Purchase of Development Rights (PDR) is a program that compensates property owners who agree voluntarily to sell the right to develop their land. These rights include the right to possess, use, modify, develop, lease or sell the land. The right to develop is separated and sold to allow farming continue preserving a natural or cultural feature. Purchase of development rights involves sale of that right while leaving all the remaining rights as before. This program is strictly voluntary and a property owner cannot be forced to participate.
The main reason why more and more farmland and open spaces, within or around an urban area, are converted to other uses is because the current agricultural value associated with land is substantially lower than the value that land has for other types of development. This can be exemplified by considering a piece of land that is generating a net income of $100 per acre per year in agriculture. In order to obtain a fair market value for that parcel in agriculture, income capitalization is used whereby income flow is divided by the interest rate, say 5%. This yields a value of $2,000 per acre in this example. Supposing that this parcel comes under development pressure as a place to build residential structures. A developer may be willing to pay $5,000 an acre for it, which implies that the development value of the parcel would be $3000 per acre. This differential is very unlikely that the parcel will remain under agriculture in future owner is dedicated to keeping the land as it is. However, if PDR program makes an offer of $3,000 an acre to the landowner, then that landowner has the opportunity to realize the economic benefits accrued from the development potential of the land, while having the ability to keep the land as agricultural.
Communities consider farmland preservation programs because of the increase environmental problems that range from loss of wildlife habitat to a decline in water quality in urban and suburban encroachment. Many people are enjoying the aesthetic beauties provided by rural landscapes, which are not incorporated in private markets.
Land use restrictions, including zoning have been widely used to protect agriculture. PDR is also completely voluntary. Under the program, the landowner is not deprived of any of the value of the property. Programs providing tax breaks for farmers, like the agricultural use valuation have not proven effective in keeping land especially at the rural-urban fringe, from being converted from agricultural to nonagricultural uses. This can be blamed squarely on tax breaks received by the landowner, which may be small in comparison with price differentials between development and agricultural land use values.
PDR makes it easier for a farmer to pass the farm on to an heir interested in continuing to farm. Once the development rights have been separated from the land, its value declines to its agricultural value reducing tax liability. However, the cost involved in this program is extremely high and so it is normally funded by taxes.
Establishment a PDR begins at the local level. Membership may be through appointment by elected officials such as county commissioners, and should reflect the makeup of the community, with representatives from agriculture, industry. The board is the one in charge of reviewing applications of landowners wishing to sell development rights.
In July 2001, Michigan Farm Bureau (MFB) signed an agreement
to protect 531 acres from development, Michigan Farm Bureau making their
Kalamazoo County farm the 50th enrolled in Michigan's Purchase of Development
Rights (PDR) program since it was established in 1995. The farm is located
between Kalamazoo and Battle Creek (about 20 miles from each city) within a
short distance of the I-94. More so, the acreage that is placed under PDR
contract is right next to more than 600 acres, which is currently preserved by
American Farmland Trust, which creates a large mass of protected farmland - a unique feature.
Reference:
http://www.loudoun.gov/omagi/pdr/pdrprog.htm
http://www.michiganfarmbureau.com/publications/farmnews/mfn08152001/rights.html