(This article first appeared in Real Estate Investor's Monthly.)
John L. Gann, Jr. wrote a testimonial for one of my books. He also wrote a book called the Small Investor’s Guide to Tripling Real Estate Value by Marketing Zoning Changes.
The book is relatively expensive at $49.95, although if the information works for you, that figure will be a fraction of a fraction of one percent of your profit. The problem for Gann’s marketing is that the book is in a 5 1/2" x 8 1/2", 10-point type (this newsletter uses 11-point type which is bigger than 10-point), saddle-stitched (stapled spine) format. That is, it looks like a thick (206 pages) booklet, which is to say it doesn’t look like $49.95. Although I do not evaluate books on their size or type of binding, others do and if you are one of them, you have been warned.
Gann’s message is that zoning often causes gaps between what the market value of a property is versus what it could be. The way I would put it is that the so-called “highest and best use” of a property is the use that would be most profitable and zoning frequently prohibits the highest and best use.
Obviously, if you can get the zoning changed so as to move closer to the highest and best use, the property will often become more valuable. This happens when the cost of obtaining the zoning change plus the cost of changing the use of property to the higher and better use is less than the amount by which the value increases as a result. Better zoning would not result in greater value if the zoning change were so small that the cost of changing the property to the higher and better use were greater than or too close to the final market value.
Another major point Gann makes is that too many real estate people assume that because zoning is a law that they need to hire a lawyer and sue to get it changed. Stated succinctly, Gann’s advice is, “Sell, don’t sue.” To put it another way, he is saying that you can catch more zoning changes with honey than with vinegar.
He urges you to approach the government officials in question in a friendly manner and persuade them that it serves the best interests of the community to change the zoning as you request. He explicitly recommends that you not approach them with a hostile, pre-litigation attitude.
He further states that suing to get the zoning you want may be wise in some cases where the resulting profit would be high and the probability of success in court is also high. But generally, failing to persuade the officials to change the zoning voluntarily should probably end most such efforts.
I think he’s right.
Gann is an experienced zoning consultant, not a lawyer. He has published, worked, and taught in the field. He has a bachelors in something from the University of Chicago and a masters in urban planning from the University of Wisconsin, which has a renowned real estate program. I don’t know where they rank in urban planning. I regard urban planners as unconstitutional, dire enemies of real estate capitalism and free enterprise. In spite of his degree in it, Gann seems to share my feelings at least to an extent. He is nevertheless a Certified Planner (American Institute of Certified Planners).
Most laymen assume zoning is engraved in stone. Gann describes in detail the highly-flawed process which creates zoning. He then points out given the many weaknesses in how zoning came about, it is often not as hard as you might think to point the flaws in current zoning out to officials and get them to change the zoning to a better-for-the-community version.
Gann does not discuss the origin of zoning, but I will. It began with a 1926 U.S. Supreme Court decision called Village of Euclid, Ohio v. Ambler Realty Co., 272 U.S. 365. You can read the decision at http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=CASE&court=US&vol=272&page=365.
The decision was wrong, but until people who agree with me on that are a majority of the U.S. Supreme Court, it is the law of the land. At the time, knowledgeable observers were shocked that the Court decided the way it did. The Court said it was not an unreasonable extension of the municipality’s “police power.”
That is the same argument they use to wrongly claim that rent control is constitutional. In fact, both zoning and rent control are unconstitutional takings in violation of the last twelve words of the Fifth Amendment: “…nor shall private property be taken for public use without just compensation.” Both are, in effect, easements, and you have to buy an easement. You cannot just seize it for free—or at least that’s the way the founding fathers felt.
There is a chapter on improving zoning, with actual case histories, in my book How to Increase the Value of Real Estate.
Gann says zoning laws typically spell out what use you can make of the property as well as how much, that is, units per acre, parking spaces per square foot, etc.
He also says the zoning map is the main document. But I have heard that zoning maps are often inaccurate because of numerous changes that exist only in text, not map, form subsequent to the creation of the map.
So the first step in seeking a zoning change, it seems to me, is to make sure you really need it. Close examination of all the documents that constitute the current zoning law may reveal that what you want is already allowed. In one case in my book, a buyer who wanted a zoning change researched the current situation thoroughly first and discovered that a prior owner had already applied for and gotten the needed change many years before.
