Planopedia

An overlay district, sometimes known as an overlay zone, is a geographic zoning district layered on top of another existing zoning district, or districts, that implements additional regulations. Overlay districts are frequently used in zoning codes to protect sensitive environmental features, preserve historic buildings, prevent development on unstable or vulnerable land features, or promote specific types of development such as transit-oriented development. Like other zoning regulations, overlay districts can control building codes and urban design, permitted land use, density, and other factors.

The overlay district often fills a gap where traditional zoning does not address specific or complicated local conditions or multi-jurisdictional issues. For example, an overlay district protecting a rivershed along a river that flows through several different zoning districts would protect land along the entire river with one set of rules that applies across districts. Overlay districts can streamline the implementation of additional regulations in all applicable areas without having to amend the codes for multiple districts and maintain consistency across multijurisdictional natural, historic, or infrastructural features.

Types of Overlay Districts

Common overlay district types and purposes include: 

• Affordable housing
• Airport zones
• Flood plains, coastal zones, or river sheds
• Seismic hazards
• Agriculture or livestock 
• Historic or cultural resources
• Sensitive habitats
• Transit-oriented development 
• Pedestrian districts
• Sign districts
• Economic development or craft districts

In addition to environmental protection districts, historic overlay districts are one of the most common uses of the overlay district model. A historic zone will often impose strict regulations relating to the aesthetics of buildings in the neighborhood, making it difficult to make changes to the established look of the area.

The city of Los Angeles has ten different types of overlay district, including: Certified Coastal Use Plan, Community Design Overlay (CDO), Historical Protection Overlay Zone (HPOZs), and Commercial and Artcraft District (CAD). The latter of these allows artisans to live, work, and sell their work without the restrictions on commercial activities common in other residential districts. Cities like Oakley, California have implemented affordable housing districts to mandate more affordable housing in neighborhoods with high demand. As housing activists sounded the alarm about the proliferation of short-term rentals and their impact on the housing market, Steamboat, Colorado proposed an overlay zone to regulate the number of short-term rentals in various parts of the city. Highway overlay districts are an increasingly popular tool for promoting certain types of growth and uses along major transportation corridors. In Norfolk, Nebraska, the city council approved a highway corridor overlay district to guide development along two major highways in the city.

According to the Center for Land Use Education, creating an overlay district involves three basic steps: defining the purpose of the district, identifying the areas the district will contain, and developing the rules that will apply to the district. The process of creating and approving overlay districts usually mirrors the creation of any zoning district. Like other zoning districts, most overlay districts include the possibility for variances or waivers on a case-by-case basis.

Critiques of Overlay Districts

The use of overlay districts raises concerns among some experts, who caution that overlay districts can become overused as a policy tool when simpler zoning mechanisms would suffice. If a proposed overlay district only covers one other zoning district, for example, it may be easier to simply amend the regulations for the existing district. Otherwise, multiple layers of regulation can lead to longer permitting times and increased costs for developers, city agencies, and property owners.

Overlay districts are also accused of blocking new housing construction, hindering development and growth, keeping housing costs high, raising home maintenance and utility costs, and preventing cities from adjusting their built environment to meet current conditions. Because they frequently uphold the status quo and block affordable housing efforts, some critics fear that overlay districts too easily become a tool of exclusionary zoning, using historic or environmental designations to reject development proposals and avoid state housing mandates. In one prominent example, the California town of Woodside attempted to designate the entire city as mountain lion habitat to skirt state housing laws. (It should be noted that the proposal, widely ridiculed in the press, was quickly retracted.)

However, zoning can and does function as an exclusionary tool with or without intent: many opponents of single-family zoning argue that the designation prevents the construction of multifamily buildings in desirable areas and forces low-income families farther from job centers and economic opportunities. Historic overlay districts, by essentially freezing a neighborhood in one specific form, can have a similar effect by limiting development in often highly desirable, central locations that could benefit from increased density. Historic designations can also hinder the modernization of homes, preventing homeowners from adding solar panels or other efficiency features that don’t comply with the district’s historical requirements.

Used wisely, overlay districts give planners a tool for implementing targeted regulations that accommodate local conditions, guide development, and protect natural and cultural resources. Taken too far, they can hinder development, keep housing costs high, and delay essential projects necessary for keeping up with the shifting needs of modern cities.