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Abstract
Tradeable development rights (TDRs) are market based instruments that allow a right to
develop a parcel of land to move from one parcel to another.
We examine TDRs as a potential instrument for achieving the economic objective of
allocating development to its highest value use in Victoria. TDRs are examined as a
tool within Victoria’s existing planning system for rural land, which has a number of
objectives. Design considerations for applying TDRs in Victoria include the need to
consider modifying development entitlements from a right to apply (RTA) to a right to
develop (RTD). It will also be important to address potential infrastructure externalities.
Additional challenges include developing a suitable metric, addressing potential
development hotspots and non-quantity development attributes, considering potential
leaks, clarifying distributional impacts, and addressing credible commitment
mechanisms.
We consider the potential for TDRs to contribute to a series of land use outcomes. We
find that using TDRs to protect agricultural does not appear to address underlying
market failures that may contribute to excessive urban sprawl and encroachment on
agricultural land. TDRs offer a potential source of adjustment income, although other
instruments may assist in a more effective and transparent manner. TDRs can be
directed to protecting native vegetation; however, Victoria has existing and emerging
instruments in place to target this objective. Finally, TDRs offer potential for the more
efficient allocation of well specified development rights, which would require
modification of the existing planning framework to accommodate the design
challenges noted above.