Matthew Player looks at how zoning works and what it means for your investment.
Current and future zoning controls should be a key consideration for real estate investors, regardless of whether the land will be developed or not.
Local governments enact zoning regulations in order to control the pace and pattern of development and growth in a municipality.
Zoning defines the legally permitted and prohibited uses of a piece of land, determining if a lot can be used for commercial, industrial, residential or agricultural purposes. In other words, it decides what can and cannot be built on a lot.
How do the different councils decide what zoning is applicable?
An overarching regulatory plan is put in place by each council. These regulatory plans set the direction in which the government wishes a locality to develop. Within a regulatory plan, planning instruments like zoning are employed to regulate land use and control development.
Governments allocate land a zoning, which is typically identified by a colour on a map. Land use tables, contained in a written document and which generally accompany a zone plan, set out the various purposes for which land may or may not be used or developed in a zone.
What are the most common zonings investors need to know about?
Zones typically fall into four general categories:
Since there is a great diversity of land uses, a council will typically further divide these categories into more specific areas, allowing varying degrees of density.
Common zonings for each state
The Standard Instrument introduces a suite of standard residential zones for all of NSW (please note a number of councils are still to adopt the Standard Instrument).
Here is a list of the residential zones contained within the Standard Instrument:
R1 General Residential
R2 Low Density Residential
R3 Medium Density Residential
R4 High Density Residential
R5 Large Lot Residential
The Queensland Planning Provisions are the standard planning scheme provisions that provide a consistent format and structure for planning controls across Queensland. However, zonings differ from council to council across the state.
Planning zones in Victoria have been reformed to ensure they are still relevant and adequately reflect the aspirations of all Victorians. New and amendment zones were approved by the Minister for Planning.
Create Five New Zones
In WA, councils are responsible for planning their local communities through a Local Planning Scheme. However, zonings differ from council to council across the state.
In Tasmania, councils implement Planning Schemes as regulatory planning instruments. The state government provides format and structure directives for council planning schemes, including zonings.
A list of the residential zones is provided below:
Low Density Residential
In SA, councils are responsible for planning their local communities through a Development Plan. However, zonings differ from council to council across the state.
In the NT, an integrated NT Planning Scheme is in place. The NT Planning Scheme contains provisions that permit, prohibit or impose conditions on a use or development of land. Here’s a list of the residential zones used in the territory:
SD Single Dwelling Residential
MD Multiple Dwelling Residential
MR Medium Density Residential
HR High Density Residential
CV Caravan Parks
CL Community Living
What impact will zoning have on residential properties?
While many people believe that zoning is really only the concern of big property developers, it is important to recognise that zoning can have a major impact on any property and therefore any investor.
There are a number of ways that zoning can impact a real estate investor’s bottom line. Here are some of them.
The highest and best use
The current use of a property may not be the optimum use for the location; for example, an old single-family home that is zoned for medium-density residential. The market may prefer townhouses on the property.
Potential height and square footage
Knowing your zoning allows you to identify opportunities for alterations and additions.
Considering the zoning of surrounding properties when researching a property can help investors avoid nasty surprises. Investors should never have to be surprised about a large development going up next door. Council’s zoning map provides all the information on what can and cannot be developed on a property.
Local zoning rules can be supported by special overlays in order to conserve heritage significance, promote a future vision, or protect citizens from environmental catastrophes.
When a property has a special overlay, it is saying something about the potential of the property. For example, if a property is included within a new flooding constraint overlay, the property’s development potential is further limited. This information could be utilised to pass on a property or negotiate a better price.
What happens if the zoning changes?
In order to provide for the housing demands of a growing population and respond to environmental constraints, governments regularly rezone land.
A rezoning is a change to the zone of a parcel of land. This can increase or decrease the range of permissible uses for a property or change the development controls that apply. Land can typically only be rezoned through a formal amendment process.
Requests for zoning changes from an existing land use to another purpose are generally made by developers with the intention of bringing a higher return to the property.
Property investors will have a competitive advantage if they stay on top of zoning controls, because they will have an understanding of what determines a property’s potential. Zoning information can be utilised during negotiations and, if an investor has the means, can also be capitalised on.