Historic preservation: Bad for neighborhood diversity

Even while the likelihood of tax reform in 2015 is questionable, historic preservationists are actively lobbying to save the historic preservation tax credit from the chopping block. Currently, developers who renovate historic buildings can receive up to a 20% tax credit, significantly reducing the cost of renovation relative to redevelopment. New York Preservation League President Jay DiLorenzo is leading the effort to increase the historic preservation tax credit to 30% rather than eliminating the break. Those in support of the tax preference argue that  preservation makes neighborhoods more affordable, more walkable, and even more conducive to innovation than neighborhoods in which market incentives guide re-use versus redevelopment incentives. 

recent study by the National Trust for Historic Preservation and the Preservation Green Lab supports these claims:

Findings from the three study cities show that mixing buildings from different vintages—including modern buildings—supports social and cultural activity in commercial and mixed-use zones. Many of the most thriving blocks in the study cities scored high on the diversity of building-age measure. Scale also played an important role. Grid squares with smaller lots and more human-scaled buildings generally scored higher on the performance measures than squares characterized by larger lots and structures. These results support the concept of adding new infill projects of compatible size alongside older buildings.

Preservationists frequently point out that Jane Jacobs favored preserving old buildings with her famous quote:

Cities need old buildings so badly it is probably impossible for vigorous streets and districts to grow without them…. for really new ideas of any kind—no matter how ultimately profitable or otherwise successful some of them might prove to be—there is no leeway for such chancy trial, error and experimentation in the high-overhead economy of new construction. Old ideas can sometimes use new buildings. New ideas must use old buildings.

Boston's North End

Boston’s North End

She favored preservation for both the cheap rent that older and perhaps run down buildings could provide for new businesses  and for the aesthetic qualities and level of density that walk-up buildings in traditional neighborhoods provide. She correctly identifies that a variety of rental rates within neighborhoods and blocks allows for diversity and vibrancy that isn’t possible when rental rates are constant across the buildings in a neighborhood. Preservationists and perhaps Jacobs herself attribute this correlation is to entrepreneurs finding inspiration in old buildings rather than new businesses locating in their cities’ least expensive buildings.

However, both Jacobs and preservationists today fail to acknowledge that the cities and neighborhoods where preservation is strongest have uniformly high rents and low diversity because preservation efforts have led to insufficient building supply. Jacobs contrasted preservation with government-led urban renewal efforts relying on eminent domain to raze and reconstruct entire blocks and neighborhoods. She correctly points out that the resulting new construction would be more expensive than protecting old buildings from eminent domain. But this is a false dichotomy. Market-led redevelopment is very unlikely to result in uniform new construction. More likely, developers will gradually redevelop or renovate parcels as it makes sense to do so, creating blocks and neighborhoods with buildings of varying ages that are affordable to diverse residents and businesses of various types.

Ed Glaeser finds that in New York City, per-square-foot real estate prices have risen an order of magnitude more rapidly than prices outside of these districts from the 1980s to the 2000s. Neighborhoods like New York’s Greenwich Village and Boston’s North End are undeniably charming, but today they’re home to universally expensive housing and retail, hardly the bastions of diversity that Jacobs espoused.

Undoubtedly, local level preservation rules that create historic designations are more distortive than the historic preservation tax credit which marginally encourages developers to renovate rather than redevelop. But incentivizing historic preservation over new construction makes cities more  expensive by reducing supply. Some types of “creative class” businesses might truly prefer to locate in older buildings with character, but old buildings only support diversity of land use to the extent that they provide cheaper space than new construction. Slum clearance is no longer driving high real-estate costs in the most expensive neighborhoods. Historic preservation is now the culprit, ensuring that old buildings go to those wealthy enough to afford them rather than providing inexpensive space for new businesses.

Fictional Scandal at the NYC Landmarks Preservation Commission

Stephen’s post on alleged corruption at the New York City Landmarks Preservation Commission reminded me of a great scene from The Bonfire of the Vanities that I wanted to share here. Tom Wolfe describes a scenario in which a black bishop wants to sell his church’s property in order to raise money for the congregation. The fictional mayor’s assistant explains:

“The bishop wants to sell St. Timothy’s to a developer, on the grounds that the membership is declining, and the church is losing a lot of money, which is true. But the community groups are putting a lot of pressure on the Landmarks Commission to landmark it so that nobody can alter the building even after they buy it.”

“Is this guy honest?” asked the mayor. “Who gets the money if they sell the church?”

“I never heard he wasn’t honest,” said Sheldon. “He’s a learned gentleman of the cloth. He went to Harvard. He could still be greedy, I suppose, but I have no reason to think he is.”

The mayor meets with the bishop to discuss the issue of preserving the church and realizes that Bishop Thomas is an ideal connection to improve his approval with the black community. The mayor agrees to prevent the church from being landmarked and the bishop is overcome with gratitude at the benefit selling the property will provide the congregation. Then the mayor tells the bishop that he wants him to serve on a new “blue-ribbon commission against crime.” When the bishop declines because the commission would conflict with his role in the church, the mayor says not to worry about the church remaining without landmark status:

“Don’t worry about that at all. As I said I didn’t do it for you and I didn’t do it for your church. I did it because I think it’s in the best interest of the city. It’s as simple as that.”

