Summary of the New Jersey Highlands Water Protection and Planning Act

• If you already own a lot, you may build a home on it for your own use or that of an immediate family member. This kind of building is exempt from the bill, though not from municipal ordinances otherwise in effect [§30]
• The construction of a single-family home on any pre-existing lot is exempt from provisions of the bill provided that it does not disturb more than one acre or increase impervious surface by a quarter acre or more [§30]
• Your right to reconstruct, modify, and extend your current dwelling is generally protected, with only slight restrictions on reconstruction. Things like decks, garages, driveways, and swimming pools are specifically exempted.
• If you own your own home on a small lot that cannot feasibly be subdivided, it is likely that the value of your home will go up as a result of this bill.
  • WHY? Because your property cannot be developed anyway, you will not lose any development rights. But the rural character of your town will be guaranteed by the bill, making your residential property more desirable to buyers. Your town will not be able to add as much tax base as it could before, but it will also not have to incur large infrastructure costs to accommodate new growth. These factors will tend to increase the value of your home, with the aesthetic benefits probably being the most important.
• You should have some enhanced opportunities for outdoor recreation and contemplation of wildlife, although the mere preservation of open space does not guarantee that it will be maintained or made accessible to the public.

• You should have some enhanced opportunities for outdoor recreation and contemplation of wildlife, although the mere preservation of open space does not guarantee that it will be maintained or made accessible to the public.
• Your local zoning and planning boards will continue to be the ultimate authority over what you can do with your own property and lot. The Highlands Council's recommendations will be advisory, and the new DEP regulations specified under this bill will not apply in your area.
• If you own your own home on a small lot that cannot feasibly be subdivided, the effect of the bill on the value of your home is uncertain. Your local government could decide to create a receiving zone for Highlands development, meaning that more housing units would be built in a portion of your town than are provided for under current zoning. Whether this will be good or bad for your tax bill and property values will depend on a number of factors, including where your home is located relative to the receiving zone (and sending zones for that matter), whether the extra development will be profitable to your community in fiscal terms, whether the new development is well designed, the existing character and function of your town (bedroom community, job center, etc.), and what all the other municipalities in the planning area decide to do under the new regime.

Help! What should I do about all of this uncertainty?

Just do what you would normally do. Be an active participant in your local government on all matters related to land use and specific development projects. Understand, however, that the Highlands bill tries to enforce a regional vision, and you may derive benefits or costs from features of the plan that affect places quite distant from your home.

This means that the standard arguments made in local development hearings, which are based on strictly local--even neighborhood--considerations, might be invalid. For example, if no municipality in the planning area agreed to create receiving zones, housing prices would rise, and the region's economy could suffer. The TDR program would run short of funds, with political repercussions that might affect you at the municipal or county level.

In addition to being a citizen of your neighborhood and your town, think about participating as a citizen of your region, and make decisions on that basis as well. One good way to do that would be to attend meetings of the new Highlands Water Protection and Planning Council. This body should not only be able to articulate regional costs and benefits of the Highlands plan, it has land use powers that will affect you no matter where in the Highlands region you live.

The folks at New Jersey Future, a SmartGrowth advovacy organization, have a similar explanation.

What is a TDR program?

• A TDR program seeks to preserve landowners' asset value by moving the right to build a house from a location where development is prohibited (e.g., for environmental reasons) to a location where development is encouraged.

• Because the total number of houses ultimately built in the larger region does not go down as a result of simply moving the geographic location of the new homes, there should be enough money available overall to compensate landowners in the restricted area for any decline in their land value, without sacrificing the profits of landowners elsewhere.
• The trick is to transfer part of the purchase price for land in a location where development is encouraged to a landowner in a place where development is prohibited.

Hey wait--how can somebody get a portion of the purchase price from the sale of a piece of land they do not own, in a location far from where they do own land? And why should they deserve this?

• In the place where development is encouraged under TDR, zoning is changed to permit more units to be built. This generates the opportunity to earn more money from development than landowners would have received in the absence of the TDR program.
• Because the money from this change in zoning is a windfall to current landowners in the development zone, the state is justified in laying claim to this money and turning it over to people whose development rights were taken away as a result of the environmental regulation.
• If it works properly, nobody is any worse off financially than they would have been in the absence of the combined environmental/TDR program. But the new houses will be built in a less environmentally sensitive location, which is the government's main objective.

Sounds complicated. How does it work in practice?

• Legally, the existing right to build a single house (for example) on one acre in the environmentally-sensitive area is "separated" from the land, meaning that the right to build no longer exists in that location, but can be purchased for use in another location. This involves placing a "deed restriction"* on the property, but also keeping track of the development right, its appraised value, and its original owner so that it can be sold for use elsewhere.
• When a developer wishes to use the right in a town that has agreed to accept additional units, he/she buys the right and the original owner of the right is compensated. It is not necessarily a problem that landowners in the environmental (restricted) area must wait for their money, since they probably would not have sold their land immediately anyway. Because the development right is priced at the time of separation, however, it should presumably earn interest for the seller.
• Often, a bank is set up to keep track of the development rights and accumulated interest, to manage transactions, and possibly to buy rights for sale later. The state has already established a State Transfer of Development Rights Bank; a Pinelands Development Credit Bank exists for that region.

What guarantee does the landowner in the restricted area have that he/she will eventually be compensated?

• Most TDR programs do not include such a guarantee. Under the typical program, the landowner in the environmental zone faces two risks: (1) municipalities in the development zone might be unwilling to permit developers to build at a higher density, meaning that no new rights will be created for developers to buy; (2) even if municipalities are willing to increase densities, developer demand for these rights might not be strong enough to fully compensate landowners in the environmental zone.
• These risks are present in the Highlands bill as well, although recent trends suggest that developer demand will be reasonably strong on the fringes of the Highlands preservation area. Managing these risks effectively in the Highlands will depend on TDR program design and local government decisions that have yet to be finalized.
• Here are two ways that TDR risk might be managed:
  • The TDR bank could divide the proceeds from any individual sale among all of the landowners who severed their rights. That way, all sellers would share the risks equally, getting a small piece of whatever money comes in from developers. In the absence of such a plan, sellers would be compensated in the order in which they entered the program. This order could be regarded as arbitrary, especially if development was prohibited across a large area all at once.
  • Alternatively, the State may simply decide to purchase all of the development rights at their appraised value and hold them in the bank until buyers can be found. Under this plan, the State bears all of the risk arising from a weak market for the rights. Obviously the State would need to dedicate funding for this purpose. Nonprofit conservation organizations may also wish to buy rights to retire or resell. Having a bank makes these schemes easier.

Definitions

• Sending zone: The environmental protection zone where development rights are separated. It is called a sending zone because the development rights are "sent" out of it. In the case of the Highlands bill, the sending zones are likely to be in the preservation area.
• Receiving zone: A zone where a developer buys a right to build more units than currently permitted in the local zoning ordinance. These zones "receive" development rights. In the case of the Highlands bill, the receiving zones are likely to be in the planning area, with a few receiving zones outside the Highlands Region.

*The legal deed to the property is revised so that the right to build a house is removed in perpetuity, even if the entire property is sold.