Estimates of Transaction Costs in Transfer of Development Rights Programs

Abstract

Problem, research strategy, and findings: Local jurisdictions in 36 states have implemented transfer of development rights (TDR) programs to provide a market-based approach to preserving farmlands and open space while redirecting future development to targeted areas. Participation in TDR programs involves transaction costs over and above paying for TDR credits. Planners know little about the magnitude of transaction costs; who, if anyone, incurs a disproportionate share of these costs; or how transaction costs affect TDR participation. In this study we estimate the magnitude and distribution of transaction costs incurred by participants in 4 countywide TDR programs in Maryland, a TDR pioneer, by interviewing multiple participants in these programs. We fi nd that total transaction costs were high and borne largely by private sector participants, although we exclude the initial public sector costs of establishing the programs. Total transaction costs range from 13% to 21% of total TDR costs per transaction. Our findings are based on data reported by participants and may not be scalable; transaction costs, however, might deter landowners from participating in TDR programs, thus thwarting the land use goals of planners.

Takeaway for practice: Planners should work to reduce transaction costs by better constructing TDR programs and providing greater information on TDR sale prices and potential buyers and sellers. Lowering and more fairly distributing transaction costs will make the TDR program a more successful approach to achieving land use goals and addressing the externalities arising from land use markets.

Keywords::

• preservation
• transaction costs
• transfer of development rights

Acknowledgments

We would like to thank the developers, landowners, program administrators, land use attorneys, and brokers who kindly gave their time to be interviewed. We also thank Marie Howland and Casey Dawkins at the University of Maryland for their support during data collection and the anonymous reviewers for their insightful comments and suggestions on the article. The corresponding author is listed first, followed by the other authors in alphabetical order. All omissions and errors remain our own responsibility.

Research Support

This research was supported by the Irish Research Council and the Environmental Protection Agency of Ireland.

Notes

1. This self-reported rate is consistent with official salary data as published in Report of County Employee Salaries, Health Benefits and Pensions—Fiscal Year 2016 (Maryland Association of Counties, 2016).

Additional information

Notes on contributors

Sina Shahab

Sina Shahab ([email protected]) is a research fellow in the School of Architecture, Planning and Environmental Policy at University College Dublin (Ireland).

J. Peter Clinch

J. Peter Clinch ([email protected]) is the Jean Monnet Professor and Chair of Public Policy at the University College Dublin Geary Institute.

Eoin O'Neill

Eoin O'Neill ([email protected]) is a tenured lecturer in environmental policy at University College Dublin.