanding of local regulations, a keen eye for market trends, and an openness to creative solutions. Moreover, zoning laws are not set in stone. As political powers and public opinion changes, zoning laws change too.
By reframing zoning as an opportunity rather than a limitation, real estate professionals can unlock potential that may have been overlooked. This shift in mindset opens doors to innovative development concepts and collaborative urban planning initiatives.
