Back in July, I went down to Wellington for this year’s New Zealand Association of Economists conference. I really enjoy NZAE – people attend because they’re genuinely excited about sharing their ideas and learning from other people. (Stu Donovan and John Polkinghorne were also there.)

I was presenting a paper on using hedonic analysis of property sales to assess and compare the costs and benefits of planning regulations. The empirical side of the paper was an analysis of the impact of dwelling size, lot size, location, and amenities such as the presence of old buildings on property sale prices.

I used these results to consider the rationale for heritage preservation policies. In doing so, I asked three key questions:

  • Is there evidence of positive spillovers (“externalities”, in economese) associated with old buildings?
  • How large are those spillovers relative to other things that people value, such as living close to the city centre or having more living space?
  • Is a blanket heritage control that limits the demolition of building likely to be optimal? In other words, are the positive spillovers from old buildings large enough to justify making it more difficult to develop in some areas?

The first question is very important. As I discussed the other week, people argue that old buildings should be preserved because they are valuable to their inhabitants. To my mind, that is not a good case for government to get involved. If heritage buildings are mainly valuable to their inhabitants, then those people can probably sort things out without the need for any rules.

But if there are positive spillovers from heritage, there may be a case to regulate. That’s because decisions made by a property owner about whether to demolish a heritage property may not take into account the impacts that their decisions may have on other people.

Many – although certainly not all! – old buildings have aesthetically pleasing exteriors. Simply put, they’re nice to look at. (This may simply reflect a selection process – i.e. people built ugly buildings 100 years ago, but they’ve been demolished.) The presence of these buildings can make an area more attractive for passers-by and other residents.

Central Post Office 1921
Central Post Office – now known as Britomart (Source)

There are a number of ways that we can measure the public value of aesthetically pleasing old buildings. For example, people may visit areas with more old buildings more often and spend more time walking the streets. (Although I caution that there’s a risk of omitted variable bias here, as areas with older buildings also tend to have older, more walkable street networks.) They may spend more money in shops in these area. Or, importantly, they may be willing to pay higher prices to live around old buildings and enjoy their aesthetic characteristics more frequently.

In my paper, I used residential property sale data to identify the existence of positive spillovers from old buildings. I’ll spare you the details of the number-crunching, but basically, I used four years of recent property sales data to determine whether people are willing to pay higher prices to live near old (pre-1940) buildings.

The results suggest that there are modest positive spillovers from old buildings. On average, every additional pre-1940 building in a neighbourhood was associated with a 0.3% increase in the price paid for neighbouring dwellings. Some individual buildings are likely to have stronger spillovers, of course – not all old buildings are created equal! And there are likely to be some spillovers that aren’t captured in residential property prices.

But as heritage policy is often a very local event – people tend to advocate for the preservation of buildings in their suburb or neighbourhood – it’s likely that this measure captures many of the spillovers that matter. Which leads us on to the third question: When is a blanket heritage control likely to be optimal?

The downside of a blanket control is that it will make it more difficult (or even impossible) for people to redevelop sites or make additions to existing homes. My analysis of recent property sales showed that the quantity of floorspace has a strong effect on property values. I estimated that a 10% increase in the size of a dwelling was associated with a 4.8% increase in its sale price, holding all other factors constant.

Based on this result, I asked: How much additional floorspace would be required to fully offset the loss of aesthetic spillovers from neighbouring pre-1940 buildings? In other words, what’s the point at which people might be indifferent between preserving heritage and getting opportunities to intensify their properties?

The results are mapped below. Darker greens and blues indicate areas with larger positive spillovers from old buildings. Yellow colours indicate areas where there are few if any spillovers. Of course, there are likely to be a number of subtleties that I wasn’t able to pick up in the data, such as the quality of heritage properties in different areas.

Change in floorspace required to offset loss of heritage spillovers (Source: Nunns, 2015)

One interesting thing about this map is that it suggests that the value of heritage preservation may be relatively low compared to the value of opportunities for intensification almost everywhere in the city. Even in the most heritage-y parts of Devonport and Ponsonby, it would only take a 30-40% increase in floorspace to fully compensate for the loss of localised spillovers from all the pre-1940 buildings in the neighbourhood. That isn’t an unreasonable possibility given that these areas have standalone houses sitting on crazily expensive land. (And the fact that many of these buildings would be preserved by their owners anyway.)

