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Putting Growth In Its Place With Transfer of Development Rights

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Most communities would like to save something. It might be environmentally-sensitive areas, farmland, historic landmarks, open space, or other places with special significance. But there is typically a dilemma. Elected officials are often reluctant to impose restrictive land use controls on property owners without providing some form of compensation. However, most communities have little or no money available for compensation.

Some communities address this dilemma by adopting what is called a “transfer of development rights” or TDR program. TDR is a market-based technique that encourages the voluntary transfer of growth from places where a community would like to see less development (called sending areas) to places where a community would like to see more development (called receiving areas). In this process, development pays for preservation.

With TDR, a community motivates sending site owners to record permanent deed restrictions on their property, forever ensuring that the land will only be used for approved activities such as farming, conservation, or passive recreation. When these deed-restrictions are recorded, transferable development rights, or TDRs, are created. Sending site owners are compensated for their reduced development potential by being able to sell their TDRs to the developers of receiving sites.

In the receiving areas, a TDR-based zoning code offers developers a choice. Developers who decide not to buy TDRs are allowed less development on the receiving sites. But developers who purchase TDRs are allowed extra development, or bonus density. When a program is well designed, the extra revenues from higher-density projects make it more profitable for developers to use the TDR option despite the extra cost of having to buy the development rights. See Sidebar, Using TDRs: A Basic Example

Not all TDR programs are successful. But when a community creates the components needed for a TDR market, everybody wins. Sending site owners are compensated for permanently preserving their properties. Receiving site developers enjoy greater returns even though they have to buy TDRs. And communities achieve their land use goals using private sector money rather than tax dollars.

If TDR Is So Great, Why Doesn’t Everyone Use It?

As I learned by sending questionnaires to the 3,500 largest communities in the country, many people still consider TDR to be experimental. But, in fact, it is not a recent innovation. TDR has been in use for thirty years in the United States, dating back to the New York City Landmarks Preservation Law of 1968.

Nor is TDR untested. My survey uncovered 112 TDR programs in 25 states across the country. Of these 112 TDR programs, 47 are in cities, 30 in counties, and 30 in towns; another five programs are multi-jurisdictional, allowing transfers between different municipalities. While most programs are relatively small in scale, some programs have permanently preserved large amounts of land: 29,000 acres in Montgomery County, Maryland; 15,000 acres in the New Jersey Pinelands; and 5,000 acres in Calvert County, Maryland. …

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