Just over the Queensboro Bridge and immediately north of Queens Plaza lies an intriguing, mixed-up, dense, partly industrial, partly residential neighborhood called Dutch Kills. Every urban use seems to flourish here side by side – manufacturing plants nudged in between tiny houses, movie production facilities beside grocery stores, nightclubs on industrial blocks, auto repair shops on residential blocks. It has virtually no vacant land and very little public space. Still, it’s a Jane Jacobs kind of place – low-rise buildings, narrow streets, people of all sorts coming and going. It feels both energetic and sleepy.

All that is probably about to change – especially the sleepy part. Dutch Kills is at the center of one of the most charged and unpredictable real estate markets in New York.

The neighborhoods all around it have already changed, due to a combination of market forces and city policies – most importantly, a major rezoning in 2001 of adjacent Long Island City plus a few blocks of the southern portion of Dutch Kills. In August of last year, the Bloomberg administration took another major step, upzoning large swaths of Hunters Point. Decades of city efforts have resulted in substantial luxury residential development on the Queens waterfront, and some high-end commercial development inland – including the Citi Tower, the tallest building in Queens. The conversion market is brisk, perhaps even frenetic. A sign on a former industrial building shouts: Condos! Condos! Condos! Coming Soon!

This is an amazing transformation for an area that was thought to have the strongest concentration of industry in New York just a few years ago.

What, then, lies ahead for the 428-acre Dutch Kills enclave, bounded by Northern Boulevard on the south, 21st Street on the west, 38th Street on the east, and 36th Avenue on the north? Residents, who see the boom all around them, are of mixed minds about what should happen. Many fear an increase in rents that might drive them out. Others welcome development and the jump in property values it might bring – especially those who own modest houses from which they had never before expected much of a windfall. And some fear getting the worst of both worlds – huge towers on the periphery of their neighborhood while their own property is confined to current low-rise zoning.

A new study prepared for the Manhattan Institute by an economist, Regina Armstrong, of the research firm Urbanomics has weighed in, urging the city to keep on the path it has forged. Ms. Armstrong would like to see the 2001 upzoning extended to the rest of Dutch Kills to permit far more housing – up to 10,000 units – as well as mixed-use development. Dutch Kills is one of five neighborhoods (one in each borough) chosen by Ms. Armstrong to illustrate the conundrums of the city’s inefficient zoning policies, which are based on a 1961 view of the world. “The city’s current zoning regime,” she says, is anachronistic “not only because it is rooted in an outdated concept of the city’s economy, but because it fails to reckon with the strength of residential demand.” Or, as the president of the Partnership for New York City, Kathryn Wylde, says, “Where our 19th-century centers of industry were located is not necessarily where we want them in the 21st century.”

Ms. Armstrong argues that much of the 22,500 acres reserved for industrial development across the city is underused – and should be rezoned to permit some residential and commercial development. The current rate of housing construction (25,000 units a year) must continue for two decades just to meet demand. Yet vacant residential (R-zoned) land can only meet half this demand. Dutch Kills is a case in point of how to fix this shortfall.

Of Dutch Kills’ 20 million square feet of floor space, more than half (11.4 million square feet) is currently classified as manufacturing and industrial use. Yet between 1993 and 2002, industrial jobs in the area declined to 3,178 from 4,834, according to the New York State Department of Labor. Population has been going up: increasing to 7,761 in 2000 from 6,050 in 1990 – even though no new housing was built.

These figures, of course, reflect citywide trends of declining industrial jobs and increasing residential population. In other words, demand for industrial property has been steadily decreasing throughout the five boroughs even as residential demand has been growing. Yet huge amounts of land are still zoned for manufacturing use. Indeed, Ms. Armstrong says the city has space for 500,000 more manufacturing jobs than actually exist.

The executive director of the New York Industrial Retention Network, Adam Friedman, says that some M-zoned property should be rezoned residential, but not Dutch Kills. “There’s a term called ‘planner’s blight,’ ” he says. “If you rezone an area and nothing happens – no residential development – what happens to manufacturers who are still there? They get put on month-to-month leases, which starts a downward spiral. You can’t get financing. You can’t buy equipment. You can’t remain competitive.”

A commercial real estate manager, Dick Maltz, chairman of Greiner-Maltz Management, is also worried. “Last year’s zoning change is affecting the character of the area, which is visibly changing now,” he says. “There are quite a few nice little places to eat. There’s certainly more night activity on the streets. But if every piece of land becomes an apartment or a condo, then where are the people going to work? When do we have more apartments than we have jobs?” And, indeed, what Mr. Maltz calls “a very healthy mix” of housing and jobs is what Jane Jacobs once set as her first criterion of a successful urban neighborhood.

One lifelong resident of Long Island City, John Malloy, has another view of zoning – past and present. “The issue is the mid-blocks,” he says, gesturing at a row of small-frame houses dwarfed by the factory behind them. “We’re not being allowed to develop our property. City Planning is going to let that factory add two stories to its top, which means 80 feet, which will tower over our backyards. But in the name of protecting manufacturing, they’re sticking us with a FAR [floor area ratio] of 4. We’re being redlined by zoning.”

The truth is that zoning can indeed redline – simply prevent new development, whatever the market demand. But can it mandate the right kind of development? Probably not. Ms. Armstrong thinks that city government can unleash the forces of development and investment by getting out of the way – and upzoning Dutch Kills.