Doing Business 2015 Going Beyond Efficiency

Zoning and urban planning Understanding the benefits

ound regulation of construction factors as building size, height, shape ƒ Zoning—the process of planning helps strengthen property rights, and color; building location; and urban for land use across geographic S 5 areas—can help avoid the mixing protects the public from faulty densities. building practices and contributes to of incompatible land uses. This has the process of capital formation.1 But Zoning regulations can provide a useful both environmental and economic benefits. if procedures are too complicated or framework for investors and develop- costly, builders tend to proceed without ers by specifying the most appropriate ƒ Zoning practices vary widely a permit.2 By some estimates 60–80% location for their projects before they around the world. Economies with of building projects in developing econo- apply for a construction permit (figure an efficient and effective zoning mies are undertaken without the proper 6.1). They can also help municipal process make zoning maps of permits and approvals.3 authorities establish a consistent cities accessible to builders. Others and predictable basis for granting limit access to the building permit For many entrepreneurs, construction construction permits and approving authority, which checks the zoning regulation is an important consideration or rejecting construction proposals. compliance of permit applications. Still others have no zoning system when deciding where to establish their Having an up-to-date zoning system is at all. business. According to a competitive- therefore essential not only in support- ness report by KPMG, construction ing the coordination among agencies ƒ Among OECD high-income costs are the 5th most important factor that is needed for prosperous urban economies the process for obtaining determining the location of a start-up planning but also in ensuring efficiency a building permit, as measured in the United States and the permitting in granting construction permits. Also by Doing Business, takes 19 fewer process is the 17th most important.4 important is that such zoning systems days on average in those where the One element of construction regulation be developed through a consultative process includes zoning procedures is zoning, which regulates the location process with broad participation, to than in those where it does not. and use of certain types of buildings ensure that they benefit all social ƒ In New Zealand all municipalities within a city. groups. have a detailed, up-to-date zoning plan that has been approved through a process with intensive public involvement—including public HOW DOES ZONING RELATE HOW CAN ZONING AFFECT hearings to allow residents to offer TO CONSTRUCTION ECONOMIC DEVELOPMENT? suggestions or objections. PERMITTING? Through zoning, governments can ƒ Guatemala, a recent success story, Zoning is an essential tool in successful ensure the proper use of land and introduced a land management plan urban planning. Maps divide com- avoid mixing incompatible land uses. in its capital city in January 2009. munities into different zones based Zoning has been used as a regulatory A new zoning system established on the types of uses allowed—such tool to respond to changing environ- zones based on the general use of as residential, commercial, industrial, mental and development conditions land, including mixed-use zones. public buildings, parks and green areas. as well, including flooding, rising sea In most economies with zoning plans, levels and the loss of infrastructure.6 each zone has its own ordinance gov- Zoning regulations that take into ac- erning development within that sec- count environmental threats such as tion. These ordinances determine such flooding protect citizens by ensuring 54 DOING BUSINESS 2015

FIGURE 6.1 Where does zoning generally fit into the construction permitting process?

Builder decides on type of construction project.

In some instances builder Builder obtains zoning approval (recorded by • ••••••••••••• as a must apply for a separate procedure only if builder is required to obtain zoning certificate or approval directly from the relevant agency). zoning approval for the intended location of the project.

Builder prepares the necessary drawings and other required documentation.

Builder applies for the necessary preapprovals for the project (if required), such as land use approval, environmental approval and fire safety approval (including any necessary inspections). The relevant authority consults the zoning maps of the city to determine whether the project will be built in an appropriate Builder applies for and obtains a building permit. location, based on its specifications. In some instances builder may consult the zoning maps while the relevant authority simply does a Builder begins construction and receives either random or phased inspections verification check when during construction by the relevant parties. reviewing the permit application.

Builder completes construction and receives final inspection from the relevant parties to ensure that the construction was completed in compliance with building regulations and the conditions set forth in the building permit.

Builder receives a completion certificate or occupancy permit, ensuring that the building is ready to be occupied.

Builder applies for and obtains the final water and sewerage connection from the water and sewerage authorities.

