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Mixed-use development refers to buildings that contain more than one use. In zoning terms, this means some combination of Residential, Commercial, or Industrial(manufacturing) use.
History
Mixed-used development was the only form of zoning during the large majority of the history of human cities and towns. With limited transportation besides ships and animals, people often make a living from thier homes. This was particularly true in cities, where the bottom floor was often devoted to some sort of commercial use and living space is devoted upstairs.
Mixed-used development fell out of favor during the Industrial Age in favor of more efficient manufacturing in dedicated structures. Many of these buildings produced substantial industrial pollution and quality of life diminished to those who happen to live nearby. These factors were important for the push of zoning.
Another impetus for zoning was the birth of the skyscraper. Fear of buildings blocking out the sun led many to call for zoning regulations, particularly in New York City. Zoning regulations, first put into place in 1916, not only called for limits on building heights, but eventually called for separations of uses. This largely was meant to keep people from living next to, or in polluted industrial areas. This separation however, was extended to commercial uses as well, setting the stage for the suburban style of life that is common in America today. Zoning was almost universally adopted by municipalities.
Completely separate zoning and isolated "islands" of each type of development however is seens as undesireable in a lively urban center. Zoning laws accomodated this with mixed-use zoning. Most commonly, this means residential buildings with streetfront commercial space. Jane Jacobs' book, "The Death and Life of Great American Cities," argues that a mixture of uses is vital and necessary for a healthy urban area.