Markets for Development Rights: Lessons Learned from Three Decades of a TDR Program

Transferable development rights (TDRs) are a market-based approach to land conservation. They allow the development rights from one property to be transferred to another, with the first “sending” property placed under a development restriction or conservation easement and the “receiving” property permitted more dense development than would otherwise be allowed by baseline zoning regulations. This paper summarizes the economics literature on TDRs and describes a long-running program in a county in Maryland, one of the few programs with an active TDR market. It updates previously published results from the program and describes some problems that have arisen in recent years as the program has matured. The paper offers some observations as to why these problems have occurred and suggestions for other communities considering TDR programs.

While conserving open space in urban and suburban environments provides benefits to local residents, such as water purification, flood mitigation, recreational opportunities, and other benefits, preventing land from being developed can be expensive. Zoning regulations impose costs on landowners and government programs that purchase development rights need a reliable source of public funds. A potentially cheaper and more flexible alternative is to use transferable development rights (TDRs).

In a new RFF discussion paper, “Markets for Development Rights: Lessons Learned from Three Decades of a TDR Program,” RFF Research Director and Thomas J. Klutznick Senior Fellow Margaret Walls examines the theory and reality of TDR programs. Her research provides an update on results from the long-standing TDR program in Maryland’s Calvert County, describes some problems that have arisen, and examines hurdles to overcome for other communities considering such programs.

Walls views the Calvert County program as one of the most successful TDR programs in the country. But several factors have created problems in recent years. When the county was under pressure for development and the TDR program was working well, it “doubled down” on the program by tightening density limits countywide but allowing developers to use TDRs to get back to original densities. This move worked in protecting lands from development in some key areas but it significantly increased TDR prices and development costs. This increased payoff from TDRs motivated some manipulation of the system, which worked counter to the program’s goals (although within the rules).

Since the economic recession in 2008, the TDR market has shrunk. Meanwhile, the county continues to purchase a small number of development rights each year and retire them. But their price, which has been above the private market price for the past two years, is too high; the county has had to turn away offers from landowners each year.

As with many market-based approaches to environmental and natural resource problems, “the devil is in the details,” Walls concludes. But with communities increasingly focusing on “green infrastructure” investments for purposes of flood mitigation, water quality improvements, and climate adaptation—and the current fiscal environment limiting budgets in most of those same communities—TDR programs hold promise.