4.4. SR 11-08-2004 - Laserfiche WebLink

Home Browse Search

Purchase of Development Rights, CDFS-1263-98 Page 2 of5 guarantee is achieved to ensure that the parcel will remain agricultural, or as open (green) space forever. This is because the agency involved retires the development rights upon purchase. The deed restriction may also be referred to as a conservation easement, or, since most PDR programs are designed to preserve agricultural use, an agricultural conservation easement (see OSU Extension Fact Sheet CDFS 1261-98, Conservation Easements). As a result, PDR programs are occasionally called PACE programs (purchase of agricultural conservation easements). How is the price of the development right determined? The principal reason that more and more farmland and open space has been converted to other uses is because in most areas at the rural urban fringe, the current agricultural value associated with land is substantially lower than the value that land has for development. For example, consider a piece of land that generates a net income of $1 00 per acre per year in agriculture. This amount is typical of much farmland in the U.S. To obtain a fair market value for that parcel in agriculture, we simply divide that annual income flow by the interest rate, say 5%. This procedure, called income capitalization, yields a value of $2,000 per acre in this example. Now suppose that this parcel comes under development pressure as a place to build housing or some type of retail establishment A developer may be willing to pay $5,000 an acre for it. In this case the development value of the parcel would be $3,000 per acre, simply the difference between the overall market value and the agricultural value. With this type of differential, it is very unlikely that the parcel will remain in agriculture in the future, even if the current owner is dedicated to keeping the land as it is. If the local agency in charge of operating the 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 ftom the development potential of the land., while having the ability to keep the land as agricultural. At any time after selling the development rights, the landowner may sell the property itself, lease it, or pass it on to heirs with the deed restriction attached. This is a significant change ftom the situation that farmers usually face as being "cash poor - land rich" and limited to the option of selling the land for development versus owning a very valuable piece of property while realizing none of the fmancial benefits. Why should a community consider farmland preservation programs? If, as stated above, it is primarily market forces which are driving land out of agricultural and open space uses, then it is only natural to ask, why interfere with this process? Ifland achieves its "highest and best use" only when developed., should this not be allowed to happen? Why not allow the ftee market in real estate to determine land use? Studies have shown that many U.S. citizens are deeply concerned about the loss offarmland and open space. Many are concerned that increasing urban and suburban encroachment will lead to a host of environmental problems, ranging ftom loss of wildlife habitat to a decline in water quality. Also, many people enjoy the aesthetic beauty and sense of place that rural landscapes provide. The provision of environmental and aesthetic amenities is typically not incorporated into the values of private markets. There is simply no way that most landowners can achieve fmancial rewards for providing these types of "public goods." Finally, some Americans are concerned that the nation's future capacity to produce its own food and fiber, and thus national security, will be compromised if the trends in loss of farmland and open space are not slowed down or stopped. There are other economic arguments for farmland protection programs. An enormous amount of http://ohioline.osu.edulcd-fact/1263.html 11/2/2004