Another approach addresses the very difficult task of guiding the direction of land use changes over time. The externalities for a given land use mostly affect nearby plots of land, and these externalities can sometimes be very large (e.g., residential, farming, industrial, wetlands, mining, feedlots, bombing range). Arranging land uses to minimize negative externalities and maximize positive ones has got to be one of the most complex and difficult policy problems facing governments and their planners. This is true, not just because of the many types of land uses and the spatial complexity of their proximities and external effects, but because past and present land uses and property rights create huge obstacles to change, even when changes are sorely needed. Rights and equity issues often add yet one more difficult dimension.

So, exerting effective guidance and control over a dynamic process of land use changes and economic growth is enormously difficult-as evidenced by the many failures where we see jumbled suburban sprawl and mishmash development. When emerging land use conflicts arise, governments cannot just go back to the drawing board, choose a preferred arrangement, and then shuffle factories, farms, and open spaces around to new, more appropriate locations. They often even have trouble guiding the current forces of change that are propelling development in the near future. In this kind of situation, transferable development rights (TDRs) can give governments some leverage to influence the direction of change.

Like the tactics in martial arts where the attacker's momentum is redirected and used by the defender to his own advantage, transferable development rights can take advantage of existing development pressures to promote the protection of farmland, open space, historic areas, or other natural resources. Instead of rearranging land or people, government can create an incentive mechanism to transfer rights. Since property ownership amounts to having a "bundle of rights," a TDR involves a mechanism for transferring one of those rights from one property to another, such as the right to develop the land for residential or industrial uses in one location rather than in another. For example, in order to develop additional land in the development zone, a contractor must purchase an equal-size lot in the conservation zone, which then becomes protected from future development. The government identifies a "sending" zone or district from which these development rights can be transferred, and a "receiving" zone or district where the development rights can be used.

Rather than allow development to proceed helter-skelter, a TDR program can guide development to the receiving district, for example, by permitting higher-density development to occur if the landowner obtains development rights from the sending district. By transferring development rights, landowners in the sending zone give up the right to develop their parcel of land, which may currently be a wetland, open space, or agricultural land. The development incentives are used to achieve more protection in the sending zone.

The beauty of the TDR comes from attracting development to a particular area by making landowners in the receiving district eligible to undertake specific kinds of desired development, but only if they first do something for the community: purchase a development right from the sending district, which removes the threat of development by transferring it away from that district.

References and Links:
Transfer of Development Rights Programs (Cornell University)

Transfer of Development Rights (Pace Law School, Land Use Law Center)

Transfer of Development Rights for Balanced Development (PDF) by Robert Lane.