When the bishop leaves, the mayor immediately picks up the phone:

“Get me the Landmarks Commissioner.” Presently there was a low beep-beep, and he picked up the phone and said, “Mort? You know that church, St. Timothy’s? . . . Right . . . Landmark the son of a bitch!”

[Tom Wolfe, (1987) The Bonfire of the Vanities, Chapter 27]

While of course Wolfe’s portrayal of the interaction between city hall and historic preservation may not be realistic, he certainly captures the quid pro quo nature of development and the corruption that some accuse the Landmarks Commission of today.

Most of The Bonfire of the Vanities has little to do with urban development, but Wolfe also offers very vivid descriptions of both the Bronx and Park Avenue in the 1980s, so it might be interesting to many of you if you’ve not yet read it.

New standards for ridiculousness in historic preservation

Because Arlington County, VA is not home to many properties over 100 years old, planning officials have turned their historic preservation efforts to those properties they do have to preserve. The Sun Gazette reports:

The first phase of the effort focused on only a very narrow slice of property types in Arlington: garden apartments, shopping centers and commercial properties more than 50 years old. Leventhal said those types of properties are most vulnerable to redevelopment.

It sounds like preservation efforts in Arlington will be much less restrictive that the often discussed Landmark Designation in New York. However, the new policy will certainly increase uncertainty and cost for redeveloping protected property. And of course the question here is, are strip malls from the 1960s really worth preserving?

Miles Grant at The Green Miles hits the nail on the head with this quote:

But saying properties more than 50 years old are most vulnerable to redevelopment is like saying cars more than 10 years old are most vulnerable to being traded in.

Sure, if classic cars were protected and not allowed to be traded in, we would see more on the road. The trade-off, though, would be that consumers would not be able to choose the cars that best meet their needs.

While Smart Growth supporters and historic preservation activists share the same propensity for top-down control of development, this issue gets to the core of their inherent conflict. The preservation of car-centric development prevents higher density, walkable communities, even when this is what the market demands. While individuals may attempt to embrace both ideologies, protecting mediocre mid-century suburban architecture necessarily comes at the expense of Smart Growth principles.

Illinois Court Rules Against Chicago’s “Vague” Landmark Ordinance

Chicago Real Estate Daily:

An Illinois appellate court has struck down the city of Chicago’s landmarks ordinance, saying it is unconstitutionally vague, putting in jeopardy the city’s protection of more than 250 buildings and 50 historic districts.

Judge James Fitzgerald Smith of the three person Appellate Court wrote, “We believe that the terms ‘value,’ ‘important,’ ‘significant,’ and ‘unique’ are vague, ambiguous, and overly broad”, and thus found the ordinance in violation of the state constitution.

The case involved two plaintiffs and two landmarked districts where attempts to downzone the areas failed before landmarking. However, once the case (including appeals) is over, Chicago’s entire landmarks ordinance would be completely invalidated.

Wow! I am surprised this isn’t making bigger waves in Chicago, and other cities. What should we expect to happen if appeals by The City should fail?

Would property owners rush to tear down their landmarks before The City enacts a new landmarks ordinance?

Per Tribune Architecture critic, Blair Kamin (who calls the ruling wrong-headed, but fielded some good comments):

The laws are based on a 1978 U.S. Supreme Court ruling which stopped the bankrupt Penn Central Railroad’s attempt to pile a 55-story office building atop New York City’s Beaux-Arts Grand Central Terminal. In that ruling, the court held that communities have the right to safeguard significant pieces of property, so long as they do not trample the rights of the properties’ owners.

The key word is “significant,” a word that appears frequently in Chicago’s seven criteria for landmark designation, as in the site of a significant historical event or a building that is the work of a significant architect.

It makes you wonder if there is a more robust solution to landmarks that does less to compromise the property rights of the land owners, and isn’t vulnerable to unforeseen court actions that find flaws in ordinances designed to give more power to the politicians. Perhaps, cities could achieve this through the tried and true use of contracts and easements.

I would propose some sort of easement contract with a city. If a city determines a property to have significant value to the community, the city should be willing to purchase a landmark easement from the property owner at or above market value. If the property owner does not wish to cooperate, the City should be forced to go through the eminent domain process to achieve its preservation easement.

Nonetheless, land owners should be compensated in some way for the intrusion upon their property rights based upon some peoples’ idea of ‘value,’ ‘important,’ ‘significant,’ and ‘unique’. In particular, I find the use of the word “value” peculiar. If there is value to the community, which the owner of the property does not recognize, the community should be willing to compensate the property owner for seizing that value at his expense. A property owner should not be burdened with the use restrictions and added expenses of maintaining a landmark for the benefit of the community without being compensated by the community, who wishes to impose its will upon that individual at no expense to itself.

I hope this incident makes cities re-evaluate their landmark ordinances. Particularly, I get an uneasy feeling about landmarking entire districts. Landmarking districts is a roundabout way to downzone an area, and has the unintentended consequences of banning diversity and density, sucking the potential for vibrancy from the neighborhood.

