Cities and towns across the U.S. face complex challenges like surging housing prices, preserving historic communities, and adapting underutilized commercial buildings. Land use and zoning decisions shape the functionality and character of cities—from the density of downtown areas to the distribution of warehouses and residential neighborhoods. With rising housing costs and intense demand for flexible urban spaces, cities across the U.S. are rethinking zoning as a solution to housing shortages. The conversation often centers on density limits: how many units per acre, parking space requirements, how tall a building can be built, and the allowable uses for a given area.
For CRE investors and developers, understanding land use and zoning regulations is essential. High-density zones often signal profitable development opportunities, while restrictive zones may necessitate rezoning or variances, adding layers of complexity, costs, and potential delays. Recognizing these distinctions early in the due diligence process can help investors navigate project feasibility, streamline planning, and anticipate regulatory hurdles, all of which are crucial for successful and timely project completion.
Land Use vs. Zoning: The Basics and Why Density Matters
Land use defines the function or purpose assigned to a specific parcel of land such as residential, industrial, agricultural, or mixed-use. It defines the practical use of a space, determining what activities are allowed there. For instance, commercial land typically accommodates retail stores or offices, while industrial land is used for warehouses or manufacturing. Zoning, on the other hand, is the regulatory tool that enforces these land use goals, establishing the rules around building height, density, and usage restrictions within specific districts.
| Definition | Purpose | Examples | Enforcement | |
| Land Use | The designated function or purpose of a parcel of land, such as residential, commercial, industrial, or agricultural. | Guides the long-term development and organization of a city to ensure sustainable growth, functionality, and community needs. | Residential neighborhoods, shopping malls, office parks, farmland, and mixed-use developments. | Local planning departments and municipal codes regulate land use designations through permits and plans. |
| Land Zoning | A regulatory framework that governs how land can be used, including building height, density, parking requirements, and specific activities. | Implements land use policies by providing detailed rules for development and maintaining the community’s character and safety. | Often includes letter and number codes such as: R-1 (Single-Family Residential Zone), C-2 (General Commercial Zone), M-1 (Light Industrial Zone), PUD (Planned Unit Development). | Zoning boards and city councils enforce zoning rules via permits, inspections, and penalties for noncompliance. |
For example, high-density zoning allows for multi-story residential projects, appealing to investors aiming to meet urban housing demand. Conversely, strict zoning restrictions in low-density areas may limit developers to single-family homes or small commercial establishments. Local governments and urban planners set these zoning rules as part of long-term visions for their communities, which investors must consider in their project plans.
Zoning as a Solution for Housing Shortages
In response to ongoing housing shortages and urban demands, many cities are revising their zoning laws. Upzoning has become a key strategy in cities like New York, where Mayor Eric Adams’ “City of Yes” initiative is working to reshape land use rules across the five boroughs to encourage the construction of high-density, mixed-use developments.
The proposal increases allowable density by 20%, eliminates parking requirements for new developments, increases floor area ratios (FAR) higher than 12, allows for more office-to-residential conversions, and more. Critics of the proposal argue that a uniform approach to affordable housing citywide is impractical and fails to account for neighborhood-specific needs. Additionally, many have raised concerns about eliminating minimum parking requirements for developers, fearing that denser housing projects could alter neighborhood character, increase congestion, and overburden infrastructure.
In California, the Density Bonus Law (DBL), established in 1979, allows developers to exceed the typical density limits allowed under a local jurisdiction’s land use regulations. Developers are required to designate a portion of the new units as affordable housing, renting them at below-market rates (BMR) to help meet the state’s housing needs. While the law has encouraged affordable housing development for decades, some coastal communities were previously exempt due to a provision preventing it from overriding the California Coastal Act of 1976, which gave the Coastal Commission authority over land use decisions in those areas. However, a new bill is now being considered to remove this exemption.
A recent example of the DBL in action is in Beverly Hills, where in September, the Planning Commission granted Four BJD, LLC a density bonus permit to develop an 8-story, 56-unit mixed-use building at 8811 Wilshire Blvd. In exchange for providing 10 new affordable housing units, the developer received approval to exceed the height and story limits set by the Beverly Hills Municipal Code.
When Statewide Zoning Reforms Meet Local Resistance
While zoning is typically handled locally, there are examples of statewide zoning reforms, like Florida’s Live Local Act, which aim to tackle affordable housing by preempting local zoning laws. The Act allows developers to construct multifamily and mixed-use projects in commercial or industrial zones if 40% of units are affordable for 30 years. It also permits higher densities and building heights, matching the tallest structure within a mile. While streamlining housing development, the Act has sparked tensions with local governments, as zoning needs vary across communities. Critics argue this top-down approach oversimplifies complex local issues, highlighting the ongoing debate over balancing state goals with local autonomy.
A key point of contention in the Act is the revised maximum height allowance for projects. The new provision sets the height limit based on the tallest building within a quarter-mile radius, as opposed to the previous one-mile radius. This revision aims to prevent the construction of disproportionately tall structures in neighborhoods where such buildings would be out of place, addressing concerns about excessive density and scale in low-rise communities.
The Role of Due Diligence in Evolving Zoning Shifts
Due diligence in zoning is essential to navigate these challenges. Misalignment between intended land use and zoning regulations can lead to project delays, increased costs, and even legal challenges. A thorough review of local zoning reports helps CRE developers and investors assess whether their intended development aligns with city ordinances or requires a rezoning application. Developers might also uncover zoning variations, such as when adjacent parcels are zoned for different uses, which can impact project planning and timelines.
For example, a mixed-use property developer might find that portions of their target site are strictly zoned for residential or commercial use only, requiring either rezoning or special permits—a process that can be lengthy and add costs to the project budget.
The Future of Zoning and Density in CRE
The future of zoning is evolving with trends like adaptive reuse zoning, which allows older or underutilized buildings to be repurposed for new uses, especially in urban areas with limited land. Additionally, climate-oriented zoning initiatives (Arlington, Virginia’s Green Building Density Incentive Program, for example) favor higher-density developments that reduce urban sprawl and encourage walkable communities, aligning with both environmental goals and affordable housing efforts.
As technology and data analytics become integral to zoning and planning, CRE professionals have more tools to analyze and predict zoning changes, helping them make strategic investments in areas where density regulations are likely to evolve in favor of high-density housing and commercial projects.
Navigating the Density Debate for CRE Success
As cities seek ways to meet housing demand while balancing local concerns, CRE developers and investors who stay informed on zoning trends and perform careful due diligence will be best positioned to identify and capitalize on emerging opportunities.
The density debate is far from settled, and zoning laws will continue to evolve. For now, zoning remains a powerful determinant of where and how CRE projects can grow, making it essential for investors and developers to understand its impact on their investments and the communities they serve.
Subscribe To Insights
Be the first to get the latest news, updates and insights from LightBox.