Source: Doing Business database.

that future development keeps them municipalities include new areas for But where a zoning process is too and their possessions out of harm’s housing development and new indus- complex or restrictive, it can have an way. More generally, zoning plans can tries, zoning plans can help address adverse effect on factors such as hous- promote the conservation of energy the challenges associated with demo- ing supply and prices. Consider the ex- and natural resources, foster a greener graphic change and shifts in business ample of Sweden, where zoning policies environment, improve sustainability activity. In addition, municipal zoning mandate that municipalities must ap- and enhance the ability to adapt to can protect and improve the health of prove a detailed development plan for climate change. citizens by removing or minimizing pol- most housing projects before issuing a lution from industrial plants and con- construction permit. According to the A good zoning plan can help reduce tamination from landfills and sewage. Stockholm Planning Department and greenhouse gas emissions by cutting Zoning can help ensure an adequate an OECD study, more than half of all down on vehicle travel—such as by supply of safe water and the suitable construction projects—including most promoting higher-density development disposal of waste. And it can enhance apartment buildings—involve designing and concentrating residential develop- property values—by reducing pollu- or modifying a detailed development ment near job centers. A zoning plan tion, providing suitable light, avoiding plan.9 This can take 18 months on av- can also help reduce greenhouse gas overcrowding and traffic congestion, erage, according to estimates from the emissions by promoting an adequate developing green zones and offering municipality of Stockholm, and in 20% and accessible public transportation proximity to schools, hospitals and of cases it can take 3–4 years.10 Many system.7 By ensuring that certain other public necessities.8 researchers agree that administrative ZONING AND URBAN PLANNING 55

barriers to new construction are one automatically forwards the applica- scenario: a zoning system is still in of the 2 main factors (the other being tion to the Town Planning Department place and zoning compliance is still rent control policies) that have led to a for zoning approval, with no involve- verified, though not in the most ef- housing shortage in Sweden over the ment from the builder. In Belize the ficient way. Nevertheless, requiring past decade.11 Building Plan Committee of the Central verification of zoning compliance is Building Authority checks the permit better than having no zoning system at application to ensure compliance with all—with builders able to construct any zoning, environmental and fire safety type of project in any part of the city. WHAT ARE SOME GOOD requirements. PRACTICES IN ZONING? Thirty-six of the 65 economies require Recognizing the importance of zoning Neither of these processes requires builders to obtain approval to build in and urban planning, many economies the builder to take the extra step of their intended location before they can require builders to obtain some form actually obtaining a zoning approval receive a construction permit (table of zoning or urban planning approval before applying for a building permit— 6.1). Twenty-two of these 36 economies before building or even before obtaining a good-practice scenario if completed require a zoning permit as this form of a construction permit. This is done to efficiently without significant delays. approval. A zoning permit or zoning ensure that the intended building will But efficiency is not all that is impor- clearance signifies that the land use for be located in the appropriate zone tant. Around the world, good zoning the planned development is consistent (industrial, commercial or residential) systems also need to be broadly with the zoning regulations. In Canada according to the city’s zoning require- inclusive, incorporating all groups in the building code requires a builder to ments. But economies go about this society to bring about positive social obtain a zoning permit before even process in different ways. outcomes. They also need to be regu- applying for a site plan approval and larly updated to reflect changing needs the technical review of a development Some economies complete the process and developments. application. Among the 22 economies efficiently and effectively by mak- requiring a zoning permit, some issue it ing zoning maps of cities accessible Sixty-five of the 189 economies cov- more expeditiously than others. In the to builders (in some cases online). In ered by Doing Business do require that Philippines it takes 5 days on average these cases builders access the maps builders go through the additional to obtain the site clearance from the to verify that their project’s intended step of getting urban planning ap- City Planning and Development Office location is in compliance with zoning proval before obtaining a construction that a builder must have to apply for regulations, and they can include this permit. Of those 65, the largest shares a construction permit. In Bangladesh information with the building permit are in Europe and Central Asia (26%) obtaining a zoning clearance from application. In Swaziland, for example, and Latin America and the Caribbean the Capital Development Authority builders are responsible for checking (22%) (figure 6.2). This is a second-best (Rajuk) in Dhaka takes 45 days on the zoning maps and including the zon- ing information when submitting their permit application to the municipality. FIGURE 6.2 Half the economies that require the additional step of obtaining a zoning In the United States builders in New or urban planning approval are in Europe and Central Asia or Latin America

