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 in order 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.

Key Takeaways

  • Zoning allows local governments to regulate which areas under their jurisdiction may have real estate or land used for particular purposes.
  • Examples of zoning classifications include residential, commercial, agricultural, industrial, or hotel/hospitality, among other more specific designations.
  • Zoning laws can be changed by a local government as long as they fall within state and federal statutes, and a particular plot of land may be re-zoned based on consideration.

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 the flow of traffic, manage noise levels, reserve living space for residents, and protect certain resources.

Examples of zoning classifications include industrial, light industrial, commercial, light commercial, agricultural, single-family residential, multi-unit residential, and schools.

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.

In 1926, the Supreme Court ruled that properly drawn zoning ordinances were a valid exercise of the states' governing power. Zoning became constitutional by the U.S. Supreme Court as a result of the case Village of Euclid v. Ambler Realty Co., 272 U.S. 365, 395 (1926).

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 amongst 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 between stakeholders is unlikely, land use regulations such as zoning and other government-imposed solutions are the norm.

Critiques of Zoning Law

Critics of zoning laws claim that the practice creates and widens the disparity of quality of life between 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.

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.