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IMPACT OF ZONING AND LAND USE REGULATIONS

ON REAL ESTATE VALUE

In the real estate development world, there’s a lot of controversy about land use regulations. Supporters say that zoning laws provide many benefits, while others say that they unfairly increase property or housing prices.

As is often the case, the truth is somewhere in between the two sides. Here, we dive into what zoning and land use regulations are and then take a look at the data to see how they truly affect property values in real estate.

WHAT IS ZONING?

In real estate, zoning ordinances refer to the laws and regulations governing how a piece of property can be used or developed based on geographic location. Usually, there are seven categories in which a piece of real estate could fall:

  • Residential. Residential properties can be used to construct buildings that will house individuals or families. The number or type of structures that can be built depends on other ordinances, so some residential lots can have a single house while others can have multiple apartment buildings.

  • Commercial. Commercial properties include the land where shops, malls, offices, restaurants, bars, and other businesses can be built. These lots are not intended to house people, but will likely see regular traffic.

  • Mixed‐use. These properties lie in zones that can be used for both residential and commercial purposes. This categorization includes structures such as apartments on the floors above an office building or homes built above a series of restaurants.

  • Industrial. Industrial properties are usually in urban areas and are zoned for factories, labs, machine shops, and related structures.

  • Agricultural. Agricultural land can be used for farming, and generally allows for residential structures at lower densities.

  • Greenspace. Greenspace refers to land that the government wants to keep undeveloped. This can include parks, protected forests, and other natural areas that don’t allow for any significant development.

  • Tourism. Tourism zones are set aside for buildings such as hotels, short‐term rentals, and other development specifically with temporary visitors in mind.

These zones aren’t assigned randomly. Generally, they’re dictated in response to traffic patterns, safety considerations, and other aspects related to infrastructure and quality of life.

EFFECTS OF ZONING ON REAL ESTATE VALUES

Not everyone thinks that zoning works as intended, and there’s continued controversy about whether zoning regulations should be more or less strict to best benefit different populations. While groups on both sides of the argument claim various harms or benefits, the data shows the true effects best.

Theoretical Results of Zoning

One of the arguments against strict zoning laws is that they encourage developers to build structures that will make them more money. This means that larger or nicer single family homes will make more money than more affordable houses.

Many argue that this leads to housing inequality, because developers are limited in what they can build and want to get the most out of their work. They increase real estate value, making whole areas less affordable for those in lower socioeconomic classes.

Others argue the opposite: that stricter zoning regulations ensure that there is sufficient housing available in appropriate areas.

Real Results of Zoning

Arguments related to zoning are nothing new—there have been studies trying to determine the effects for decades.

One such study showed that over a period of 24 years, zoning did affect the price of a single‐family home, but not in one specific way or amount. The changes in value were inconsistent and closely tied to factors other than the zoning ordinances themselves.

Another study tried to answer whether or not there was a housing affordability problem in the US. They discovered that in some places, there is—and that the higher prices in places such as New York and California were driven by land use regulations, not construction costs.

Of course, others claim that the sample size, methodology, and quality of such studies is highly inconsistent and lead to unreliable results.

In short, no one can be totally sure what effects stricter zoning regulations will have on a specific area because these properties don’t exist in a bubble. Real estate value is based on a lot of things, so the factors at play will differ depending on the area.

Overall, though, it’s important for property buyers or investors to know what zone they’re in so they can keep a close eye on how their property value is changing. Those advocating for more affordable housing need to understand zoning ordinances to work towards reform in conjunction with other approaches.

HOW FUSEGIS CAN HELP

For appraisers, brokers, and others in the real estate scene, zoning can be a pain—but it’s also necessary that those in the game understand zoning so they know what to build or invest in and how the value will change over time.

Data platforms like FuseGIS make it simple to see what areas fall into which zoning districts. FuseGIS offers layers that show which zoning districts are under review and provides links directly to hard-to-find zoning ordinances and requirements for all areas within the MSA that they map.

These features can help users better understand the zoning ordinances at play in and around Austin, Texas as they make important real estate decisions with clients.

Want to see how it works? Request a demo today.

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