Land use planning challenges and tools—tradeable development rights: design considerations

Tradeable development rights (TDRs) are market based instruments that allow a right to develop a parcel of land to move from one parcel to another. We examine TDRs as a potential instrument for achieving the economic objective of allocating development to its highest value use in Victoria. TDRs are examined as a tool within Victoria’s existing planning system for rural land, which has a number of objectives. Design considerations for applying TDRs in Victoria include the need to consider modifying development entitlements from a right to apply (RTA) to a right to develop (RTD). It will also be important to address potential infrastructure externalities. Additional challenges include developing a suitable metric, addressing potential development hotspots and non-quantity development attributes, considering potential leaks, clarifying distributional impacts, and addressing credible commitment mechanisms. We consider the potential for TDRs to contribute to a series of land use outcomes. We find that using TDRs to protect agricultural does not appear to address underlying market failures that may contribute to excessive urban sprawl and encroachment on agricultural land. TDRs offer a potential source of adjustment income, although other instruments may assist in a more effective and transparent manner. TDRs can be directed to protecting native vegetation; however, Victoria has existing and emerging instruments in place to target this objective. Finally, TDRs offer potential for the more efficient allocation of well specified development rights, which would require modification of the existing planning framework to accommodate the design challenges noted above.