Estimates of Transaction Costs in Transfer of Development Rights Programs

Abstract

Problem, research strategy, and findings: Local jurisdictions in 36 US states have implemented Transferable 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 which are 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 impact TDR participation. We estimated the magnitude and distribution of transaction costs incurred by participants in four county-wide TDR programs in Maryland, a TDR pioneer, by interviewing multiple participants in these programs. We found that total transaction costs were high and borne largely by private sector participants, although we excluded initial public-sector costs of establishing the programs. Total transaction costs ranged from 13% to 21% of total TDR costs per transaction. Our findings were 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.

Can transfer of development rights programs save farmland in metropolitan counties?

“…We search through the differences across these three programs from our own analysis of program features in section 2.3 and from the literature such as Pruetz and Standridge (2008) and Shahab, Clinch, and O'Neill (2018a), Shahab Clinch and O'Neill (2018b. TDR programs in the three Maryland counties in general are ineffective in farm preservation, but the programs in Montgomery County and Calvert County outperform that in St. Mary's County.…”

“…Pruetz and Standridge (2008) compared the design features of 20 U.S. TDR programs that have preserved most land and identified several features that contribute to TDR success. More recently, Shahab, Clinch, and O'Neill (2018a) evaluated the transaction costs of different TDR programs in the state of Maryland and attributed varied costs to different program designs. More recently, Shahab, Clinch, and O'Neill (2018a) evaluated the transaction costs of different TDR programs in the state of Maryland and attributed varied costs to different program designs.…”

“…They concluded that demand for bonus development and customized receiving areas are essential to TDR success, strict sending area regulations, few alternatives to TDR to add density, and market incentives are extremely important, while certainty of use, strong public preservation support, simplicity, promotion, and facilitation, and a TDR bank are helpful but not necessarily critical. More recently, Shahab, Clinch, and O'Neill (2018a) evaluated the transaction costs of different TDR programs in the state of Maryland and attributed varied costs to different program designs. Linkous and Chapin (2014) and Linkous (2016) reviewed the change of TDR programs over time in the state of Florida and evaluated their effectiveness in managing growth.…”

Implementation analysis of transfer of development rights for conserving privately owned built heritage in Hong Kong: A transactions costs perspective

“…Many studies have discussed the factors influencing transactions costs in land development (Coggan, Buitelaar, Whitten, & Bennett, 2013;Ducos, Dupraz, & Bonnieux, 2009;Falconer & Saunders, 2002;Nilsson, 2009;Shahab et al, 2018aShahab et al, , 2018bShahab, Clinch, & O'Neill, 2018c;Shahab and Viallon, 2019;Williamson, 1975Williamson, , 1985Williamson, , 1991. Three variables are identified to characterize a transaction by Williamson (1985): the level of transaction-specific investment (specificity), the number of times a transaction occurs, for example, rare or frequent (frequency), the imperfect knowledge and unexpected events (uncertainty).…”

“…The following provides a detailed analysis of transaction attributes in TDR combining the formal and informal system together to develop the theoretical framework. Most of the research concerning TDR programs are based on the practices of U.S. which has formal TDR (Bruening, 2008;Kaplowitz et al, 2008;Machemer & Kaplowitz, 2002;McConnell & Walls, 2009;Shahab et al, 2018aShahab et al, , 2018b, while only a limited number of studies have explored informal aspects of TDR (Chan & Hou, 2015;Chu & Uebegang, 2002;Hou & Chan, 2017). The major elements generating transaction costs in formal and informal TDR systems are similar; the differences are on the degree and the specific issues under each element.…”