Wednesday, May 25, 2011

Making—or Picking—Winners: Evidence of Internal and External Price Effects in Historic Preservation Policies
Abstract: This article measures the impacts of historic preservation regulations on property values inside and outside of officially designated historic districts. The analysis relies on a model of historic designation to control for the tendency to designate higher-quality properties. An instrumental variables model using rich data on historic significance corrects for this bias. The results for Chicago during the 1990s indicate that price impacts from designation inside a landmark district vary considerably across homes inside the districts. Controlling for extant historic quality, which the market values positively, restrictions apparently have negative price effects on average both within and outside districts.
An April 2009 working paper available at noted that:

OLS results suggest large price premiums (approximately 25%) for homes in preserved districts. (The premium rises to 60% in a totally unconditional model where only DISTRICT is included and all other hedonic attributes are omitted.)
TSLS estimation indicated that the effect of being included in a historic district on sales price is negative 19% (with a 95% confidence interval ranging from -29% to -7%). The large district effect likely reflects several forces. On the one hand, inclusion in a historic district restricts redevelopment options of owners (and buyers), which should lower the value of the property. On the other hand, district designation may offer many benefits, like tax benefits and possibly a kind of certification of (or signal for) the property’s cachet. For attached housing in Chicago, at least, the tax benefits are outweighed by the restrictions on renovation. The cachet effects also appear minimal given the model with excellent controls for historical quality. Buildings with names in the CHRS sell for a 6% premium on top of a 5-8% premium for being in the CHRS. Furthermore, the stability that district designation brings to the neighborhood’s overall character (in terms of the types of land uses and buildings’ external appearance) may be seen as disamenities by buyers in districts. Homes in districts may relatively lack access to modern urban conveniences like shopping, parking, and other mixed uses.
Every 10% of the block group occupied by a district predicts a 2% increase in sale price for all homes in that block group.
The effects of designation on nearby properties are shown to be statistically significant and substantively important.... negative spillovers can be economically important; condo and townhome prices positively
correlate with landmark density.  As a very crude estimate, ... assuming that the sample of sales is representative of Chicago’s housing, removing all landmark buildings would lower home values by $263 on average (winners gain $14,320 on average while losers lose $4,899 on average and greatly outnumber the winners).  Similarly, removing all districts would lower home values by $45 on average (winners gain $59,203 average while losers lose $10,804 on average and again greatly outnumber the winners). Seen in this redistributive light, the historic preservation policy appears to concentrate the harms of designation while spreading the gains widely. The combined effect of landmark buildings and districts shown here has a small net positive effect ($309 is roughly 0.2% of mean home value). This net effect masks how roughly 7% of the units would gain by the absence of landmarks by 13% of their property value, but they are outnumbered by 4:1 by those whose home values would suffer without the landmarks by 4%. Large values are at stake for the 35% of the units that are either winners or losers in Chicago.

The study also reports coefficients for parking, parking spot, waterfront, distance to the Central Business District, distance to Lake Michigan, distance to water, distance to Chicago Transit Authority (CTA) station and distance to a park.

by Douglas S. Noonan 1 and Douglas J. Krupka 2
1. School of Public Policy, Georgia Institute of Technology, Atlanta, GA 30332 or
2. Institute for Research on Labor, Employment and the Economy (IRLEE) and Ford School of Public Policy, University of Michigan, Ann Arbor, MI 48109-1220 and IZA (Institute for the Study of Labor), Bonn, Germany, D-53072. Doug Krupka passed away on June 23, 2010. He will be missed.
Real Estate Economics via Wiley Online Library Volume 39, Issue 2; Summer 2011, article first published online March 1, 2011; Pages 379–407,
American Real Estate and Urban Economics Association
DOI: 10.1111/j.1540-6229.2010.00293.x

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