While many individuals have amassed land fortunes over the years, it’s essential to understand land zoning basics before investing. Land zoning types and land-use restrictions significantly impact what you can do with the land you own and how you can develop it.
What is Land Zoning?
Land zoning is a legal tool that municipalities employ to control and regulate real estate use and development. By dividing land into sections, local authorities can shape the layouts of cities and towns to determine their layouts– what landowners can build and where. Zoning laws allow the government to control buildings’ location, size, and use to decide city blocks’ density.
How zoning laws are created
City planners consult the municipality’s master plan to determine current and future development needs and goals. These departments also consider local infrastructure and stakeholder needs for transportation, economic growth, obstacles and challenges, and the residents and businesses making up the community.
After land is analyzed and planned, zoning ordinances and laws are created to put the master plan into action, specifying land use of specific blocks and individual lots within the same block.
Understanding land zoning codes
Governments use alphanumeric codes to identify the allowed use of land in a specific geographic area. A typical land zoning code list might contain:
- R for residential
- C for commercial
- I for industrial
- A for agricultural
These letters are typically combined with other letters or numbers to specify the level of density, such as required acreage or allowable square footage for a particular property:
- Residential zoning:
- Single family residential (SFR)
- Suburban homesteads (SH)
- Home-based businesses
- Duplexes and triplexes
- Small and large apartment buildings
- Mobile home parks
- Large multifamily communities
- Retail storefronts and shopping centers
- Office buildings and office parks
- Restaurants and nightclubs
- some warehouses.
- Industrial zoning:
- Storage facilities
- Distribution centers
- Data centers
- Agricultural zoning:
- Farm and ranch land
- Suburban farms with a minimum lot size
- Type of agricultural operation
- Restrictions on non-farm use
It’s important to understand that zoning code classifications aren’t universal from one city to the next. For example, the type of commercial property developed with C-1 zoning in Miami could significantly differ from what is allowed under Phoenix’s C-1 zoning.
Different Types of Land Use
Land zoning and land use are two different things. Zoning is the tool governments use to regulate land, while land use is how the residents and businesses adapt land to suit their specific needs.
How land is used can vary from one submarket to the next,oftentimes within a given submarket. A multi-story building may be classified predominantly for office use while allowing service retail on the lower floors and residential condominiums or apartments on the building’s upper floors.
Some common types of land use:
- Recreational includes parks and open spaces such as athletic fields and swimming pools. Cities use them to improve the quality of life and attract permanent residents and visitors.
- Transportation includes roads, airports, train and subway stations, and mixed-use transportation-oriented developments (TOD) that combine transport with commercial and residential uses.
- Agriculture such as ranches and farms used for the growing and harvesting of food sources.
- Residential includes all types of housing, with restrictions such as type of animals permitted, building and lot size, overall density, and location to amenities and schools.
- Commercial use land is designed for businesses and infrastructures that are critical to the local community’s economy.
Why is Land Zoning Important in Commercial Real Estate?
Many commercial real estate investors make the mistake of assuming that the way a previous owner or occupant used the property means future occupants can do the same. The previous owner may have had a variance, or the city may have overlooked an unpermitted use.
As a real estate investor, your plans must conform with the local land zoning laws and regulations to maximize the return on your investment.
Local land-use laws
- Restrictive covenants add additional restrictions or prohibit specific uses, such as changing the exterior appearance of a property or restricting a liquor store within a certain distance of a school.
- Easements designate a portion of private property for public use, such as utilities or wildlife preservation.
- Environmental regulations may require certain industrial building types and land uses to have additional inspections, permits, and hearings from local, state, and federal agencies.
Commercial zoning reports
A commercial zoning report provides a snapshot of the zoning conditions of a property and is an integral part of the due diligence process when buying commercial real estate:
- Current zoning classification
- Basic property information such as parcel number and current and prior uses
- Setback and parking requirements
- Height and floor measurements
- Notice of variances related to special permits and conditions
- Notice of outstanding code violations such as zoning, fire, and building
Common zoning disputes
Zoning disputes can occur between private parties (like two investors owning adjacent properties) or between the property owner or tenant and the local government. The most common zoning disputes in commercial real estate include:
- Building height in residential, commercial, and industrial areas that create potential safety or aesthetic issues.
- Parking lot issues and traffic flow patterns that disrupt nearby businesses and residents.
- Setback requirements that mandate the minimum distance a building can be located from a property line.
- Signs that are too large or placed too close to the road which can create a messy appearance and potential safety hazard to automobiles and pedestrians.
Getting zoning changed
A zoning variance or special use permit are two ways land investors can permanently or temporarily change land zoning.
While there’s no guarantee of success, investors can increase their chances of getting the zoning changed by demonstrating that the change or variance is in the public interest. For example, a developer seeking to repurpose an old retail shopping center into a mixed-use project with a residential component may help the community meet a demand for affordable housing.
There are plenty of opportunities in buying and developing land, provided you understand how to navigate the rules of land zoning and land use laws. Although it may require a little more work, understanding the basics of land zoning can maximize the value of your investment by creating the highest and best use.