LETTING THE MARKET PRESERVE LAND: THE CASE FOR A MARKET‐DRIVEN TRANSFER OF DEVELOPMENT RIGHTS PROGRAM

I. INTRODUCTION The issue of farmland and open space preservation is now decades old and much discussed but, from a practical perspective, still largely unsettled. As development accelerates, urban-fringe jurisdictions feel pressure from farm and homeowners to slow development, and often to take measures that permanently preserve farmland or natural areas. The almost ubiquitous policy response is command-and-control, in this case, zoning. Information requirements make zoning extremely difficult to do well. But of apparently more concern to local planning commissions is the impact of binding restrictions on the value of zoned land. The owners of land restricted to farm use, e.g., feel unjustly deprived of the capital gains their neighbors receive from selling to developers. In some cases the supporters of zoning prevail, and these rent-seeking efforts reduce the net benefits of zoning (Mills, 1989). In others, the rent seeking wears down zoning supporters, the government eases the zoning restrictions, and the potential benefits of land preservation are lost. In short, however efficient the allocation of land, the inequitable distribution of costs and benefits plagues open-space zoning. Some 25 years ago land-use planners discovered a "new tool" for addressing the inequities inherent in open-space zoning: transfer of development rights (TDR). TDR programs grew out of the difficulty of funding purchase of development (PDR) programs (Wolfram, 1981). In a conventional TDR program the zoning authority limits the allowed development density in areas targeted for higher-density development and then sells zoning variances to developers. The revenue goes to purchase development rights in areas zoned for preservation. As the value of the rights is the difference between the land's value in developed and undeveloped uses, the compensation reduces opposition from the owners of land zoned to remain undeveloped. Not surprisingly, the economists who have studied conventional zoning-based TDR programs find little to applaud. Several early papers - Field and Conrad (1975), Mabbs-Zeno (1981), and Barrese (1983), e.g. - conclude that the complex process of regulating land use and brokering the transfer of development rights is costly for public administrators, is unlikely to result in efficient land allocation, and invites strategic behavior by private interests. The experience in areas that have experimented with zoning-based TDR programs comports with economists' predictions: supply and demand conditions for development rights are not what planners expect, leading either to the TDR program languishing or to involved and ad hoc attempts to alter the system until it generates some revenue. Neither situation seems satisfying. Despite its difficulties, interest in TDR programs remains strong. Price (1981) reports that by 1980 ten municipalities and two counties in the United States had implemented TDR programs. Danner (1997) reports that by 1995 over 100 TDR programs were implemented and that "a government TDR program will probably be coming to an area near you soon" (p. 142). For every jurisdiction that implements a TDR program, many more undoubtedly consider it as an option. The interest is understandable: continuing growth in population and income in urban-fringe areas increases the demand for environmental amenities, and neither zoning nor direct purchase of open space or development rights seems an adequate tool to meet the demand. There is, of course, an alternative to a highly administered, zoning-based TDR program that economists were quick to recognize: a marketable development rights (MDR) program. The idea is simple: define and equitably allocate the rights to develop an agreed-upon proportion of land within a jurisdiction, and let the market allocate those rights among landowners. The equitable allocation of rights treats the problems associated with zoning because it spreads the cost of land preservation. …