Zoning: What It Is, How It Works, Classification Examples

What Is Zoning?

Zoning refers to municipal or local laws or regulations that govern how real property can and cannot be used in certain geographic areas. For example, zoning laws can limit commercial or industrial use of land to prevent oil, manufacturing, or other types of businesses from building in residential neighborhoods.

These laws can be modified or suspended if the construction of a property will serve to help the community advance economically.

How Zoning Works

Zoning outlines what types of developmental and operational use of land is allowed on a given tract. Municipalities tend to partition districts and neighborhoods according to a master plan. This may be done to promote economic development, control traffic flow, manage noise levels, reserve living space for residents, and protect certain resources.

Local government might ban the use of residential property for business purposes to keep commercial activity confined to specific parts of town. Such zoning can lead to conflicts if residents dispute the designated usage.

Zoning laws can also regulate the details of construction in specific neighborhoods. For example, zoning can limit the maximum height of buildings in a given area regardless of the type of construction allowed. High-rise residences or offices could be banned on particular parcels through zoning regardless of whether the buildings otherwise comply with the laws.

The presence of zoning restrictions can influence prices when purchasing a piece of property. Real estate might sell at a premium based on how many limits were put in place by the municipality.

Economic Theory of Zoning

According to Nobel Prize-winning economist Ronald Coase’s Theorem, in the absence of transaction costs, questions and disputes over land use and development could be solved optimally without government regulation. Under the assumptions of Coase’s Theorem, how a given piece of land should be used and what type of activities should be permitted could simply be negotiated among the parties involved to achieve an economically efficient outcome.

Coase’s Theorem illustrates why, in the real world—where transaction costs do occur and frictionless bargaining among stakeholders is unlikely—land use regulations such as zoning and other government-imposed solutions are the norm.

Critiques of Zoning Law

There are varied critiques of traditional zoning implementation.

Some critics claim that zoning creates and widens the disparity of quality of life among socioeconomic groups. For example, a township might maintain zoning laws that restrict heavy industrial and commercial development to tracts of land adjacent to lower-income neighborhoods. The effects of such policies would let more affluent parts of town avoid the associated noise and pollution.

Areas that continue to be zoned for low-density residential neighborhoods with a housing shortage are contributing to homelessness in their area by refusing to allow more residential housing units to be built.

A more modern critique of zoning that segregates commercial and residential areas is that it makes residents dependent on cars. A more integrated, walkable neighborhood where people could get groceries, work, and enjoy entertainment close to their homes would allow them to forgo the environmental and financial costs of car ownership. If zoning allowed for walkable neighborhoods, less space would have to be devoted to roads and more space could be reserved for housing and green space.

Mixed-Use Zoning

Mixed-use zoning is a structure that allows for a combination of residential, commercial, and sometimes industrial uses within a single area or building. One of the primary advantages is the creation of vibrant, walkable neighborhoods where people can live, work, and shop in close proximity. For example, the mixed-use development of Times Square in New York City combines entertainment, retail, office space, and residential units, and has turned the area into a bustling economic hub.

Despite those benefits, mixed-use zoning also presents several challenges. One of the primary issues is the potential for conflicts between different land uses. For instance, noise and activity from commercial establishments can disrupt residential areas, leading to complaints and tension among residents and business owners.

Another challenge is the complexity and cost of developing mixed-use projects. These developments often require more intricate planning, design, and construction processes compared to single-use projects. In San Francisco, the high costs associated with mixed-use developments such as the Mission Bay neighborhood can be a barrier for developers. Financing mixed-use projects can be more complicated as they may have more risk with unclear revenue streams and logistical challenges.

Conditional Use Permits and Zoning

Conditional use permits (CUPs) are tools in zoning that allow property owners to use their land in ways that are not typically permitted under the current zoning regulations. The catch is certain conditions are met.

These permits are useful for activities that could potentially have significant impacts on the surrounding community but are beneficial and necessary. For example, schools, hospitals, and religious institutions often require CUPs to operate in residential zones. These uses are generally supported because they serve as a public good, but they require careful regulation to ensure they do not negatively impact the neighborhood's character or infrastructure.

The process of obtaining a CUP involves a thorough review by local planning authorities to assess the potential effects of the proposed use. Again, the proposal deviates from local regulation, so it is often closely reviewed. This includes evaluating factors such as traffic generation, noise, and compatibility with surrounding land uses. Public hearings are typically part of the process, allowing community members to express their support or concerns.

Special Considerations

Alterations to zoning laws are possible even without full repeals of the current legislation. A developer or property owner can apply for variances that would allow certain exceptions to zoning regulations. This would let property be used in ways generally not permitted—for example, the owner of a home-based business might request a variance to allow the operations to continue.

Applicants for variances might be required to explain why the variance is needed and how the change will not cause significant disruption or detriment to the surrounding community.

General Examples of Zoning

One real-world example of zoning's impact on property values is the implementation of mixed-use zoning in Portland, Oregon. By allowing residential, commercial, and recreational spaces to coexist, mixed-use zoning has led to the revitalization of neighborhoods, increased walkability, and enhanced community engagement. This type of zoning has significantly boosted property values, as residents are willing to pay a premium for the convenience and vibrant atmosphere that mixed-use developments offer.

Zoning can also protect and enhance property values by preserving community character and preventing incompatible land uses. In historic districts such as Savannah, Georgia, zoning laws ensure that new developments are in keeping with the area's architectural heritage. These regulations help maintain the aesthetic appeal and cultural significance of the district, thereby sustaining higher property values while also preserving history.

The Bottom Line

Zoning was originally created to design uniform neighborhoods, control traffic patterns, and—when done right—allow room for a city to grow. Zoning implementation had several unintended consequences and unfortunately contributed to increased income inequality and racial wealth disparities. With modern times, zoning practices will have to adapt to growing populations and needs.