What it means
Cornell's Legal Information Institute describes zoning as a legislative act dividing a jurisdiction's land into sections and regulating different uses in each, under a zoning ordinance. It was first conceived to protect industrial use of land, and today it more broadly controls land use to protect the value of land and other goals.
Zoning schemes are generally cumulative. In residential classes, zones are rated from R1 onwards, with the number indicating the limit on homes or structures.
Wex gives an example: R2 allows two residential structures, while R3 allows three-family units such as a triplex. Usually what is allowed in R1 is also allowed in R2 and beyond.
The general rule is that the more permissive the uses, the more valuable the land tends to be. That is why a change of zoning can change a property's value.
Cornell's Wex also contrasts zoning with nuisance. Zoning is a preventative approach that sets the standard for future use, and it generally cannot eliminate an existing use.
A nuisance claim takes a retrospective approach and applies after actual harm happens. The legal basis in the United States was set in 1926 in Village of Euclid against Ambler Realty.
The Supreme Court held that a zoning ordinance can be a valid exercise of a state's police powers. It said an ordinance is unconstitutional only if it is clearly arbitrary and unreasonable, without substantial relation to public health, safety, morals or general welfare.
Governing boards can add flexibility. Wex lists a nonconforming use, which lets a pre-existing use continue, and a variance, which grants an exception.
It also lists spot zoning, which changes the zoning of one parcel but not those around it, and incentive zoning, which lets landowners buy out of regulations at a pre-set price. Zoning law varies by place, so a real project needs the local ordinance and map.
In practice
Real-world examples.
Example
A fictional buyer wants to open a small bakery in a building zoned for residential use only. The ordinance does not allow retail there. The buyer must seek a change, an exception or a different site.
Example
A fictional shop has sold hardware for 30 years on a street that was commercial at the time. The city later rezones the block as residential. The shop may be a nonconforming use that is allowed to continue.
Example
A fictional homeowner wants to build a garage slightly closer to the lot line than the rules allow. The governing board may grant a variance if the local standards are met.
Formula
Calculation
Maximum floor area = lot area x floor area ratio.
Worked example with assumed figures: a lot of 10,000 square feet with an assumed floor area ratio limit of 0.5.
Maximum floor area = 10,000 x 0.5 = 5,000 square feet.
If a rezoning raises the limit to 1.0, the maximum becomes 10,000 square feet.
The ratio is an assumption, since each ordinance sets its own limits.
A buildability check with the same assumed figures: a developer wants a two-storey building with a 3,000 square foot footprint, giving 6,000 square feet of floor area. That is above the 5,000 square foot maximum, so the plan must shrink to a footprint of 2,500 square feet (5,000 / 2) or seek a variance or rezoning.
Zoning also affects value. Suppose, purely as an assumption, that land trades at $40 per buildable square foot. At the 0.5 limit the site supports 5,000 square feet, worth about 5,000 x $40 = $200,000. After a rezoning to 1.0 it supports 10,000 square feet, worth about 10,000 x $40 = $400,000, which shows why a more permissive zone tends to raise land value.Case study
Seen in the real world.
This case study is fictional and illustrative. A developer buys a 2-acre parcel zoned for single-family homes. She plans an apartment building and checks the ordinance before closing. The ordinance does not allow apartments in that zone.
She asks the governing board for a rezoning and shows that nearby parcels already allow multifamily use. Neighbours object and the board holds a hearing. The board approves with conditions on height and parking. Because the permitted use is now broader, the land is worth more.
Her lender asks for the written approval before it advances funds. An appraiser later values the site using the approved use, not the old one. The lesson is that zoning is a due diligence item. A buyer should check it before relying on a use, and should keep the approval letter with the closing file.
Watch out
Common mistakes.
- Assuming a parcel can be used however the owner likes, when the zoning ordinance controls permitted uses.
- Confusing zoning with a nuisance claim, since zoning sets standards for future use while nuisance responds to harm.
- Relying on an old zoning map, when a rezoning, variance or conditional approval may have changed the rules.
Questions
People also ask.
What is zoning?
It is a legislative act that divides land into sections and regulates the uses allowed in each. The rules are in a zoning ordinance.
Can zoning stop an existing use?
Zoning generally cannot eliminate an existing use. A pre-existing use may continue as a nonconforming use.
What is a variance?
It is an exception the governing board may grant to the zoning rules. The local standards decide when one is allowed.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related