York City must complete a zoning South Asia diagram form available online and sub- (2 of 8 economies) mit it along with other required forms Middle East & North Africa Europe & Central Asia (7 of 20 economies) (17 of 26 economies) to the Department of Buildings. The 3% 11% Department of Buildings will still review East Asia & Pacific 26% (8 of 25 economies) the form to check that the project 12% complies with the city’s zoning policies. 12% Sub-Saharan Africa 22% In other economies the permit-issuing (8 of 47 economies) 14% Latin America & Caribbean authority checks the zoning compli- (14 of 32 economies) ance itself after receiving the building OECD high income permit application. In The Bahamas, (9 of 31 economies) for example, a builder is required only Note: The numbers in parentheses are the number of economies out of the total in each region that require the to submit a permit application to the additional step of obtaining a zoning or urban planning approval. Building Control Unit. This unit then Source: Doing Business database. 56 DOING BUSINESS 2015

levels—regional, municipal or special TABLE 6.1 What type of clearance is needed in economies with zoning requirements? zoning—providing several options for verifying the regulatory compliance of Urban planning clearance or the project. Urban planning clearance or certificate is generally obtained Zoning permit is mandatory certificate is mandatory but not mandatory Afghanistan Albania Algeria In 29 of the 65 economies there is no Argentina Bosnia and Herzegovina Antigua and Barbuda legal requirement to obtain an urban Australia Côte d’Ivoire Bahamas, The planning clearance or certificate. But architects normally request a Bangladesh Ecuador Bahrain certificate because it provides all the Bolivia Iran, Islamic Rep. Cameroon information needed to ensure that Canada Kosovo Cyprus architectural plans are in compliance Comoros Lebanon Finland with building regulations. In some Costa Rica Macedonia, FYR France economies the information is available Czech Republic Madagascar Kazakhstan online, but in most the information can be obtained upon request. Dominican Republic Moldova Latvia El Salvador Nicaragua Lithuania Fiji Serbia Montenegro Indonesia South Africa Morocco IS PERMITTING MORE Kuwait Spain Netherlands EFFICIENT WITH ZONING? Mexico New Zealand While obtaining a zoning or urban plan- ning clearance represents an additional Namibia Palau step in the construction permitting Philippines Papua New Guinea process, this does not necessarily mean Puerto Rico (U.S.) Qatar that economies that require this step Solomon Islands Romania have inefficient permitting systems. United States Russian Federation Consider OECD high-income econo- mies. As measured by Doing Business, Uruguay Senegal the process for obtaining approval Venezuela, RB Singapore of a building permit takes 43 days Sudan on average in those where it includes Tajikistan zoning procedures, 62 days in those where it does not. Obtaining a zoning Trinidad and Tobago or urban planning clearance actually Turkey speeds up the process—by 19 days on Ukraine average in these OECD high-income Uzbekistan economies—especially where the builder Vanuatu can obtain the clearance directly on- line. The reason is that this step avoids Note: A zoning permit signifies that the land use for the planned development is consistent with the zoning regulations. An urban planning clearance or certificate generally outlines conditions relating to the plot of land where the builder back-and-forth interactions between intends to build, including where construction is permitted on the plot (that is, the specific coordinates). the permit-issuing agency and the Source: Doing Business database. architect or even outright rejection of the project because of noncompliance. average, while obtaining one from the the project can be built in the specified Chittagong Development Authority zone but also guarantees that the con- On average across all 65 economies takes 40 days on average. struction permit will be issued without that require the additional step, ob- problems—because much of the verifi- taining the zoning or urban planning In other economies the process is cation for the permit is done as part of clearance takes 26 days (of a total of entirely different. In Belgium, for ex- the process for issuing the certificate. 177 days on average to comply with ample, an urban planning certificate is For smaller-scale projects all plan- all formalities to build a warehouse) required only for large-scale projects. ning regulations are available online. and costs $402 (of a total of $15,709). This certificate not only verifies that These regulations are set at several These economies generally require only ZONING AND URBAN PLANNING 57