So what should we make of this?

First, an important caveat: these results are not definitive. They’re based on a piece of quantitative analysis that captures overall trends but omits qualitative aspects of the aesthetics of old buildings. In some areas, it may under-estimate the contribution of individual buildings that are especially attractive. In others, it will over-estimate the magnitude of spillovers, because the old buildings in the area are simply not that flash.

But even taking that caveat into mind, there may be room to optimise heritage preservation by focusing blanket heritage controls in areas where evidence of positive spillovers is strongest. So it’s encouraging to see that Auckland Council is refining its position on heritage controls in the Unitary Plan. (And dispiriting to see the NZ Herald’s alarmist one-sided take on the issue. Pro tip to the editors: articles like this are why I do not buy your newspaper. I spend money on other print media, so you’re missing out.)

It’s also worth remembering that blanket controls aren’t the only way to preserve heritage. Heritage schedules can be used to target protections to individual buildings with notable aesthetic or historic value. And councils can directly fund the preservation of notable buildings by buying up and renovating them. In some cases, these may be a more efficient way of ensuring that we maintain the good bits of the city at a reasonable cost.

What do you think an optimal heritage preservation policy would look like?

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  1. ‘For example, people may visit areas with more old buildings more often and spend more time walking the streets. (Although I caution that there’s a risk of omitted variable bias here, as areas with older buildings also tend to have older, more walkable street networks.)’

    Yes. The look of the buildings are only a small part of the story, yes they’re highly visible, and street and settlement patterns are much less so. But often the things people love about older areas are in fact the result of much else besides the actual form of the buildings;

    1. The location of the area; most older areas are central.
    2. Mixed use; living, working, learning, shopping, playing all jumbled together in one ‘hood all accessible by walking.
    3. Human scale; narrow slow streets with old trees
    4. Public/Private mix: old buildings are on the street not set back and isolated; activated street edges

    All of these features are perfectly possible to design into new places except that the regulations enforcing zoning and those that give priority to ease of driving and parking prevent this. As these conditions are all the conditions of the pre-auto supremacy era. In fact the only thing people complain about older areas that it is often harder to find a carpark. Exactly. Much a choice people; live somewhere beautiful OR somewhere that makes driving and parking easy. Can’t have both: Venice or Houston; and various points in between.

    The old buildings themselves often do have charm and texture and memory, but are almost always renovated so substantially that it is clear that only some of their features are that valued, in particular street appeal.

    1. Furthermore, the places we like to visit often have a comfortable cohesion of architecture so the fear one has is, that the next new building will be a ‘star architects’ monument to his own immortality, which we citizens are forced to live with.

      Not sure how anyone can legislate a safeguard for that though…………………………….!

      1. Warren the politicians’, planners’, and traffic engineers’ regulations for motor-city are the bigger obstacle to the city beautiful than any architect’s desire for fame and glory- you give them too much power!

        1. Yes Patrick – Good comment and I really do agree with you. And I have been a patron of the architectural profession for domestic and commercial construction on some six occasions and have been very satisfied with the outcome each time. In each instance the process has been highly enjoyable. So I am very pro architects but wary of ‘star architects’ i.e. the you must have what I say type.

          Mind you, I like to think I am reasonably aesthetically perceptive. I guess the old adage “An enlightened patron and a supremely talented architect is the best recipe for a beautiful building and by extension, the best built environment”.

          Peter – I find your comment just below very interesting also, because New York skyscrapers slap bang against each other as sometimes happens are not desirable. The Vancouver method of skinny towers on a considerably bigger three/four storey base, thus preserving a continuing street level facade, would appear to be much preferred.

        2. Vancouverism! Unitary Plan rules around the size and shape of buildings in higher-density areas seem to have been influenced by this model – they allow you to build the bottom storeys out to the site boundaries, while requiring setbacks on upper floors.

          When I talk about 3-7 storey buildings, though, I’m thinking more of the built form you get in many European cities. A midrise city, in other words, with mixed uses spread around.

