Correction: The original article stated that TDRs were used as part of the recently rescinded community facilities district in Black Diamond. TDRs were not involved in the districts.

Editor’s note: This is the first in a three part series looking at the TDR program and its role in land use and development in Southeast King County.

At a time when infrastructure, population density and development are a major concern for cities like Maple Valley and Black Diamond, King County’s Transfer of Development Rights program has the potential to significantly affect future development and growth.

What is it, exactly?

The TDR program is a voluntary system which allows landowners to transfer their development rights to another property.

Basically, the TDR program does two things. First, it protects certain rural property from being developed by sending its development rights over to an urban property, which is then allowed to increase its capacity beyond what it was previously permitted.

According to Darren Greve, King County TDR program manager, the system was first started as a pilot program from 1997-1999.  In 2000 it was officially adopted by the King County Council as a stand-alone program.

“The ultimate goal of our program is to relocate future development growth away from rural, farm, and forest lands and into existing urban areas, including both cities and unincorporated urban county areas using a voluntary and market-based system,” Greve wrote in an email interview.

Although King County’s TDR program is essentially tailored for the county’s urban growth area, Greve said, many similar programs in the state and nation-wide are based on King County’s version due to its success in protecting rural areas and directing urban growth in cities.

Since it was first started, the TDR program has preserved 141,500 acres of rural and resource land in King County, allowing 2,4767 potential dwelling units to be built in an urban area instead of rural.

How it works

If a landowner wants to sell their development rights, they first have to enroll in the county’s TDR program.

To qualify, they must be able to demonstrate the property has certain potential, such as agricultural or forestry. It also has to be able to prove the land would provide some form of public benefit, such as regional trail connectors or wildlife habitat. Once their property is considered qualified to be a “sending site,” the owner then places what is called a “conservation easement” on the property.

A conservation easement legally protects the property from being developed. Once the easement has been placed, the landowner is issued “TDR credits,” which is like a property deed they can sell to any potential buyers.

A landowner or developer who wants to buy or receive a TDR to use in a development project is required to submit a preliminary plat application.

There are restrictions, however. Only rural lands located outside of the King County urban growth area can be considered potential sending sites. Likewise, only urban lands, located within the urban growth area, can be considered potential receiving sites.

There is no fixed or determined price for a TDR, Greve explained, as the price is set by supply and demand.

“The value of the TDR commodity is based on TDR market conditions,” he explained. “That is, the intersection of price at which a developer is willing to buy TDR and the price at which a sending site landowner is willing to sell their TDR(s). In this way interested buyers and sellers can figure out for themselves what the ‘market price’ is for the TDR commodity and negotiate openly with current and up-to-date market information.”

Once the use of TDRs in the development project is approved, the county eliminates the TDRs so they cannot be used again.

Successful TDR programs, Greve wrote, are the ones which “designate their TDR receiving areas in places with a real estate market strong enough for the development community to want to build and use TDR to increase development capacities.”

Benefits

There are various reasons why someone would sell their development rights.

The most obvious is if they wanted to protect their property from development, but, the TDR program also offers a variety of incentives. For those strapped for cash they can sell their development rights — which they might have never intended to use — in exchange for financial compensation, as opposed to selling their land outright, which they are not required to do under the TDR program.

According to Greve, it can also reduce the property tax, depending on how much the TDR is purchased for, although it is not always the case.

“Property taxes may be reduced on a property with a conservation easement because the property’s assessed value may be less since the development potential is removed from the land,” he wrote. “Many of the sending site properties in county’s TDR program are in a “current use” tax status – meaning that they are assessed based on the property’s current use as a forest or farm rather than speculative development potential. Therefore, the conservation easement often times doesn’t have an impact on the property taxes the landowner pays. However, property taxes would likely reduce if and when such properties are taken out of their ‘current use’ taxation status in the future.”

Developers, on the other hand, are able to add additional housing units in their projects. In other words, they are able to increase the square footage, height or number of units on the property up to the maximum number allowed by zoning. After a new policy was implemented in 2008, TDRs now can also help them meet traffic concurrency requirements, according to Greve.

There are, however, some potential downsides to TDRs, which will be explored further in Part II.

Impact

The King County TDR program has heavily affected the areas of growth and development, particularly in cities such as Seattle, Bellevue and Issaquah, where growth has been focused in specifically planned areas, rather than spread out. It has also created areas where future development is an impossibility.

In Seattle, for example, the city used a TDR agreement to protect over 800 acres of rural land surrounding the Cedar River watershed — the city’s water supply — from development. The development rights were then transferred to the Denny Triangle neighborhood to allow for greater population density there.

“All residents of King County, including its cities, benefit from the TDR program, as farm and forestlands are permanently protected from sprawl development and growth is shifted into existing urban areas,” Greve wrote.

The TDR program, Greve added, also has environmental and financial benefits.

“On the financial side this will save the county and taxpayers significant sums by not having to provide remote services to distant exurban development,” he wrote. “On the environmental side, rural open space is permanently protected and forest and farms can continue to provide ecological benefits (e.g. habitat for animals, flood storage, clean water, local food etc.) while preserving rural character and traditional rural economies such as farming and forestry.”

Future of TDRs

With the current recession, however, the TDRs market, much like the housing market, has seen a drop in sales. In turn, this has also negatively affected the amount of financial compensation a sending site landowner will receive.

In June 2010, for example, an individual TDR sold for $15,000. At the height of the housing market in 2006, the average rural TDR sold for $30,000.

“The TDR market is inherently linked to the local and regional real estate markets,” Greve wrote.  “Demand for the TDR commodity (and subsequently its price) oscillates with the real estate markets. So it is not a surprise that with the downturn in the real estate market we have experienced a downturn in the TDR market.”

Greve wrote that the TDR program has begun to show recent signs of buying and selling, but it will take some time before it picks up again.

“Like the real estate market it will be a slow and protracted recovery that may take three to five years before we start to see the volume of TDR transactions like we saw in the years 2004-2007,” he said. “I don’t see the number of TDRs (i.e., the TDR supply) rising very much beyond what it is now until the demand for TDRs rises well beyond the level it is now at.”

Part II will discuss Maple Valley’s TDR program and how exactly it may be used in the Donut Hole and its potential to impact future development in the city. Part III will discuss the use of the TDR program in Black Diamond.