The configuration of residential developments in the city of São Paulo has been undergoing a transformation over the last few years. This is due to the management, urban development and, particularly, regarding the assumptions  of the Municipal Strategic Master Plan (PDE) and the law of parcel, use and occupation of the land, known as the Zoning Law.

In 2014, the PDE outlined São Paulo's urban development policy, to order the development of the city's social roles and socially just and ecologically balanced use. Among its strategic objectives was to accommodate urban growth in underutilized areas, endowed with infrastructure and that were in the vicinity of the public transport network.

The PDE also provided for the revision of  the Zoning Law, having as one of its guidelines the focus on real estate production to drive local commerce through active facades on the ground floor of the buildings. The Zoning Law was eventually enacted in 2016 and regulates public and private action on the forms of land use of the city, focusing on a planned, functional, environmentally sustainable and democratic growth.

To accommodate urban growth and foster the approximation of workplaces and housing, the Zoning Law implemented, in the regions of the so-called structural axis of urban transformation (Eixos de Estruturação da Transformação Urbana) – places near the bus lanes and along train and subway stations – construction incentives for real estate developers, establishing as a requirement the mixed use of the developments.

One of the benefits brought by the law is not to compute the areas of non-residential use, since they add up to 20% of the computable built area of a mixed-use development, thus waiving the payment of onerous grant.

Another incentive is the better use of parking spaces provided they are located in the structural axes, the legislation deems not computable the area of up to one parking space per housing unit of residential use and up to one parking space every 70m² of area built for non-residential use.

Given these incentives, what was seen in the São Paulo landscape was the proliferation of mixed developments in these axes, with residential and non-residential buildings co-existing in the same land – especially the studios (small apartments), next to luxurious residential developments and with larger footage.

The challenge occurs at the moment of the literal interpretation of the articles on which these legal advantages are based.

According to the Zoning Law, land use and occupation are divided into broad categories, residential and non-residential. The non-residential category (R) has subcategories, including subcategory R1, whose nature is that of non-residential use compatible with the residential neighborhood. Among the uses foreseen in the NR1 subcategory are those related to lodging and housing services, the so-called R1–12.    

The definition of subcategory R1–12, however, carries a semantic load that generates uncertainties for the real estate market, investors and legal operators.      

The expression "housing", contained in the legal text, was interpreted by some as legal permission for the establishment of permanent residence in NR units, especially in the studios, which spread in the vicinity of the São Paulo subway and train stations.

For others, the legislature's intent was only to authorize certain groups of activities in R1–12, but only for a temporary stay and with commercial, institutional or service characteristics, typical of non-residential real estate.    

Currently NRs are a reality and, to prevent them from becoming land stock, they end up being used as permanent housing, and not transitory.

Deemed as NR units, these studios do not yet fall under the assumptions of subsidized financing, which also does not seem to be an attraction for an ordinary buyer. The result is that this type of unit, in general, becomes an option for real estate investors.

In addition, the price of the studios does not contradict the rationale of the market. Land closer to train, subway or bus lanes in São Paulo is already, by nature, land with a more expensive square meter, which rules out any kind of democratic transformation or correction of inequalities intended by the law.

Faced with the interpretative doubt  and the volume of studios NRs  that      are now part of the São Paulo landscape, what is characterized is a production of units in large scale, integrated to the use R1–12 and driven by the benefits of the Zoning Law, but that were not well absorbed by the public to which they are intended. Currently they are the object of survey by the market, which intends to have both legal certainty and financial return.    

The challenge is huge and some options are being tested, such as the use  of long stay  and short stay leases, with housing added to services (as a service), in order to try to rule out the residential characteristics of a non-residential product.

Both the PDE and the Zoning Law are constantly revised to clarify, adjust, or correct misuse of purpose. It is in progress, for example, the proposal to revise these instruments, which began with the interim review of the PDE (approved in the 2nd vote by the City Council and awaiting the mayor's approval). The Zoning Law will be the next to be reassessed, with relevant impacts for new real estate developments in the city, including mixed-use ones. One of the goals is to remove some incentives to try to curb the construction of more compact units, especially those with the amount of square meters less than 30m².

It is understood that the provisions of the PDE and the Zoning Law, which, by nature, are already lengthy and complex, depend on further regulation, both to meet the intention of the legislator and bring legal certainty to operators and investors, and even to accommodate the new interfaces between the legislation and the living and dynamic organism that is the city.