The governments should seize the opportunity.  

Another question that I haven't yet heard the answer to: Do local governments ever run out of HCV funds? 

Go in person to the planning department and talk to them.

I dont care if the tenant is paying themselves, the government, the tenants parents, etc.

@Joshua ChristensenI agree with you that brokers are not experts in zoning, but this broker should have told his client to go to the zoning department to verify.

Apply for a dimensional variance on the vacant lot to allow a smaller lot and/or setback so it can be built upon.Your best first steps are to sketch a plan, possibly with an engineer's help, then contact the zoning department to discuss your idea with them to get informal feedback on your liklihood of success before you spend a lot of money.

I had constant issues with the local government and the taxes were absurd.

The government.

I called the zoning department and they are telling me this is a Mixed use building (N zone).

Once that’s confirmed, they’ll help you submit the required permits to the Department of Buildings (DOB) and get approval from the Department of Transportation (DOT), since it affects the sidewalk and street.After permits are approved, you’ll need a licensed contractor to do the construction.