Leveraging Zoning as Entrepreneurial Opportunity

Zoning is the system of local land use regulation that divides a city into districts, prescribing how land and buildings within each area may be developed and used.[1] The modern foundation of zoning law originates from the Supreme Court of the United States' ruling in Village of Euclid v. Ambler Realty Co., which upheld the constitutionality of government restrictions on land use to promote public health, safety, and welfare.[2] This doctrinal foundation shaped local zoning codes nationwide, including Philadelphia’s code, which states its purpose to “promote the public health, safety, and general welfare of its citizens and visitors.”[3]

Real estate developers may view zoning law as restrictive and uncertain because it requires intensive permitting and compliance before construction can begin.[4] The entitlement phase, which involves obtaining these legal approvals, depends heavily on public discretion and community response.[5] Yet these same regulatory processes also contain flexible mechanisms, such as variances and incentive programs, that entrepreneurial developers can leverage to create value.[6]

Zoning as a Constraint

The entitlement process exposes developers to regulatory uncertainty and capital risk. [7] Securing approvals often requires navigating multiple agencies, public hearings, and potential litigation.[8] Certain zoning provisions rely on subjective standards, such as “neighborhood character” or compatibility, which further increase unpredictability.[9] These uncertainties are costly: compliance and regulatory expenses can consume around 20-30% of a project’s total budget.[10] This risk is magnified by time—the Geltner model notes that the opportunity cost of capital at the entitlement stage is as high as 40% and decreases to 20% during construction and 10% during lease-up.[11]

Zoning Mechanisms

Despite these challenges, zoning law contains structured mechanisms designed to adapt regulation to real-world development circumstances, including variances, overlays, and incentive zoning.[12]

• Variances. A variance is formal permission to deviate from strict zoning requirements when compliance would impose undue hardship.[13] In Philadelphia, variances are issued by the Zoning Board of Adjustment and require applicants to show that denial of the variance would cause unnecessary hardship and that the variance would not undermine the public welfare.[14] Variances enable developers to make projects viable on sites that would otherwise remain underused.[15]

• Overlays. Overlays are districts layered atop base zoning to impose additional rules or offer incentives, which can operate as tools for aligning private development with citywide policy objectives, such as affordability, sustainability, or transit-oriented growth.[16] By targeting specific geographies, overlays enable cities to direct investment toward priority areas while maintaining flexibility in implementation.[17]

• Incentive Zoning. Incentive zoning programs grant developers additional density, height, or permitted uses in exchange for providing public benefits like affordable housing, open space, or green infrastructure.[18] Density bonus systems are prime examples of policies that allow developers to enhance project value while achieving broader social goals.[19]

Together, these mechanisms demonstrate that zoning, while inherently regulatory, provides a framework for innovation and value creation.[20]

Entrepreneurship and Zoning

Strategic real estate development depends not only on financial management, but also on risk management; the ability to identify, pursue, and secure zoning flexibility is a defining feature of entrepreneurial development.[21] Because the entitlement stage is highly uncertain and offers no cash flow, it is the riskiest phase of development.[22] As such, while institutional investors have historically shied away from entitlement risk, the entrepreneurial developer can take advantage of the uncertainty to create value.[23] As one commenter writes, “[t]he preliminary phase of development provides the greatest opportunity for creativity and entrepreneurship. Unusual land use, clever mixed use projects, and seeing opportunity where others see problems are the value generators of this phase.”[24] For that reason, it’s common for entitled properties to increase in value by 100 to 500 percent.[25]

Entrepreneurial developers distinguish themselves in how they approach discretionary approvals, which require negotiation with public agencies and community organizations.[26] Because success depends on effectively aligning project goals with public priorities, the entrepreneurial developer strategically prioritizes early community outreach to listen and incorporate feedback.[27] As a result, this proactive and collaborative approach can generate real cooperation and even build genuine enthusiasm among stakeholders who may have initially resisted the project.[28]

