Real Estate: Zoning/Land Use 2026

Overview: Land Use Regulations Reflect a Complex Web of Shifting – and Sometimes Competing – Priorities

Zoning and land use regulations operate at a complex intersection of business, society and politics. Predominantly administered by local municipalities, land use regulations are driven by local needs and priorities, including affordable housing, economic development, environmental protection, historic preservation, access to goods and services, preservation of natural and cultural resources, and educational and employment needs. However, local priorities do not always align with macroeconomic forces that drive real estate development and capital deployment. Digital engagement, government transparency and an engaged electorate have increased public participation in, and the complexity of, land use decisions.

Market trends: Data and industrial

Against an increasingly complex backdrop of local politics, increased engagement and capital market challenges, the real estate development industry remains active, with particular interest in artificial intelligence (AI), data centres, advanced manufacturing and related infrastructure. Post-COVID-19 supply chain challenges have largely been replaced by those from shifting trade policies and global alliances, fuelling domestic development of manufacturing and technology facilities. Meanwhile, development of large-scale logistics facilities has cooled, replaced by continued demand for smaller storage facilities near urban industrial centres.

Local attitudes to certain types of development can vary widely, even within the same geographic region. Some communities view AI technology and data centres as relatively low-impact uses that create generous property tax revenue streams for local governments and schools. Other communities resist them, noting concerns that AI technology and data centres could increase power costs and negatively impact water supplies. For logistics facilities, some communities have raised concerns about the impact of truck and delivery vehicle traffic. Conversely, others have viewed such facilities as inevitable and have embraced the opportunity to shape how and where they are developed.

The demand for storage has also influenced the emergence of a new asset class: Industrial Outdoor Storage (IOS). IOS facilities have long existed in the form of contractor and equipment storage yards, truck and vehicle fleet parking areas, and freight container storage yards. Many storage yards are considered non-conforming uses under modern zoning regulations that disfavour outdoor storage and instead favour paved, landscaped, well-lit sites. Increasing demand for large-scale logistics and last-mile delivery facilities and demand for e-commerce, have driven a market for secure and legally zoned places to store freight containers, semi-tractors, trailers, delivery vans, vehicle fleets and equipment, particularly near freight rail and air hubs and intermodal centres. An initial flurry of investor activity created portfolios of properly zoned sites, followed by a second wave of efforts to find the “diamonds in the rough” – sites that may require additional work to address obsolete platting or inadequate zoning approvals. The demand for IOS as a new asset class, and market expectations for legal zoning status, have challenged some communities to reconsider their attitudes toward outdoor storage and, in some cases, allowed them to secure new investment to meet community expectations.

Trends in residential development

Residential development continues to follow trends in population growth, with continued focus in the United States on the Sun Belt regions, where land use regulations tend to be less restrictive. Housing affordability remains a challenge in many markets, largely due to supply and demand. New housing deliveries have generally failed to keep pace with a growing global population, changing housing preferences and generational shifts in housing needs. In particular, housing affordability remains a challenge for Millennials and Generation Z, whose incomes, on average, have not kept pace with increased housing costs.

These forces are driving demand for affordable, lower-density housing in suburban environments, leading to the emergence of single-family rental (sometimes referred to as build-to-rent, or BTR) communities. Land use regulations have historically idealised low-density single-family development as a proxy for home ownership. Although some communities have resisted land use changes to permit BTR communities, the market grew quickly in 2024 and 2025, particularly in the south and west regions of the US. In the near future, BTR could level off slightly to allow for market absorption, with demand continuing as one of many potential solutions to increase housing supply.

Residential developers and housing advocates are raising concerns about the rising cost of constructing subsidised affordable housing and increasingly lengthy approval and permitting timelines. In some jurisdictions, the per-unit cost of constructing subsidised affordable housing, and the approval and entitlement timeframes, are double those of market-rate housing developments. Subsidised affordable housing developments often layer multiple sources of public subsidies administered by different government entities. Developers and advocates – and taxpayers – have wondered whether government entities are “gilding the lily” by requiring multiple levels of oversight and idealised programmatic requirements, such as architectural excellence and cutting-edge sustainability.

Land use regulatory efforts to address housing shortages generally fall into two categories: loosening regulations that have historically restricted residential density or tightening regulations to prohibit or discourage lower-density development. Examples of the former include zoning and building code changes to allow the development or conversion of accessory dwelling units, sometimes called backyard cottages or “granny flats”; expanding the density of housing permitted within historically low-density zoning districts; and reducing or eliminating parking requirements at transit-served locations. An example of the latter is prohibiting the conversion of multi-unit buildings to create single-family homes, even where single-family dwelling units are permitted.

Commercial and office trends

Demand for traditional office space continues to lag below pre-COVID-19 levels. Class A office space is seen as attractive, largely buoyed by the lack of construction of new office buildings. There is a significant gap in vacancy levels for older office buildings. High downtown office vacancy rates are inhibiting recovery and revitalisation efforts, leading some communities to consider land use changes and incentives to promote the adaptive reuse of struggling office buildings. Many policymakers view the creation of new residential units as an opportunity to reuse vacant office buildings, increase housing supply and promote the preservation of historic buildings. Developers and communities are largely working collaboratively to re-calibrate zoning and building code requirements to ensure buildings can be retrofitted and converted to meet residential requirements in an economically feasible manner.

Retail development continues to evolve in response to evolving consumer demands. Many large-scale traditional suburban shopping malls are being overhauled and reinvented as mixed-use “lifestyle” centres, featuring a curated mix of luxury stores, experiential dining and entertainment, and multi-family residences. Former flagship department stores are shifting to smaller formats as online shopping has reduced the need for stores to maintain inventory on site. Both online and in person, technology is integrated throughout the retail experience, enabling retailers to collect real-time data and tailor the customer experience.

Responding to the population shifts noted above, suburban locations are seen as more attractive than they were prior to the pandemic.

Reshaping communities

Historically, post-World War II declines in industrial production resulted in shifts away from the once-roaring industrial centres and sharpened social divides in many communities along geographic lines. After industrial operations ceased, many working-class residential and business communities that had developed around industrial job centres faced economic isolation and, in some instances, physical challenges from environmental contamination.

Although onshoring and industrial development trends present opportunities for revitalisation of former industrial sites, some communities are using land use regulations to restrict the re-establishment of industrial facilities, spurred in part by advocates seeking to protect marginalised communities from environmental hazards.

Reflecting a long-term trend, local governments continue to use land use regulations to promote sustainable and resilient development. Efforts include loosening zoning restrictions to encourage higher-density development in transit-served areas and walkable neighbourhoods, building code regulations designed to promote energy-efficient buildings, and establishing regulations and technical requirements designed to protect natural habitats and wildlife.

Conclusion

Land use regulations play a key role in shaping the physical, economic and social landscapes of communities. They reflect a community’s values while influencing housing affordability, environmental sustainability, employment opportunities, educational and cultural resources, and overall quality of life. Land use regulations balance competing priorities: fostering economic growth while preserving natural resources, encouraging development while protecting community character, and ensuring stability while maintaining flexibility. Effective land use regulation can enable communities to thrive in a manner that is orderly, predictable and resilient. In an era of shifting demographics, environmental pressures and competition for resources, developers who anticipate regulatory trends and integrate them into their business models may be best positioned to thrive. The opportunity generally lies in embracing regulation as a framework for innovation and sustainable success.