Transfer of Development Rights

1
Transfer of Development Rights

• Josh Naramore
• Shannon Finnegan

2
Introduction

• State and local governments are responsible for
  land use policy
• Struggle between a want to preserve open space,
  historic landmarks, farmland and sensitive
  environmental areas and need to allow growth
• High transaction costs associated with
  traditional command and control style zoning

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Define TDR

• A market based technique that encourages the
  voluntary transfer of growth from places where a
  community would like to see less development to
  places where a community would like to see more
  development

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What is a Development Right?

• Bundle of Sticks
• Product of of acres and the number of sticks
  allowed per acre under a communitys land use
  regulation
• Varies from community to community
• Deed Restrictions

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How does it work?

• Sending Areas
• Receiving Areas

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Why Use TDR?

• Landowners
• Continue traditional uses and retain land
• Compensated for lost development potential
• Local Government
• Preserve open space, historic landmarks,
  environmental space without paying for it
• Allow for controlled growth

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Assumptions of MDR Programs

• Goal Maximize PV of Land
• Land available to designate as preserved is
  close to the zoning authoritys desired amount of
  preserved land
• C/B distributed equitably
• Undeveloped land most appropriate for
  preservation
• Reasonable administrative costs

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Determining Land Bid Functions

• Assume 2 types of actors
• Developer land bid function
• Farmer/Preservationist land bid function

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Graphical Illustration

• M acres of undeveloped land
• S farmers maximum bid
• D developers land bid (assumption)
• What happens w/o government intervention?
• Is this a market failure?

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Graphical Illustration Contd.

• MCs Marginal Social Cost of Developing Land
• E external benefits of preserving
  farmland/pristine areas
• Efficient Level of Conservation A through M
  acres

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Graphical Illustration Zoning

• Need for information
• Land value decreases for preserved acres
• Land value increases for areas that can be
  developed

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Graphical Illustration MDR

• Government decides land to develop
• Distributes A permits to land owners
• Market determines permit price (Diff. in dev. Vs.
  non-dev A)
• W/ external benefits included into value of
  developable land

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MDR Contd

• Landowners maximize wealth by selling acres A
  through M.
• Owners of acres A through M will receive E,
  assuming that development rights are distributed
  proportionally to owners total property
  holdings.
• MDR programs are Pareto superior to programs
  where trading not allowed
• Second Theorem of Welfare Economics

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Potential Challenges

• Some assumptions for competitive economy may not
  hold in land markets
• Unequal distribution of permits
• Without proper regulation, may not
  important/prime land
• Hot spots around areas of high value to
  developers
• May not preserve contiguous land areas

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Case Study Montgomery County, MD

• Most successful program in the country
• Preserved almost 38,000 acres of farmland
• Sending area one development per 25 acres. If
  purchased for receiving area this becomes 1 per 5
  acres
• 51 ration five times more development allowed
  if rights transferred to receiving area instead
  of being used at sending area

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Suggestions for Successful TDR Program

• Incorporation into zoning policy as the only
  means of increasing development density
• Real Estate Market Analysis
• Public Participation
• TDR Bank
• Multi-jurisdictional programs to increase the
  size of the market
• State legislation to authorize adoption of TDR
  programs to avoid takings issues