Transferable development rights: international applicability

How far can rights be transferred?

15 November 2019

Transferable development rights have been used successfully in the USA to prevent significant sites from being developed. How easily could they be adopted elsewhere in the world, ask Richard Grover, Anna Corsi and Ahmet Kindap?

Transferable development rights (TDRs) have been widely used in the USA since the 1960s to conserve historic buildings, landmarks and streetscapes, to protect farmland and rural areas from development, to preserve environmentally sensitive sites, and to improve the quality of urban locales. One study found 239 examples of their use in the USA, with 25 states having adopted legislation that enables TDRs, and another 8 with active programmes.

In recent years several emerging economies have experimented with TDRs, including Brazil, India and Turkey. However, their expansion outside the USA raises questions about their potential uses, the necessary economic and governance context, and how effective they are as a spatial planning tool. In particular, there is the question of whether the conditions that have made them attractive in the USA can be replicated elsewhere.

The concept of TDRs is simple: vulnerable land and buildings in a location designated as the sending area can be protected by persuading owners to accept voluntary restrictions on their ability to carry out legal development that would otherwise damage or destroy these sites and premises. In return, the owners receive credits that can be sold to developers seeking to develop in locations designated as receiving areas. Revenue from the TDR sales compensates owners for the consequential reduction in their site’s value, while developers in the receiving areas can use the credits to construct at a higher density than would otherwise be permitted. In this way, they can recoup the costs of acquiring TDRs. Vulnerable properties are protected by covenants or easements that are binding on future owners.

The fundamental feature of the policy is that the objectives are achieved through voluntary acceptance of restrictions, with no penalty on owners who decline them. The USA tends to use a zoning system of spatial planning, under which owners have the right to carry out any development that accords with the plan; owners therefore have to be compensated for not exercising these rights, rather than applying for consent for development that could be refused. As TDRs do not require public bodies to compensate owners who forgo legitimate rights, they are a financially attractive way of securing public policy objectives. Public bodies do not need to find cash to buy out development rights, but can instead issue TDR credits. Although there are administrative costs, TDR programmes require relatively limited public finance to function.

There is no federal TDR policy in the USA, and the enabling legislation in some states is limited in scope. The result is that TDR schemes vary considerably in aspects such as:

  • how sending and receiving areas are defined;
  • which properties qualify;
  • the conditions with which owners must comply;
  • rates of compensation;
  • whether the policy is supported by a TDR bank – an institution that can create a market in certificates; and
  • whether TDRs form part of a wider portfolio of planning policies.

However, at the heart of any TDR is a series of voluntary acts.

TDRs in action

A number of cities have TDR programmes to protect historic buildings and streetscapes. Washington DC for instance has a programme designed to create a balanced mixture of land uses, such as retaining retail, hotel, arts and entertainment uses; preserving historic buildings; strengthening Chinatown; and expanding residential use. There are height restrictions on development in the downtown area of the city, but there are opportunities to use TDRs in receiving areas just outside it, close enough to attract office tenants. Density bonuses, which their owners can sell, have been used as an alternative to grants for restoring historic buildings and expanding desired uses. The consensus is that the programme has been successful.

New York city has a number of TDR schemes, including special district transfers that protect particular areas and uses rather than individual buildings. One example is the South Street Seaport district, which encompasses the historic port area adjacent to Brooklyn Bridge, where the low-rise and low-density buildings mainly date from after the 1835 fire. Their proximity to Wall Street and views across the East River makes the buildings vulnerable to demolition and redevelopment. The sending areas were historic buildings that were in the process of defaulting on their mortgages, but the commercial banks that held these did accept TDRs in partial satisfaction of the debts. The preservation of the streetscapes and buildings has led to the area becoming popular for recreation.

TDR programmes have also protected rural areas from development in Montgomery County, Maryland, and King County, Washington state. Montgomery County adopted a plan in 1969 to concentrate development in growth corridors, but from 1974 had a zoning plan that permitted residential development at a maximum of 1 unit per 2ha (5 acres); TDRs were used to reverse the resulting loss of farmland. Owners who accept easements restricting development could continue to live on their property and work it as a farm, in effect cashing in part of the equity in their property. In 1980, a new masterplan established an agricultural and forestry reserve and raised the zoning for housing to 1 unit per 10ha (25 acres). This created the problem of how to persuade landowners to give up their rights under the previous policy. TDRs were used to create the incentive to do so.

TDRs are often part of a package of measures to achieve policy objectives, which can include support for agriculture and the use of state and federal parks to protect vulnerable areas. TDR programmes rely on market mechanisms because the certificates only have a monetary value if there is demand from developers, and the cyclical nature of the property market can mean that this dries up. One way to help sustain a market is to restrict the intensity of development in the receiving areas, typically by setting a lower floor-to-area ratio than would be acceptable purely on planning grounds, so developers are thereby compelled to acquire TDRs if they want to build profitable developments.

The objectives of the programme can be undermined if developers can carry out more intensive developments without TDRs – for instance, through density bonuses to support other policies or by securing exemptions. The programmes are not always well targeted, so owners with no realistic prospect of redeveloping their properties can still gain TDRs.

TDRs in the UK?

The UK has a legal system that enables restrictive covenants to be placed on properties, as in the USA, and the governance structures that can monitor and enforce compliance with TDR rules. But it does not have a plan-led system of zoning that confers development rights on owners; rather, owners have to apply for consent to develop and this can be refused. Consequently, unsuitable developments can be prevented without having to pay compensation, and there is no need to bribe owners to stop them destroying valued buildings and countryside with development.

There may be circumstances in which TDRs could work, however. For instance, owners of land that has to be abandoned to the sea could receive TDRs for use in certain coastal cities; or owners of historic commercial properties for which there is little demand in cities such as Liverpool might receive TDRs in return for maintaining them, with developers of neighbouring high-rise schemes having to buy TDRs.

The use of TDRs in the UK and elsewhere raises questions about who precisely bears the direct and indirect expenses for them, such as high development costs in receiving areas, and who benefits financially from the resulting transfers. Potentially, TDRs can have redistributive effects that may or may not be desirable.

Richard Grover is a senior lecturer at Oxford Brookes University. Anna Corsi is senior land administration specialist at the World Bank in Washington DC and Ahmet Kindap is urban development specialist for the bank in Ankara

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