I’ll certainly keep an eye on this one…

Landmark Incentives

by Sandy Ikeda

The other day I was lecturing to my students about externalities and the Coase Theorem.  One of the examples I used came directly from the our textbook – Heyne, Boettke, & Prychitko’s The Economic Way of Thinking.  It asks what would happen if you tried to declare a large tree in your neighbor’s backyard a landmark in order to prevent her from chopping it down and depriving you of the valuable shade it casts into your backyard.  The answer is that it gives her an incentive to chop the tree down much sooner, before the landmarking can go through.

It turns out that that’s exactly what some landlords in New York have been doing to avoid the severe building constraints imposed by the city’s Landmarks Preservation Law.  Of course they use jackhammers instead of chain saws, but the principle is the same.  According to this front-page article in today’s (Saturday 29 November) The New York Times:

Hours before the sun came up on a cool October morning in 2006, people living near the Dakota Stables on the Upper West Side were suddenly awakened by the sound of a jackhammer.  Soon word spread that a demolition crew was hacking away at the brick cornices of the stables, an 1894 Romanesque Revival building, on Amsterdam Avenue at 77th Street, that once housed horses and carriages but had long served as a parking garage.  In just four days the New York City Landmarks Preservation Commission was to hold a public hearing on pleas dating back 20 years to designate the low-rise building, with its round-arched windows and serpentine ornamentation, as a historic landmark.

(Hat tip to “The Volokh Conspiracy” via Mario Rizzo.)

Now, regulations and private exchanges both have unintended consequences.  The difference is that the latter represent opportunities that when exploited tend to create value (e.g., dirty air and air conditioners, noisy engines and mufflers, fast-food and gyms), whereas the former tend to frustrate the intentions of those who support the regulation (e.g., rent control and housing shortages, minimum wages and unemployment, and industrial bailouts and, well, more industrial bailouts.)

Anyway, about half the class chose not to attend that particular lecture, thereby depriving themselves of much wisdom.  It was the day before the Thanksgiving break, however, so I guess they too were just following their incentives.

Gramercy Park: Private Open Space


photo by flickr user wallyg

Back in the days in the Wild Wild East of private land ownership and limited land-use restrictions, parks were actually created by market forces. The same forces that created and preserved Gramercy Park could easily be used to preserve Historic Landmarks and low density “neighborhood character”.

NY Times – The Guardian of Gramercy Park

Indeed, while a key to Gramercy Park — or, more precisely, an address that entitles one to such a key — is among the most coveted items of New York real estate, under Ms. Harrison’s stewardship, the park has become perhaps the least-used patch of open space in the city. Most days, in nice weather, one would be hard-pressed to find more than a handful of people in the park at once, and few linger.

Gramercy is one of two private parks in New York City (the other, in Queens, is Sunnyside Gardens Park), and a key is required not only to enter, but to leave through a gate in its wraparound wrought-iron fence.

Each of the 63 lots on which the current 39 buildings sit gets two keys, which residents (and guests at the Gramercy Park Hotel) may borrow from their doormen. In addition, residents of those buildings — but only those — may purchase keys for $350 per year; the keys are all but impossible to copy and cost $1,000 to replace.

About 400 people now have keys, but many of them apparently sit unused in junk drawers in the grand foyers in the apartments overlooking the park. One sunny morning last week, as Ms. Harrison chatted with the Rev. Thomas F. Pike, rector of Calvary-St. George’s Church, there were three others in the park: a woman checking her BlackBerry, a custodial worker and a jogger. On a Saturday morning three days later, about two dozen people could be spotted in the park over the course of four hours, and never more than six or eight at a time.

Of course, the park is privately owned land, and the owners have the right to exclude people from using it just as we all have the right to exclude people from our own homes. And they exclude people at their own expense. Imagine how much money the owners would reap if they were to sell the land to a developer to build luxury towers on that precious land…

But, it’s funny how at first it almost feels wrong that a park is kept from public use. It shows us how much we are conditioned to think parks are public goods, and couldn’t effectively be provided by the public sector.

Historic Preservation Can Work in the Marketplace

Houston Strategies – Historic preservation should be a neighborhood choice

“In Houston’s Old Sixth Ward, the city’s first fully protected district, property values have shot up 27 percent in the last year. When given the chance, historic preservation works.”
This is great news! It means there should be absolutely no problem getting voluntary neighborhood buy-in for deed restrictions. If it boosts their values, who could be opposed? Why do we need the government to impose it, when it’s obviously in their own self-interest?

I argued a similar point in comments about the Carroll Gardens’ downzoning. In the case of Historic Preservation, neighbors could voluntarily form a corporation that owns facade easements on their properties. The corporation would protect the historic structures via property rights, as opposed to by mandate. Outsiders could always donate money to the corporation to buy easements on certain historic properties or make repairs. Did you know that facade easement donations by owners of historic buildings are considered tax-deductible contributions?

If a municipality really feels it needs to step in, it could purchase those easements at market price, but it would probably be unnecessary.