Transfer of Development Rights (TDR)

Issues Addressed:
Housing Costs Housing Options Infrastructure Sustainable Housing
A drawing of a plot of land. Most of the land is shown in green and planted with trees, with two small houses. It is labeled "Sending Zone: Land owners sell development permissions to preserve open space/agriculture." A smaller area is grayed out and shows many buildings. It is labeled "Receiving Zone: Land owners buy development permissions to increase allowed density."

What is it?

Transfer of Development Rights (TDR) is a zoning tool used to distribute development in an area to the places best suited for development, while letting all property owners recoup the value of development. Within a TDR framework, the owner of land ill-suited for new housing (e.g., where there is a farm or where there are no utilities) could sell development rights to an owner of land more suitable to new housing (e.g., in a developed area with infrastructure access).

Many TDR frameworks establish a “sending zone,” where property owners can sell development rights, and a “receiving zone,” where property owners can buy development rights. In most frameworks, a local government body (like the Planning Board) must approve the sale, and sale is often conditional on the approval of the development itself. In some cases, municipalities will remove the right to actual development in the sending zone, but use TDR to maintain the sending zone landowners’ financial benefits.

In theory conventional zoning and TDR permit the same number of total housing units, just in different places. In practice, TDR can unlock more housing development by moving development capacity from infeasible parcels and parcels with limited infrastructure access to parcels that are more conducive to housing development.

How can it help?

TDR can…

  • Create new housing options in areas with existing infrastructure and amenities.
  • Preserve open space, agricultural, and low-density residential areas.
  • Unlock housing potential from parcels that would otherwise be infeasible or lower capacity.
  • Maintain community character by preventing sprawl development.
  • Help transition from high-density to low-density areas.
  • More evenly distribute the financial benefits of development to open space, agricultural, and low-density residential areas, while also increasing financial benefits for built-out areas.
  • Encourage small and alternative housing types without increasing the overall development in a community.

Getting Started

  1. Recognize and promote TDR’s impact on common master plan goals, such as increased housing options, open space preservation, economic development in targeted areas, and more.
  2. If undertaking a master plan, include adoption of TDR as a recommendation, as well as recommendations for the locations of sending and receiving zones. Ideally, the sending zone will be an area of high conservation value (e.g., community open space, farmland, forested areas, scenic view sheds, historical landmarks, etc.), while the receiving zone should be suitable for accommodating growth (e.g., areas that have existing or planned public utilities). 
  3. Conduct a real estate financial analysis of properties and recent developments in and around your community, in an attempt to place a dollar value on development rights on a per-housing-unit basis. This should consider both the value of development in the sending zone and the value in the receiving zone. Publish your findings as guidance for property owners looking to participate in the TDR scheme.
  4. Audit your community’s existing land use regulations. Identify any changes needed to make TDR-enabled development feasible. For example, allowed housing types, densities, and dimensional rules may need to change to accommodate denser development in the receiving zone.
  5. Conduct a public engagement process to educate property owners and the community generally and determine your community’s goals for a TDR program. Engagement should help determine whether and where sending and receiving zones are located, what kind of development is desired in the receiving zone, and whether TDR are “bankable.”
  6. Draft and adopt legislation that implements TDR. This will require amendments to zoning that:
    1. Allow TDR,
    2. Set sending and receiving zones (if desired),
    3. Set a process for TDR approval, 
    4. Set a procedure for severing development rights from the sending parcel (typically through a deed of transferable development rights) and a procedure for protecting lands with severed development rights (typically through a covenant placed on the deed),
    5. Make any other changes (zoning, subdivision, etc.) that are necessary for TDR-enabled development.
  7. Publicize the TDR option to property owners and developers in the sending and receiving zones.
  8. If TDR are bankable, consider using local funds to purchase development rights to sell later when developments are on the table.

Considerations

  • Adding TDR to zoning will not ensure it is used. There must be demand for TDR-enabled development in the receiving zone, there must be interest in selling development rights in the sending zone, and the value of development rights need to be understood similarly by all parties involved.
  • TDR works best when the value of development rights are predictable. An overly discretionary development approval system can make development rights unpredictable. If implementing TDR, your community should try to add predictability to the system through zoning rules, and if possible, by-right approvals.
  • Bankable TDRs can be a great way to give property owners financial liquidity, make transactions smoother, and add predictability to the system. However, opening up bankable TDRs to the private market could risk making development rights speculative assets, could encourage predatory transactions, and/or title transactions more difficult. If your community wants to make TDRs bankable, you should consider making the municipality or other trusted actor the sole “TDR bank.”
  • In order for this tool to be used, TDR should be more attractive to landowners than conventional practices, such as subdivision of lots. Municipalities should incorporate this tool in a way that ensures the developer can achieve the highest possible benefits in a receiving area. For example, if a developer is able to achieve the same density by obtaining a zoning change, they are less likely to use the TDR tool.  
  • TDR frameworks can face opposition from neighbors of the receiving area who might argue that a TDR will increase noise, traffic, or lead to increased property taxes as a result of added development (whether factual or not). A public engagement process needs to thoroughly discuss TDR’s trade-offs, and engagement should include the community at large.
  • For TDR to be successful, there must be adequate staff capacity to promote, administer, and monitor the program.

State Law

Case Studies

  • Dover, NH TDR
  • Stowe, VT
  • Montgomery County, MD
  • King County, WA
    • Read more

Resources

Related Tools

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Adaptive Reuse