The perpetual conflict between developing land and preserving land compels jurisdictions to find ways to equitably regulate these opposing practices.

Development that is too strictly regulated can lead to stagnation of growth and restrict a landowner's property rights and ability to profit from the sale of land. Development that is not regulated may lead to sprawl, in which the rate of land development far outpaces the population growth in an area.

One mechanism to balance a jurisdiction's need for growth and land preservation is through the Transfer of Development Rights (TDR).

TDR Illustrated
Consider the fictional Township of Oldtown. Oldtown is primarily composed of rural and mostly undeveloped land; the Village of Centerville is located in the center of the township.
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he western half of the township contains some native prairie and picturesque views into the adjoining state park. The eastern half of the township is comprised of gently sloping but poor quality cropland. There are few building lots left in Centerville, and significant development pressure is being placed on the surrounding township. Governing officials would prefer that the city does not expand into the surrounding rural area in a haphazard (and potentially expensive) manner. Moreover, many township and village residents agree that the western portion should be protected from development and that land development should be encouraged in the eastern portion of the township.

The township has a number of choices on how to approach this problem. First, the township can do nothing, and risk the possibility of inefficient sprawl. Second, they could “down zone” the western area - instead of allowing development at a density of 1 unit per 5 acres, they could require a development density of 1 unit per 25 acres. Such a scenario could be viewed as very unfair to landowners in the western area as it would greatly diminish the value of their land. A third alternative is for the township to buy the western land and place it in permanent conservation easement, which is highly unlikely given the prohibitive cost.

TDR is a fourth alternative with which to address this problem, and combines many of the characteristics of the other alternatives. (For the purpose of this article, a “development right” is viewed as just one of the rights that accompany property ownership, along with the right to reside on the land, the right to utilize the land for agricultural practices, the right to extract minerals from the land, etc.)

TDR has been designed to equitably prevent development where it is not desired and encourage development in places where it is desired.

TDR may have a down zoning component; however, the basis of TDR is that the development rights taken away by down zoning or other development restrictions are transferred to developers in areas where development is desired. Thus, TDR designates “sending” areas and “receiving” areas.

A sending area is the area in which development is not desired. The development rights from the sending area are “sent” to the receiving area, the area in which development is desired. To continue with the example above, the western region of Oldtown would be designated the sending area and the eastern region would be designated the receiving area.

The transfer of development rights involves developers in the receiving area to purchase development rights and landowners in the sending area to sell their rights. In exchange for the income derived from the sale of the development rights, the landowner must cede the land permanently into a conservation or agriculture easement. This easement will prevent any future development of the land. The land continues to be privately-owned property; the landowner can continue to use the land as he or she has used it in the past, and can sell the land. However, the easement will remain in effect after the sale of the land.

Many types of areas have been deemed worth preserving in existing TDRs in the United States. Examples of sending areas include: farmland, wetlands, stream corridors, wildlife areas, woodlands, shoreline, open space, historic landmarks, floodplains, watersheds, rural characteristics, scenic vistas, aquifer recharge areas, and even mineral deposits (Carroll County, MD).

For TDR to work, there must be incentives for landowners in the sending areas to sell their development rights and incentives for developers in the receiving areas to purchase those rights. The greatest incentive to a landowner might be the income that the sale of the development rights will provide. An additional incentive to many landowners is the “peace of mind” that their land will be permanently preserved as farmland, open space, etc.

The primary incentive for developers to participate in the TDR program is the density bonus. The density bonus is the amount by which the developer can increase the density of units on the developed land as compared to the density allowed without TDR. Density bonuses of around 100% are common, although the TDR program in Harford County, MD offers a 900% density bonus. The density bonus is coupled to the transfer ratio, which is the ratio of development rights obtained by the developer to the number of development rights sent by the landowner. Thus, a transfer ratio of 5:1 infers that for each development right sold by a landowner in the sending area, five development rights are obtained by the developer in the receiving area. Typical values of transfer ratios range from 1:1 to 10:1, although higher ratios are used in some cases.

Benefits of TDR
In theory, there are many benefits to TDR. Perhaps most importantly, TDR offers a mechanism for balancing preservation of certain areas with increased densification of other areas. TDR is attractive to areas with high development pressure, as it offers a way of selectively encouraging and discouraging development. When properly designed, TDR can require minimal public funding. Moreover, it provides an obvious benefit to the farmer or rancher who wants to continue using the land for agricultural purposes or to preserve the rural nature of the land. In many instances, community residents and community leaders also want to preserve some of the traditional land uses instead of seeing it all be altered and developed.

Success Stories
TDR has worked well in small and large jurisdictions, townships and counties, and red states and blue states! TDRs are more prevalent on the coasts as shown in the figure.

