Pet Sitting Business and kennel licenses

I have a registered pet sitting business. I take dogs into my house ans watch them, kind of babysitting. I also watch some during the day only, dog day care. My town came and told me that I'm not allow to have this kind of business because I'm in a residential zoning. I must apply for a variance and also for a Kennel license. I'm not a kennel or pond. I watch the pups in my house. I'm a small very small business going through a very rough time with this issue. One of my neighbors is concerned about this all thing. He thinks that the variance is going to affect the property value of his house and the fact that I'm going to have a kennel license even more. Is this correct? I'm not a kennel but I'm being obligate to get a kennel license in order to keep supporting my family. Is a variance a changing of zoning from residential to commercial? Is there is a real estate law that shows that his property value will decrease? Do I have other options other than the variance?