In my writing on rent control, I urge reading the rent control ordinance and related documents with a magnifying glass. There are often loopholes that you can get a building through. For example, an apartment building with a federal mortgage is often exempt from municipal rent control and subject instead to federal rent control which is typically far more lenient on the landlord (because the feds do not want him to default on the loan). You would not find that aspect of rent control in the municipal ordinance. It’s in federal law.
Zoning ordinances often need to be changed not just because it will make you money but also because:
Zoning ordinances were typically written in the early part of the Twentieth Century. Since many current uses, like car washes, drive-thru banks and restaurants, and cell phone antennas did not exist then, they would not be permitted by zoning but obviously need to be. Other old uses, like urban stables, have become obsolete.
Many zoning laws are poorly written because the drafter was incompetent, in a hurry, inexperienced, or focused on a controversial project of the time when it was written.
Zoning is authorized by state and county laws to which it must conform. Drafters often either ignore those through ignorance or deliberately. For example, the drafter may hate apartment buildings or fast food restaurants and exclude them solely based on personal taste and without regard to pertinent laws. The drafter may have a political bias, typically anti-growth or anti-business. They may even have bent the ordinance to satisfy a now departed, but once politically powerful, person.
My book Aggressive Tax Avoidance for Real Estate Investors says that what you put on your tax return is your first offer in a potential future negotiation with the IRS so you should make it as far in your favor as possible. According to Gann, many zoning drafters take that same attitude toward property owners. They expect to have to change it, so they make it as anti-growth and anti-business as possible so they can get away with a more desirable split-the-difference point when you seek to change it.
Finally, the zoning drafters know that most people are wimps so they just write up an overly restrictive zoning ordinance because they know few property owners will ever have the guts to complain about it.
Unless you are in a big city, there is probably not enough zoning legal work for any lawyer to have acquired significant expertise in it. So even when your situation requires zoning legal expertise there still may not be a lawyer who possesses it. Zoning is not a nationwide or even statewide expertise. Rather, it is local. If you have to use an attorney, his or her connections to local government are likely to be more important than their zoning law experience.
There is no one decision maker who is the key person in all jurisdictions. Rather, the key decision maker in your locality could be one of many individuals or groups in local government including:
In a given city, any one of these might be the main decision maker with others, even some who ostensibly are the main deciders, deferring to the decision of the other. You have to find out who the key decision maker or makers are in your jurisdiction and focus on getting them on your side.
I once described a liberal as someone who believes:
On page 52 of his book, Gann has a similar list of what is favored and disfavored by planners whom he says are quite predictable. Examples:
|mom and pop||chain|
|European way||American way|
Gann says there are four ways to change zoning:
Rezoning is what it sounds like. You simply get them to change the zoning map classification on your property from say, R1 to C2 or whatever.
A variance is the main way zoning changes are obtained. A variance is a request that a small portion of a particular zone be exempted from that classification because of special circumstances that apply only to that portion of the zone.
In a text amendment, you leave the zoning map per se alone but change the way the verbal portion of the zoning ordinance is worded such that you are permitted to do what you want after the change. All zoning ordinances have a provision allowing citizens to apply for such changes. Text amendments are the second most common ways zoning is changed.
Some text amendments add the phrase “except when or where” to an existing provision. Others add a use that is sometimes permitted.
A planned unit development or PUD is too complex for me to get into in this article.
Page 69 has an excellent, very useful list of when to use and when not to use each of the four approaches to get the zoning you want. Roughly speaking, it is an extensive list of the advantages and disadvantages of each method.
Consistent with his theme that zoning is a law, but don’t let that cause you to think of it legalistically, Gann provides numerous practical tips on how to get zoning changed in the real world including:
Another practical chapter is on the value of and sources of allies. This is politics after all, and politics is about vote counting. Sources of allies that Gann recommends include:
Gann tells you what to expect at the inevitable, required public hearings and how to improve your chances of success there. His advice includes:
On page 84, Gann lists the 13 most common objections from the public regarding zoning changes and how to defuse them nicely—as opposed to “winning” a debate “battle” but losing the zoning-change “war.”
On page 87, he list the 13 possible benefits to the community of your zoning change.
Except for the lack of detailed actual case histories, this is a super book on the subject. Highly recommended. JTR