      2. This often seems to be a problem for major construction projects. As soon as you get into the multi-hundred-million dollar range, context seems to become less important than monumentalism. The Guggenheim Helsinki design competition was a great example of how perverse things can get

        I wonder if there’s a counterintuitive policy solution to this. It’s possible that our planning regulations inadvertently create a bias towards major projects. If obtaining consent for developments is costly / complex, it may discourage a lot of smaller-scale development while not serving as a barrier to deeper-pocketed investors.

        In that context, making it really easy to build a lot of smaller blocks of flats (think 3-7 storeys on medium-sized lots) could lead to better overall outcomes. People would build some crap, of course, but because it wouldn’t be 20 storeys high it would be easier to demolish or retrofit it later on. In other words, pursue more of an incremental approach to urban change.

        1. Yes Peter – The 3 to 7 storey European built form is the most pleasing of all and a reason I just love visiting that part of the world as often as possible.

  2. I really enjoy NZAE – people attend because they’re genuinely excited about sharing their ideas and learning from other people. (Stu Donovan and John Polkinghorne were also there.)

    Use of juxtaposition?

  3. I have issues with Auckland Council’s approach to managing cultural and built heritage. And it’s not because I don’t think heritage is worth preserving, but more because I think we’re attempting preserve it using inefficient and costly regulations.

    With regards to cultural heritage, the council’s requirement that private landowners should pay iwi to inspect their property as part of (some) resource consent applications is frankly ridiculous. If cultural heritage is a public good, then Council should pay for such inspections – not the individual landowner.

    With regards to built heritage, if it considered important that certain buildings are preserved, then why not pay owners to preserve these buildings, rather than regulate away someone’s right to develop their property? If Council thinks pre-1940s properties have additional amenity value, for example, then owners of such properties should be paid to preserve their properties, e.g. via rates reductions.

    What do these examples have in common? Well, in both cases Council has decided something is worth preserving. And in both cases, rather than fronting up and covering the cost using public funds raised from rate-payers they’ve instead taken the easy route, i.e.taxing and/or regulating individual landowners. In a way this seems designed to achieve the desired outcome (preserve heritage) but to do so by keeping the costs off Council’s books. Out of sight and out of mind perhaps?

    Poor form. As a community if we want to preserve stuff then we need to front up and stump up with the cash to do so. One way to do this is for Council to establish a community fund, which people could contribute to, which would fund the preservation of cultural and built heritage. In general, we could look for ways to incentivise the preservation of heritage, rather than costly regulations.

    That’s my two cents worth!

    1. Hmmm. That’s an interesting proposal.

      In principle, I’d observe that there are three ways to prevent / manage negative externalities (or, in this case, avoid the loss of positive externalities):

      1. Regulate to prevent people from doing things that have negative externalities

      2. Subsidise people to not do those things

      3. Use Pigouvian taxes (i.e. polluter-pays taxes like a carbon tax) to price in the externality.

      Existing regulations for cultural and built heritage seem to combine (1) and (3) – i.e. they regulate to require people to pay some costs before demolishing / moving earth. You’re proposing moving to the second approach, which is a bit challenging due to Council’s budget constraints.

      I would observe that there is a third potential approach – i.e. apply a Pigouvian tax to demolition of old buildings, and use the proceeds to fund Council purchases of heritage properties.

  4. Ecological values are also a public/intrinsic good. Do you think Council should also pay for an ecological assessment where a proposed development might impact on ecological values, and/or pay a subsidy to a landowner to preserve an area of native bush for the greater good?

    1. Just to elaborate:
      1. Cultural heritage – the problem I have with the current situation is that there is a lack of information; we simply don’t know the location of many of these sites. Hence, when someone buys a property they do so not knowin whether it has cultural heritage. When they subsequently decide to develop their property, then this presents a reasonable opportunity (as part of the resource consent application) for Council to get in there and assess whether cultural heritage exists and, if so, whether it is affected by the proposed development. In a nutshell, I think it’s OK for Council to require cultural assessments are undertaken as part of a resource consent application, but I don’t think it’s OK to lump those costs on the applicant. Primarily because the benefits of identifying (and protecting) sites of cultural heritage accrue to us, the general public.
      2. Built heritage – the main problem here is that many landowners bought their property before the current heritage provisions were formulated. Hence it seems unfair to regulate against their redevelopment without compensating them accordingly. Again, the benefit of the regulations accrue to the public, so some compensation to the private landowner would seem reasonable.

