Policy commentary

Preservation and Development: Can TDRs Improve Land Markets?

Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, and public health problems.

Over the long haul, growth in U.S. population and real income will continue to fuel demand for ever greater residential development. Potentially, this will lead to over-development of open space at the urban fringe, as developers lack incentives to account for the resulting loss of natural habitat and scenic views, among other things. However, Transfer of Development Rights (TDRs) programs offer a ray of hope for striking a balance between development and conservation. This week's commentary, by RFF Senior Fellows Virginia McConnell and Margaret Walls, discusses the pros and cons of this market-based approach to managing development and practical experience with this policy to date.

Next week's commentary, by Arun Malik, will discuss policies to address risks posed by forest fires.

Conflicts over private and public uses of land have long been part of our history. Private land can provide myriad public benefits - such as habitat for wildlife, scenic views, and preservation of sensitive environmental resources - that are not likely to be fully valued by private landowners. Consequently, some land will be developed that should be preserved. Designing and implementing cost-effective policies to remedy this problem can be difficult.

In private land markets, owners have the right to subdivide and develop land, subject to zoning rules established by local governments that typically limit the number of dwelling units that can be built per acre of land. Some communities have tried tightening these density limits to very low levels, such as one dwelling unit per 25 or 50 acres, as a way to limit development and preserve open space. Purchase of development rights programs (PDRs) are another option in which the government uses tax revenue to purchase and retire the development rights to particular parcels of land. 

A private, market-based alternative is known as a transfer of development rights (TDRs) program. Property owners are able to sell their development rights to, most commonly, a developer, who then uses them to build in a different location. The land from which the development rights are sold is preserved from development with an easement or restrictive covenant; the land on which the rights are used is developed more densely than would otherwise be allowed.

  Virginia McConnell
RFF Senior Fellow
TDRs offer several advantages. Because they are voluntary, landowners have more flexibility compared to strict mandates or changes in zoning rules. They can also be used in conjunction with downzoning - that is, reducing the number of dwelling units per acre - to compensate landowners for any lost development potential from such reductions. Another political advantage is that TDR transfers occur through a private market, and therefore no tax dollars are needed for ensuring that land is preserved. And finally, TDRs can achieve land preservation, while still accommodating growth in the region. 

Current TDR programs vary widely in their designs, objectives, and outcomes. Many are designed to preserve farmland, but some attempt to protect environmentally sensitive lands and habitat. Still others have "smart growth - or "anti-sprawl - objectives - namely, to preserve open space and channel development toward more compact, urbanized areas with existing infrastructure. Over 140 jurisdictions around the country have TDR programs on the books.

  Margaret Walls
RFF Senior Fellow
TDRs sound relatively simple on paper - density is transferred from one property to another - but in practice, they can be quite complicated. The programs create a market for development rights, and many things can affect the profitability of buying and selling those rights. For example, local governments must determine which areas of the community are allowed to sell TDRs and which are allowed to use them to develop more densely, how densely the "receiving - areas can be developed, how trades occur in the marketplace, and the kind of mechanism by which transfers are approved. The underlying zoning in both the "sending - and "receiving - areas, as well as land values when developed or used otherwise, will influence how well a TDR market works. 

A continuing problem in many programs lies on the demand side of the market. Many jurisdictions allow TDRs to be used to increase density only in established urbanized areas and town centers. However, this outcome is difficult to achieve in many communities: possible reasons why include a lack of demand for higher density and opposition by existing residents to more development. Most of the programs where demand has been strong have allowed TDR use in relatively low-density zones.

What Works? 

A very small number of programs have effectively created a working TDR market over time and have achieved local land preservation goals. The two programs that are perhaps the most long-running and successful in the country are in Maryland, in Calvert and Montgomery Counties. Although both have focused on protecting farmland, their approaches have been quite different. Both programs were initiated in about1980, and since that time, the Montgomery County program has protected about 49,000 acres and the Calvert program about 13,000 acres. (Montgomery is nearly two and a half times the size of Calvert.)

The Calvert County program is unique in that it allowed the additional density from TDR sales to be placed in many different areas, including town centers, residential zones, and even in some rural areas. Moreover, it allowed landowners in some of the rural areas to either sell their development rights and preserve their land or use development rights purchased from elsewhere to develop more densely. This overlap in sending and receiving areas is highly unusual in TDR programs and makes the Calvert program one of the most flexible and least restrictive programs in existence.

Transfer of Development Rights in U.S. Communities: Evaluating Program Design, Implementation, and Outcome
Margaret Walls & Virginia McConnell
September 2007

The Montgomery County program, in contrast, downzoned one 90,000-acre area of farmland in the western part of the county, and the development rights that were taken away by the downzoning were allowed to be transferred to other areas that were designated for higher density. The receiving areas were all designated in residential areas, but as in Calvert County, the TDRs that were actually used tended to go into the relatively lower density areas. The Montgomery program is often held up as the best example of a successful program, but it is important to understand the key role played by the downzoning: without the option to use the development rights on their properties anymore, landowners in the sending area were obviously quite willing to sell.

TDRs cannot be expected to achieve all of a community's land-use goals. They work best when used in conjunction with other policies, such as PDRs, land purchase programs for public open space, and zoning. TDRs can help attain land preservation goals at little public cost, but they cannot be used to preserve particular properties or to achieve spatial patterns of preservation that a community may consider important. They also retain land in private ownership and are thus not a substitute for public lands such as parks and recreation areas. Communities would benefit from considering a well-designed and implemented TDR program as one important component of an overall approach to land-use policy.



Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.

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Additional Resources: 

Levine, Jonathan. 2006. Zoned Out: Regulation, Markets, and Choices in Transportation and Metropolitan Land Use. Resources for the Future Press, Washington, DC.

McConnell, Virginia, Elizabeth Kopits, and Margaret Walls. 2006a. Using Markets for Land Preservation: Results of a TDR Program. Journal of Environmental Planning and Management 49(5) (September): 631-51

McConnell, Virginia, Margaret Walls, and Elizabeth Kopits. 2006b. Zoning, TDRs, and the Density of Development. Journal of Urban Economics 59 (September): 440-457.

McConnell, Virginia and Margaret Walls. 2007. Transfer of Development Rights in U.S. Communities: Evaluating Program Design, Implementation, and Outcomes. Resources for the Future (May).

Pruetz, Rick. 2003. Beyond Takings and Givings: Saving Natural Areas, Farmland, and Historic Landmarks with Transfer of Development Rights