The TDR program for Montgomery County (MD) is a “poster child” for a successful TDR program. Montgomery County abuts Washington, D.C. to the north, and is under extreme development pressure from the district. However, the county also has a longstanding agricultural heritage that the county greatly wants to preserve. TDR has provided a means of preserving this agricultural land in an equitable fashion. As of June 2004, 29% of the county's land is still in agriculture or open space, and 65% of that agricultural and open space area is in perpetual easement, accounting for 60,000 acres; 43,000 of those acres have been preserved directly through TDR.

The Boulder County (CO) TDR program was adopted in 1995 and designed to preserve open space. Land is transferred from the county to incorporated cities; this inter-jurisdictional transfer is rare among TDR programs. Currently, more than 10,000 acres have been placed in conservation easements as a result of the TDR program. The Boulder TDR program allows sending areas to send two development rights per 35 acres. Sending areas are only allowed to develop one unit per 70 acres. For example, an 87.5-acre site would generate five development rights; all five could be transferred or one of the development rights could be used to build on site while the remaining four development rights could be transferred. Development rights are valued at between $20,000 and $50,000 apiece.

The New Jersey Pinelands Commission oversees a TDR program for the New Jersey Pinelands. The Pinelands represent 22% by area of the state, and comprise an important ecological area, overlying the Cohansey aquifer and home to a wide variety of species, including 39 threatened or endangered species. This program has a transfer ratio of 4:1. Densities in the receiving areas can be as high as 12 units/acre (as compared to 0.5 units/acre without purchase of the Pineland Development Credits). The commission predicts a demand of 46,000 credits in the receiving areas, and a supply of development credits able to generate only 24,400 credits; this disparity is intended to create a strong demand for the development credits.

A large-scale community development project in the Atlanta area that utilized TDR was featured on the cover of the April issue of Land Development Today. Developers, planners, and community leaders in the Chatahoochie Hill Country Conservancy worked with Fulton County government officials, as well as many other local, regional, and state officials, to incorporate TDRs in a three-county 65,000-acre planning and development project.

Incorporating TDR
When incorporating TDR, planners must consider a few requirements. First, TDR must be legally defensible. Those seeking to incorporate a TDR program today have the benefit of adapting a large number of models that have successfully withstood legal challenges. Second, and perhaps most obvious, the region must have significant undeveloped areas that are worth protecting and areas for which
significant development is likely and desirable.

In addition to these requirements, there are several other factors that will impact the success of the TDR program. First, the program must be “calibrated,” in the sense that the supply and demand of development rights will be balanced. The market should not be flooded with development rights for sale, but there must be an adequate supply to make the purchase of the development rights profitable and efficient.

Also, the purchase price of the development rights cannot be too high as compared to the profits to be obtained by the developer for purchasing the rights; indeed, there must be proper incentives for both senders and receivers.
Moreover, there must be commitment by zoning boards to stick with TDR and not grant density variances without the use of TDR. Other characteristics of successful programs are that they are simple and have been supported with adequate and effective public education.

Finally, the TDR should be in complete harmony with the jurisdiction's Comprehensive Plan.

Criticisms and Challenges
At the far extreme, TDR has been ridiculed as a tool dreamed up in think tanks and academic ivory towers that cannot work in the real world. This criticism appears to be countered by the success of several TDR programs, where success is not measured by the total number of acres conserved, but by the ability to meet the project's original goals.

This is not to say that all TDR programs have been successful, and the failure of some may be partly due to planners and consultants who did not take into account the real-world challenges specific to their jurisdiction. The most common cause of failure may be that unsuccessful TDR programs have not paid attention to the fundamental laws of supply and demand; ideally, the supply of development rights will be slightly less or nearly equal to the demand. Thus, defining the sending and receiving areas requires a strong understanding of the local housing market, and the “calibration” of the TDR program may be a complicated process.

There are other criticisms of TDR. TDR has been criticized because in some cases, it is perceived as a tool to help the “rich get richer” - wealthy people who own large estates are paid to not develop their land, when they never had any intention of doing so.

Also, some have noted that even successful TDR programs often do not provide true equity, in that the sale of the development rights does not equal the potential profits of developing the land. Another criticism is that TDR is often sold to the public as requiring minimal financial support, and has ended up requiring significant administrative oversight and related costs.

Finally, there have been several legal challenges to TDR, but thus far, they have not had a significant negative impact on the use of the TDR program.

Summary
TDR programs are responsible for the placement of an increasing quantity of acreage in easements that will restrict development in perpetuity. TDR programs have accomplished this, not by eliminating growth, but by selecting where growth should and should not occur. Landowners whose land cannot be developed are compensated for the loss of their development rights. TDR programs will not work for every situation, but their dramatic success in certain instances should encourage planners and developers to study more closely the potential benefits.

Other Resources
“Beyond Takings and Givings: Saving Natural Areas, Farmland and Historic Landmarks with Transfer of Development Rights and Density Transfer” by Rick Pruetz.

“TDRs and Other Market-Based Land Mechanisms: How They Work and Their Role in Shaping Metropolitan Growth” by William Fulton, Jan Mazurek, Rick Pruetz, and Chris Williamson.  SLDT