Last week, I took a quick look at the relationship between gentrification and the preservation of historic buildings. People often argue that preserving old buildings as they are is a good way of preserving the culture and community of an area.
This does not seem to be true in practice. For example, regulating to preserve villas in Ponsonby didn’t prevent the suburb from gentrifying. It may have actually contributed to gentrification by making it more difficult to build new housing to serve increased demand for living there. In this context, every lawyer moving into the area inevitably displaced an artist, musician, or working-class family.
So there seems to be some confusion about what exactly is accomplished by historic preservation. And unfortunately, this confusion seems to get worse, not better, when people start using the language of economics to talk about the issue.
To give an example, here’s an article on the topic written by Donovan Rypkema, an internationally recognised consultant on the economics of heritage. (He gave an Auckland Conversations talk here in March 2015.) Rypkema identifies five “economic values” generated by heritage preservation.
I want to focus on the last two “values” that he identifies. On the one hand, he says, we know that old buildings are valuable because they sell for higher prices than similar, newer buildings:
The United States is a country obsessed with property rights. As a result, the area that has been studied most frequently is the effect of historic districts on property values. The most common result? Properties within historic districts appreciate at greater rates than the local market overall, and they appreciate faster than similar non-designated neighborhoods. The worst case is that historic district houses appreciate at rates equivalent to the overall local market.
In England, they’ve found that a pre-1919 house is worth on average 20% more than an equivalent house from a more recent era, and the premium becomes even greater for an earlier historic home. On the commercial side, the Royal Institute of Chartered Surveyors has tracked the rates of return for heritage office buildings for the past 21 years and found listed buildings have consistently outperformed the comparable unlisted buildings. Similar analyses in Canada demonstrated that 1) heritage buildings had performed much better than average in the market place over the last 30 years, 2) there is no evidence that designation reduces property values, and 3) the price of heritage houses was not affected by cyclical downturns in property values.
And on the other hand, he argues that old buildings are valuable because they provide cheap space for start-up businesses:
Small Business Incubation
An underappreciated contribution of historic buildings is their role as natural incubators of small businesses. In America, 85% of all net new jobs are created by firms employing less than 20 people. That ratio is similar in Europe and even greater in the developing world. One of the few costs firms of that size can control is rent. A major contribution to the local economy is the relative affordability of older buildings. It is no accident that the creative, imaginative, start up firm is not located in the office park or the shopping center–they cannot afford the rents there. Historic buildings become natural incubators, usually with no subsidy of any kind.
Pioneer Square in Seattle is one of the great historic commercial neighborhoods in America. The business association asked firms why they chose that neighborhood. The most common answer: it was an historic district. The second most common answer: the lower cost of occupancy.
Now, I hope you see the problem with Rypkema’s argument. Old buildings cannot simultaneously be both cheap and expensive, like some kind of Schrödinger’s historic preservation district. Either the buildings are commanding high prices – and thus attracting well-heeled tenants – or they aren’t.
Due to its internal inconsistency, Rypkema’s argument would seem to imply that there is always a case to preserve any old building. (Or any new building, for that matter.) If the building is expensive: Preserve it, it’s valuable to its owners! If the building is cheap: Preserve it, it’s valuable to its occupants!
But I don’t think that makes sense. As I wrote last week, we should be more interested in the social and economic processes going on within buildings, rather than the buildings themselves. There is an link between buildings and social processes, but it’s not very direct. That’s because an individual building can serve multiple functions over its life-span. An office building that starts life as an A-grade location for a commercial law firm may turn into a B- or C-grade tenancy for small professional service firms or tech start-ups. This can also happen in reverse: a run-down old building can be refurbished to attract A-grade tenants again.
Does this imply that there is no rationale for preserving historic buildings? No – there often is a good argument for historic preservation. Many (but not all) old buildings are attractive and aesthetically pleasing. Their presence in a neighbourhood or a downtown area can have positive “spillovers” to neighbours and passers-by.
If those spillovers are large, which may be true in the case of especially notable buildings or even specific areas with a number of attractive buildings all from a single era, it can be worth regulating to preserve the buildings. But that is a case for heritage preservation that can and should be expressed directly – it’s about the aesthetics of the building and the characteristics of the place! – rather than indirectly, as Rypkema does when talking about job creation and property values and yadda yadda.
What do you think about the economics of heritage preservation?