one procedure to obtain the zoning cer- just 5 years. Construction activity has municipality and are periodically re- tificate or clearance. Very few require a increased substantially under the new viewed to ensure that they reflect the site inspection as part of this process, zoning system in Guatemala City. changing urban needs. Each district but in those that do, the overall permit- plan is approved through a participato- ting system tends to be less efficient. In New Zealand—an efficient and ry process in which the district council Indonesia, for example, a builder must predictable process holds public hearings to allow residents first request a city planning permit and New Zealand illustrates the use of mu- to submit suggestions or objections. building site plan—in Jakarta, from the nicipal planning and zoning as a tool to Once the residents’ comments have zoning office, and in Surabaya, from the facilitate the construction permitting been processed, the plan becomes one-stop shop—then receive an on-site process. Its planning and zoning regula- “operative”—as a statutory document inspection and finally receive the city tions are among the world’s most effi- that regulates land development ac- planning permit. This process takes cient. They are comprehensive, predict- tivities for the entire municipality. 22 days on average in Jakarta (where able and streamlined in implementation. the entire construction permitting This means that all municipalities in process takes 202 days) and 23 days New Zealand uses 2 main types of plan- New Zealand have a detailed, up-to- in Surabaya (where the entire process ning documents: regional plans and date zoning plan in place that has been takes 243 days). By contrast, Namibia district plans. Regional plans specify approved through meaningful public requires only one zoning procedure: the general requirements, such as air and involvement. The plan provides inves- builder must consult with the Town water quality and the use of coastal tors and developers with a reliable ref- Planning Department to ensure that areas. District plans are detailed plan- erence to guide them in the design and the land is in the correct zoning area. ning guidelines that outline the specific conceptual stage of a project, before Zoning approvals are issued on the land use and design requirements for they apply for a construction permit. spot and at no cost. builders. And it provides municipal authorities with a consistent basis for approving Overall, zoning requirements can lead The district plans are legally bind- or rejecting construction permits, with to more efficient and less costly con- ing, cover the entire usable land in a little discretion involved (figure 6.3). struction permitting systems. They can help guarantee compliance with zoning regulations even before the FIGURE 6.3 New Zealand’s district plans support an efficient, predictable process for permit-issuing agency receives the construction permitting building permit application. This allows architects and engineers to finalize the Is the building specifications with the knowl- The district plan specifies 6 Yes Apply for a categories of construction land plot in a construction edge that there will be no need to ad- projects—ranging from permitted permit just them later in the process because permitted to prohibited. zone? of possible zoning issues. No Provide an assessment of A project not in the permitted environmental category requires a resource Apply for a effects consent, an official approval resource TWO EXAMPLES OF GOOD verifying compliance with the consent resource use requirements of Provide a written the district plan. consent from the PRACTICE affected parties New Zealand and Guatemala both provide examples of well-implemented Is the Yes Undergo zoning systems. In New Zealand all mu- project public nicipalities have a detailed, up-to-date complex? hearings zoning plan that has been approved No through a participatory process and supports an efficient construction Notify directly permitting system. And in Guatemala affected parties and planning authorities in the capital obtain the resource consent city recently switched to a mixed-use land planning system and digitized Source: “An Everyday Guide to the Resource Manangement Act Series 1.1: Getting in on the Act,” New Zealand, Ministry the zoning maps—all in the span of of Environment, http://www.mfe.govt.nz/publications/rma/everyday/overview/. 58 DOING BUSINESS 2015

