Blog Post

Should Coastal Communities Consider Transfers of Development Rights?

May 9, 2014 | Margaret A. Walls

My colleague, Carolyn Kousky, recently wrote a post about “managed retreat” from the riskiest areas along our nation’s coastline—areas facing sea-level rise, as well as worsening storms and hurricanes. Her recommended three-part strategy includes limiting development in high-risk areas, adopting policies for “orderly” retreat as inundation occurs, and allowing for retreat after a disaster. All of these involve changes in land use in coastal areas. And these changes in land use will come at a cost. In a world with private property rights, restricting development options through zoning and other regulations reduces property values and can involve costly “takings” legal battles. Property buyouts or purchases of easements, which incentivize property owners to voluntarily move or allow development restrictions to be placed on their lands, can be costly. Where will this money come from?

An option that many local communities should be considering is transfer of development rights (TDRs). TDRs allow development rights on one property to be “lifted” and sold for use on another property. Communities often identify areas they would like to protect from development and designate them as TDR “sending” areas. Landowners in these areas are permitted to sell their development rights and if they do, a permanent easement is usually placed on their land. Buyers of development rights are typically developers who use the rights to build more densely in designated “receiving” areas.

TDRs are a market-based approach in which land is protected from development through the interactions of buyers and sellers in a (created) market. Importantly, there is no direct cost to the government except the administrative costs of running the program. This stands in sharp contrast to buyouts and easement purchase programs. RFF Senior Fellow Virginia McConnell and I estimated that Montgomery County, Maryland, would have spent approximately $68 million to purchase the development rights that were transferred in the county’s TDR program between 1980 and 2008. The program protected approximately 45,000 acres of farmland over that period. In Calvert County, Maryland, I estimated the savings at $50 million for the 23,000 acres of land protected in its TDR program from 1980 through 2011.

Could TDRs work for protecting lands in floodplains, properties that may be inundated by storm surge, and/or areas that are predicted to be at risk from sea level rise? TDRs typically protect undeveloped land. At first blush, they seem ill suited to coastal settings that are heavily developed. But they might work even in these instances. For example, TDRs could facilitate rolling easements—easements on developed properties that face gradual inundation over time from land subsidence or sea level rise. If these property owners are permitted to sell their development rights for use in another, less risky area, they receive some compensation for their loss and again, at no direct cost to the government. TDRs could serve as an alternative to buyouts in floodplains; repetitive loss properties might be designated TDR sending areas, for example.

Furthermore, there is still a substantial amount of undeveloped land in U.S. coastal counties. According to calculations made with NOAA’s Coastal Change Analysis Program (C-CAP) land cover data, less than 8 percent of land in the coastal areas of the eight east coast states from New Jersey south through Georgia is developed. (Most of the remainder is forest (25%), agriculture (21%), and wetlands (21%).) With a projected growth in population in the coming years, can coastal communities use TDR markets to locate these new households in less risky areas and at the same time protect valuable natural lands?

Getting TDRs to work is no easy feat. In addition to challenges that any community would face, coastal communities may face some special problems. For one thing, coastal retreat may conflict with control of sprawl or other land use objectives. This will be true in Florida where TDR programs designed to protect water supplies and wildlife habitat have targeted inland properties for preservation while pushing new development more toward the coast. Local governments may need to rethink their priorities. In addition, this example makes it clear that TDRs are not a panacea and cannot address all land use concerns.

Coastal communities have some daunting challenges ahead of them. One of the most fundamental is how to manage land uses in light of the growing evidence of sea-level rise and increasing risks from storms and hurricanes. Further analysis of TDRs and similar incentive-based land use options would be an important contribution to this debate.