The Economics of Transferring Development in the New Jersey Highlands

Stretching from northwestern Connecticut across the Lower Hudson Valley into northern New Jersey to eastern Pennsylvania, the Appalachian Highlands is a source of clean drinking water, wildlife habitat, natural recreation opportunities, and a scenic expanse rivaling the nation’s most valuable landscapes. This 3.5 million acre greenbelt serves the nations most densely populated metropolitan region, providing irreplaceable and invaluable wildlife habitat to a region where open space is increasingly subject to development pressures. A recent regional USDA Forest Service study found that 5,000 acres of forests, farmlands, wetlands, and grasslands in the Highlands of New York and New Jersey are lost to development each year.

In 2003, the State of New Jersey moved aggressively to address the preservation of the 1,250 square mile region that makes up the New Jersey Highlands. This region lies within portions of seven New Jersey counties – Bergen, Hunterdon, Morris, Passaic, Somerset, Sussex, and Warren – including eighty-eight municipalities that stretch from Ringwood in the northeast to Phillipsburg in the southwest. In September 2003, New Jersey’s Highlands Task Force made recommendations that led to the adoption of the Highlands Water Protection and Planning Act in 2005, which established the Highlands Water Protection and Planning Council (Highlands Council), a regional entity with state and local participation charged with ​“carrying out the provisions of the Act, including the development of a Regional Master Plan for the Highlands Region.”

The primary goal of the Regional Master Plan is ​“to protect and enhance the significant values of the resources” in the Highlands region by protecting critical environmental areas, protecting water quality, and determining appropriate land use patterns for areas within the Highlands. Open space acquisition – an increasingly popular tool for the outright purchase of land and development rights – cannot be the sole method for the preservation of the Highlands in their entirety as there is simply not enough money. New Jersey’s Highlands land acquisition funds through fiscal year 2009 are estimated to be $450 million. Yet with an estimated price of $6,200 per acre in the New Jersey Highlands, the cost to acquire the 300,000 acres identified as critical treasures by the Highlands Coalition would total nearly $2 billion – leaving a funding gap of $1.45 billion over the next five years. If we assume a comparable amount of new public acquisition funds for the 2010-2014 period, that still leaves a funding gap of almost $1 billion.

As the price of acquisition rises and as there is the need to ensure ​“no-build” areas without making them vulnerable to ​“takings” claims, the usefulness of a state mandated Transfer of Development Rights (TDR) program becomes apparent. A well-executed TDR program could potentially fill a funding gap of such magnitude, while preserving critical natural resource areas in the New Jersey Highlands and helping communities to accommodate growth where appropriate. The Highlands Council, in accordance with the provisions of the Act, is developing a TDR program to help achieve the goal of preserving New Jersey’s Highlands.

The Highlands Council has taken crucial steps towards understanding the dynamics of land markets in the Highlands and how a TDR program would work by seeking guidance from state and local officials, the development and conservation community, and property owners. One of the biggest challenges in enacting a TDR program is that while simple in concept, its implementation often requires the navigation of a complex set of technical, legal and institutional hurdles, which may vary between programs. All of these factors make TDR difficult to understand.

This report aims to provide a clearer understanding of TDR – citing other successful TDR programs in the Northeast – and begin the discussion about its potential role in preserving the Highlands. The research put forth here – conducted jointly by Regional Plan Association and Environmental Defense – examines the implications of recent residential and commercial real estate sales transactions for the revenue generation potential of a New Jersey Highlands Transfer of Development Rights program. The intention is to highlight the total number of conservation dollars that could be generated for land acquisition through a successful TDR program.