This is the second tone reading, the one used for trades: 磨坊 a mill, 染坊 a dye house. The first tone reading fāng is a different word, the one in place names and in 牌坊, a memorial archway.
usage
Almost always the second half of a trade name built on what the place produces: 油坊 an oil press, 粉坊 a starch noodle workshop, 磨坊 a flour mill. The common word 作坊 is the exception, with a neutral tone on the second syllable.
土 (earth) supplies the indexing radical. Under this reading a 坊 is a workshop or mill, a walled working yard on a plot of ground, which puts it with 场 (yard), 城 (city) and other built pieces of terrain.
方 supplies the sound, here voiced down to a second tone. The same phonetic series gives 房 (house) and 防 (defend), both second tone as well, which makes the workshop reading easy to remember.