      In terms of ecological assessments, I think the same general principle holds: If it’s in the public interest, then the public should pay. Actually I think that’d get around a lot of problems associated with the current system, whereby applicants pay a consultant to write them a favourable report, which the Council then must decide whether to accept or decline. Better that the people undertaking the assessment report to Council, methinks.

      1. “the problem I have with the current situation is that there is a lack of information; we simply don’t know the location of many of these sites”

        In this context, there’s a quite strong rationale for local governments to gather that information before making policy.

        To that end, I’d note that Auckland Council has put a fair amount of resource into finding out which parts of the city have significant built heritage, and which don’t. Hence their decision to narrow down the list of places covered by blanket demolition controls. I guess it’s down to the hearings panel to decide how optimal the results are.

        My understanding is that something similar has been done with sites and places of significance/value to Mana Whenua – i.e. there are specific locations identified as having potential historic significance. Here’s a map from the Unitary Plan viewer. I don’t know much about archaeology, so I can’t really say whether it’s possible to narrow the list further without moving some earth.

  5. There has been widespread mis-understanding of the pre 1944 demolition controls in the Proposed Unitary Plan which had effect from the date of notification (30/9/1913). These DO NOT prohibit demoltion. What they do is require a heritage assessment before a demolition permit is issued. This is because before such intervention Council was required to automatically grant a demolition permit in every case except for a small number of scheduled buildings – there was simply no discretion to save a heritage gem if it was not already scheduled other than to buy the building (and purchasing every heritage building would be prohibitively expensive). So the pre-44 control was applied in blanket fashion to streets and suburbs known to have significant proportion of heritage buildings, with the full intention to refine the area covered as heritage investigations allowed. Two years on there is a much more refined sense of which streets require protection so Council is working on revised maps that will shrink the blanket control by over 3/4 – and where the research has been done cancel parts of the overlay and replace it with much more specific controls over individual buildings/groups of buildings.

  6. The problem with our built heritage is that once a building is gone it is lost forever, and similarly once a continuous group of houses is compromised by the removal or unsympathetic modification of one or two it begs the question of whether there is much point attempting to save what remains from further degradation. The post also included reference to preservation of heritage as if it was only important to the occupants. This is far too limiting – surely I can admire the collection of million dollar villas in say Herne Bay without ever having been a resident of that suburb, let alone any of its heritage houses. What I believe we should be doing is a form of triage, distinguishing between areas where redevelopment is permitted (subject to rules respecting the neighbours) versus areas where it is actively encouraged while retaining a reasonably representative collection of different types of buildings or enclaves considered worthy of protection.

    1. “The post also included reference to preservation of heritage as if it was only important to the occupants.”

      Not so! My paper measures spillovers from built heritage – i.e. the degree to which old buildings are associated with higher prices for *neighbouring* properties. It is, as far as I know, the first attempt to measure spillovers from old buildings in an NZ city. If you are a proponent of heritage preservation, you should appreciate this paper.

      “The problem with our built heritage is that once a building is gone it is lost forever, and similarly once a continuous group of houses is compromised by the removal or unsympathetic modification of one or two it begs the question of whether there is much point attempting to save what remains from further degradation.”

      I’m nervous about the use of emotive language – e.g. “degradation”, “lost forever”, “compromised” – to describe normal processes of change in the built environment. Things will always be being torn down or built anew.

      The interesting question, to me, is how to enable a virtuous cycle of change. (No change at all will lead to a vicious cycle of rising house prices and social exclusion.) That could include, e.g. urban design reviews for the exterior of buildings, or demolition controls on individual buildings/areas with specific value. But I would argue that it needs to begin with the recognition that change can be a positive thing.

  7. “Pro tip to the editors: articles like this are why I do not buy your newspaper. I spend money on other print media, so you’re missing out.”

    I’m sure they’ve figured out that optimising their content for patronising economists is not their best economic strategy…

    1. I’m young, have disposable income, and like reading things on paper. Seems like I’d be part of the target market for any sane media organisation.

      As to their current strategy, the Herald’s circulation dropped 4.7% last year and their most recent move was to lay off a bunch of senior journalists. Not sure it’s a great one.

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