Recently, I had a client who told me about how a neighbor wanted to install a marijuana growing facility on the property next to his home. But to his relief, the zoning kept that use away.
Oftentimes as real estate investors, we can view zoning in a negative light, because it tells us all the things we CAN’T do.
But as a learned early on as a Commercial agent, reviewing the zoning is the first step to forward progress and improvement on a property.
Let’s review how zoning can work in your favor
1. It tells you all the uses that the Municipality or County want to see on the property.
Let’s say you purchase a 30-unit apartment building. There is a lot of extra land on the property. Is it safe to assume that you can build more units?
- In reviewing your zoning, you may see that they would not allow more apartment units based on the density, but if it is in a mixed-use zone- maybe a daycare or retail use is listed as permitted.
- This use may be more lucrative than simply building more apartments. Often times the zoning may suggest things you have not thought of, and by providing those uses it is a win/win for investor and the local area.
2. It increases your future value by protecting the integrity of the surrounding area.
Have you traveled to areas of the US where they have no zoning? I have family in Montana, and in many rural areas it is pretty much anything goes….which is great if people take care of their property, and not so great if they do not maintain their property.
- Having standards for noise, parking, landscaping and more can work in your favor to make sure the surrounding properties also are maintained and use in a positive way.
- For instance, if the neighboring property decides to have a biker club move in to their empty garage space, you may be able to prohibit this use, which will help keep your tenants happy and in place. This keeps your cash flow in a happy state as well.
3. It limits your competition
This might sound bad, but it is a reality of tight zoning regulations.
- For example, look at Lancaster County PA. Lancaster has a plethora of preserved farmland, which is beautiful and great for the Ag industry. They also have stringent protections in zoning for Agriculture zoned land.
- These protections limit the amount of land that can be turned into housing, industrial or retail uses. Consequently, when you have a parcel of land with appropriate zoning for your use- that parcel is worth significantly more, because you have a high demand product in a limited supply market.
The law of supply and demand working in your favor!
4. It dictates your value
This can be an interesting one.
- Take the previous example of the 30 unit apartment building with extra land. You may find that the extra land states that you can build up to 20 units more. However, they have a ‘coverage ratio’ that states only 60% of the land can be covered by buildings or paved parking surface. Because your current use already covers that amount of land, the only way you can build more units is by tearing down some of the existing and building taller buildings. This is often extremely impractical and cost prohibitive. So, in this instance, that extra land is actually a negative (all the cost to mow the grass) and does not allow for increase in use.
- On the flip side, if you are able to put a daycare on your site, which benefits from that extra grass for a children’s play area, you have now put that extra land to use in a cash generating way.
- In this way, zoning can greatly influence the usability of your property, and the corresponding value.
5. It must allow for uses not listed as permitted
- Let’s say you have a business that wants to move into your property that does Crypto Mining. Look at any zoning right now and you WON’T see Crypto Mining listed anywhere as a permitted use. Ditto that for data centers, EV Charging and more modern uses. Some ordinances still lack Short Term Rental regulations as well.
- Zoning ordinances divide municipalities into districts (residential, commercial, industrial, etc.) and lay out permitted, conditional, and prohibited uses within each. But with the rapid evolution of technology and business models, many modern uses like data centers may not yet appear in older ordinances.
So what happens when a proposed use isn’t listed? Can a township or county simply deny the use? Or must they accommodate it?
– Legal Landscape in Pennsylvania
Pennsylvania’s Municipalities Planning Code (MPC) governs zoning throughout the Commonwealth. Under the MPC, municipalities must allow for the reasonable development of all legitimate land uses. Importantly, case law in Pennsylvania has established that a zoning ordinance may be deemed constitutionally invalid if it excludes an otherwise legitimate use of land without providing for it somewhere in the municipality.
In short: townships and boroughs in PA cannot arbitrarily exclude lawful uses like data centers. If challenged, a court may require the municipality to amend its ordinance to allow the use, at least in some zoning districts.
Investors can also pursue a use variance, which allows a non-listed use based on hardship, or argue that the proposed use is analogous to an existing permitted use (e.g., claiming a data center is similar to a warehouse or utility facility). But these paths are uncertain and involve time and legal costs.
– Maryland: Similar Rules, with Localized Nuances
In Maryland, land use law is primarily controlled at the county level. However, the state’s zoning principles follow similar constitutional standards: a zoning ordinance cannot wholly exclude lawful and necessary uses.
Conclusion
Approaching zoning as a private/public partnership with the local area can help to accelerate your real estate investing in a positive way. Understandably it can be frustrating when the governing body is telling you what you can or cannot do with your property, but if approached from the aspect of how we can work together to create pleasant communities, it can result in a positive for your property and your bottom line NOI. And we all love that.
If you are looking for additional insight into ways to grow your property income within the parameters of the zoning, contact our company to discuss further. We can recommend additional uses, or if needed a highly skilled attorney who can assist with zoning uses.
Sources
- Pennsylvania Municipalities Planning Code (MPC): 53 P.S. §10101 et seq.
- Boundary Drive Associates v. Shrewsbury Twp. ZHB, 507 A.2d 908 (Pa. Commw. Ct. 1986)
- Maryland Land Use Code: Md. Code, Land Use Article