ƒ Create public spaces with high TABLE 6.2 Zoning classifications in Guatemala City’s new land management plan urban vitality Share of Share of buildings ƒ Promote an interconnected road total land in in zone that can be Zone Guatemala City (%) Primary use of zone residential (%) network G0—natural 18 Natural reserve areas where residential 0 ƒ Provide certainty to owners and buildings are not allowed for investors, including by promoting environmental reasons and because of high risk levels the desired urban development G1—rural 20 Areas that are still rural or agricultural 75 practices through incentives with an intermediate level of risk, where ƒ Secure the necessary resources for low-density residential buildings are allowed though preservation of the municipal investment environment is a priority G2—semiurban 9 Areas where low-density buildings in 75 While the old system had divided the closer proximity are allowed but because land into industrial, residential and com- of location or topography, preservation of the environment is a priority mercial zones, the new one established G3—urban 37 Areas that comprise most of the city’s 50 zones according to the general use of currently urbanized area, including a land, a change that included introducing medium density of single-family and multi-family dwellings mixed-use zones. The city was divided into 6 main zones that range from rural G4—central 13 Areas with a high density of mid-rise 35 buildings, where most of the land has to more urban (table 6.2). been developed and open spaces have been converted into public parks The municipality developed the new G5—núcleo (core) 3 Areas with a high density of high-rise 25 buildings and towers, where most of the plan in consultation with both the land has been developed and open spaces private and public sector and widely have been converted into public parks publicized it. The zoning maps have Source: “Plan de Ordenamiento Territorial,” Municipality of Guatemala City, http://pot.muniguate.com/docts been digitized over the past 5 years, _soporte/07_procedimientos_pot.php. and the process is now complete for the entire city. Builders can access the Municipalities face official time limits for completing each procedure related maps through an online link to verify for making a decision—20 working to obtaining a resource consent (zoning that a planned building is in compliance days for simple cases and 4 months modification) or construction permit.12 with the city’s zoning system before for more complex cases that involve applying for a building permit.13 public hearings. According to Doing Guatemala—a recent success Business data, most complex cases are story The new zoning system has shown processed in 100 days. Until 5 years ago Guatemala’s capital positive results, including a substantial city had a weak zoning system with no increase in construction activity, a There are 3 main factors behind the digital zoning maps. In January 2009, welcome development given pervasive efficient processing of construction however, the Municipality of Guatemala shortages. The square meters of con- permits in New Zealand in cases where City adopted a new land management struction authorized by Guatemala a change in zoning is necessary. First, plan that established land use classifi- City’s one-stop shop for construction there are clearly defined steps for mod- cations based on 10 objectives: permitting almost doubled in the first ifying a zoning plan (that is, obtaining ƒ Encourage access to housing and few years, rising from 1.1 million in 2009 a resource consent), requiring differ- diversify its supply to 2.08 million in 2013.14 And the munici- ent levels of review depending on the ƒ Promote high-density construction pality expects to authorize 2.2 million complexity of the project. A resource where there is an adequate trans- square meters by the end of 2014. consent is not required if the proposed port network construction is already in a permit- ƒ Limit construction in high-risk areas But implementing the system was not ted zone. Second, there are objective and protect natural and historically without its challenges. Some citizens criteria for municipalities to use in significant areas felt that the government was regulat- making a decision to approve or reject ƒ Ensure public participation in local ing what they could do with their own a construction proposal—an assess- land use planning land. And many objected to the notion ment of environmental effects and a ƒ Ensure compatibility in the use of of mixed land use, fearing an increase in written consent from affected parties. buildings in close proximity negative externalities such as noise and And third, there are official time limits ƒ Encourage mixed land use traffic in residential areas. In introducing ZONING AND URBAN PLANNING 59

mixed land use, however, the municipal- ity was seeking to address both traffic NOTES issues, by reducing the need for long This case study was written by Marie Lily Delion, commutes, and security concerns, by Anushavan Hambardzumyan, Joyce Ibrahim, Ana Maria Santillana Farakos and Melissa Scanlan. ensuring that all neighborhoods would have activity throughout the day. 1. World Bank Group, Investment Climate Department 2013. 2. Moullier 2009. 3. De Soto 2000. 4. KPMG 2009. CONCLUSION 5. Grannis 2011; Neumann 2014. 6. Grannis 2011. Without properly implemented zoning 7. Schaffner and Waxman 2009. systems, urban planning becomes dif- 8. Crone 1982; Karkkainen 1994. ficult, as does ensuring the proper uses 9. In-depth interview with an expert in the Stockholm Planning Department conducted of land and mitigating environmental by the Doing Business team on December 5, concerns. Recognizing the importance 2013; Hüfner and Lundsgaard 2007. of zoning and urban planning, many 10. “Planprocessen,” City of Stockholm, http:// www.stockholm.se/TrafikStadsplanering economies have adopted zoning /Stadsutveckling/Stadsplanering systems to varying extents. These /Planprocessen/. economies require builders to obtain 11. Swedish National Board of Housing, Building and Planning 2013. some form of zoning or urban planning 12. For more information on New Zealand’s approval before building or even before zoning system, see the chapter on urban obtaining a construction permit. These planning and construction permitting in World Bank (2014b). requirements can lead to more efficient 13. Zoning maps are available on the website and less costly construction permitting of the Municipality of Guatemala City at systems. http://vu.muniguate.com /index.php?id=14&opc=10. 14. Statistics provided by the Municipality of Guatemala City.