Entrepreneurial developers also recognize that the various zoning mechanisms such as a variance or rezoning can create competitive advantages.[29] Proposing a planned unit development or parcel-specific rezoning yields first-mover advantage by securing entitlements that others cannot, turning regulatory delay into long-term value.[30] Developers who successfully permit innovative concepts can create market differentiation and community support.[31]

Conclusion

Zoning law is often viewed as a constraint.[32] While base zoning establishes restrictions, mechanisms such as variances, overlays, and incentive zoning embed flexibility.[33] These pathways create structured opportunities for developers willing to embrace uncertainty and navigate the legal process strategically.[34] For entrepreneurial developers, zoning regulation is a toolkit for creativity, one that transforms regulatory complexity into opportunity, and constraint into value.[35]

[1] See Lynne B. Sagalyn, Note on Zoning Regulations, Colum. Bus. Sch.: Colum. CaseWorks 2–3 (Aug. 15, 2016), https://caseworks.business.columbia.edu/caseworks/note-zoning-regulations.

[2] Village of Euclid v. Ambler Realty Co., 272 U.S. 365, 387–90, 395–97 (1926).

[3] Phila. Code § 14-101 (2021).

[4] See Anastasia Boden, Dana Berliner, Braden Boucek, Daniel Greenberg, Emily Hamilton, Kim Hermann, Clark Neily & Luke Wake, The Land Use Labyrinth: Problems of Land Use Regulation and the Permitting Process, Regul. Transparency Project 4 (Jan. 8, 2020), https://rtp.fedsoc.org/wp-content/uploads/RTP-State-and-Local-Working-Group-Paper-Land-Use.pdf.

[5] Scott Edward Kelley, Entitlement Advantage: The Balance of Local Knowledge and Capital Access in Real Estate Entitlements, MIT Libraries, 2, 6–7 (2007), https://dspace.mit.edu/handle/1721.1/42029.

[6] See Sagalyn, supra note 1, at 1, 16–17.

[7] Kelley, supra note 5, at 7.

[8] See Boden et al., supra note 4, at 8–12.

[9] Id. at 12, 38–39.

[10] Ben Forman, Matt Norris & Lian Plass, Reshaping the City: Zoning for a More Equitable, Resilient, and Sustainable Future, Urb. Land Inst. 25 (2023), https://knowledge.uli.org/-/media/files/research-reports/2023/uli-report-reshaping-the-city-final.pdf.

[11] Kelley, supra note 5, at 13.

[12] See Sagalyn, supra note 1, at 16; Forman et al., supra note 10, at 8, 14, 30.

[13] Forman et al., supra note 10, at 13.

[14] Phila. Code § 14-303(8) (2025).

[15] See Forman et al., supra note 10, at 13.

[16] Id. at 14, 30.

[17] Id.

[18] Sagalyn, supra note 1, at 10–11.

[19] See id. at 10.

[20] See Lynne B. Sagalyn, A Short Note on Real Estate Development Financials, Colum. Bus. Sch.: Colum. CaseWorks 2 (March 17, 2017), https://caseworks.business.columbia.edu/caseworks/short-note-real-estate-development-financials.

[21] Id. at 3–5.

[22] Kelley, supra note 5, at 2.

[23] See id. at 7.

[24] Id. at 14.

[25] Id. at 15.

[26] For a discussion of approvals and issues entrepreneurs face when navigating regulatory uncertainty, see Boden et al., supra note 5, at 4.

[27] Kelley, supra note 5, at 30.

[28] Id.

[29] Id. at 29; Forman et al., supra note 10, at 25–26.

[30] Kelley, supra note 5, at 29.

[31] Id.

[32] See Boden, supra note 4, at 36.

[33] Sagalyn, supra note 1, at 16; Forman et al., supra note 10, at 8, 13.

[34] Sagalyn, supra note 20, at 2; Kelley, supra note 5, at 15, 29–30.

[35] See Kelley, supra note 5, at 29–30; Sagalyn, supra note 1, at 1, 19–20.