Making Markets for Development Rights Work: What Determines Demand

Many economists see current land use patterns as inefficient due to various market failures, and planners argue that current patterns do not follow sound planning practice. One policy of interest to both groups is transferable development rights (TDR). TDRs allow the development rights from land that is preserved in an undeveloped state to be transferred to other areas where development can be made denser. This paper addresses one of the greatest difficulties TDR programs face—insufficient demand. We develop a simple theoretical model and estimate a TDR demand function using data from Calvert County, Maryland, one of the only regions where data on individual sales are available. We find that baseline zoning is a critical determinant of TDR demand—demand is high in low-density rural areas but not in the relatively high-density residential areas. We also identify many subdivision characteristics that are significant in explaining TDR use.