Extension Communications
3614 Administrative Services Building
Ames, Iowa 50011-3614
(515) 294-9915
PLAIN ECONOMIC SENSE
For release after November 16, 1998
Column 355
Transfer of Development Rights for Farmland Protection
By Mark A. Edelman
Extension Public Policy Economist
Iowa State University Extension to Communities
A key limitation of state programs for Purchase of Development Rights (PDRs) for farmland protection is the amount of public funding required and deciding who should pay the bill. An alternative farmland protection program used in 15 states is called Transfer of Development Rights (TDRs). A key appealing factor of this type of program is that public funding sources are not required.
Maryland has a nationally recognized program for Transfer of Development Rights for protecting farmland from urban development. In a nutshell, a market for development rights is established. County planning boards identify areas in which farmland should be protected and other areas that are suitable for urban development. In order to develop a specified number of units in the urban development area, the developer must purchase the development rights to protect farmland from development in the farmland protection area.
The cost of development is increased. In many situations, the developer passes the costs on to those who purchase property in the urban development area. Because the farmland available for development is limited, previously developed property may appreciate more rapidly. In addition, developers have greater incentives for infill of open lots and redevelopment of central cities and rural communities. However, at the margin, less development is likely to occur because of the higher development costs.
Montgomery County, Maryland, is recognized nationally for its TDR program. About one-third of the county's land is designated in the Rural Density Transfer zone. Within this RDT zone, most farming uses are permitted by right, however, residential development is limited to one dwelling per 25 acres with a minimum lot size of 40,000 square feet. There is a cluster option to allow dwellings on the same parcel to be located adjacent to one another.
Instead of allowing a dwelling to be built on the farmland, the farmer can sell the development rights to a developer who wants to purchase and transfer them to areas of the county designated for urban development. Each TDR unit purchased and transferred from the farmland protection area allows the developer to exceed by one unit the density criteria allowed by zoning in the urban development area. Since counties can control the minimum and maximum densities for various zones, this last tool is used to encourage higher density affordable housing, which in turn may contribute to reducing urban sprawl.
So far, Montgomery County has transferred development rights from 43,343 acres (68 square miles) of the 93,000 acres (145 square miles) designated for farmland protection.
Generally farmers like the TDR program. It is voluntary. The farmer receives a payment that is nearly as large as would have been received under a PDR program. Montgomery County has both programs. The average cost under the Transfer of Development Right program is $2,300 per acre compared to $3,600 per acre under the PDR program. In addition, farmers receive relief from nearly three-fourths of their property tax bill when their development rights are transferred.
In the final analysis, two critical success factors for the Maryland TDR program are (1) access to strong and viable development markets and (2) relative scarcity of farmland. In most states, the TDR program is locally administered. The level of urban pressure statewide in Maryland is quite different from Iowa where there are strong urban development pressures in a few commercial centers with the rest of the state characterized as rural residents and rural communities.
In rural counties, the amount of urban development that would be asked to pay the cost for the TDR program is relatively small in relation to the amount of farmland that would likely be targeted for protection. A statewide program could be used to offset this problem, but that would mean less dollars for TDRs in urban counties where the greatest amount of land is being converted to urban uses. If Iowa's urban counties were to implement TDR programs, a limited amount of strategic farmland resources could be protected. However, if the urban development area became too limited in Iowa's urban counties, unlike Maryland, Iowa developers may have cheaper alternatives with less development pressure in adjacent rural counties.
A final factor of success in the Maryland program echoed by other states with similar PDR and TDR programs is that these programs work best when they are used in combination with effective zoning programs and property tax incentive programs.
Edelman is a professor of economics and an extension public policy specialist at Iowa State University.
ml: isupes
Extension programs are available to all without regard to race, color, national origin, religion, sex, age, or disability.