Friday, November 11, 2005

De Tocqueville in Aycock

I argued in my previous post that good preservation can be good economics; last night my neighbors and I heard evidence of that which almost stunned even me, a true believer.

Bill Christian of William Christian & Associates presented the results of a market study of our neighborhood which they performed as a part of the Summit Avenue Corridor Study. The study area included about 1,000 acres with the Aycock Historic District at its center.

Amid lots of other good news, Bill reported that residential real estate in the study area had appreciated 53% in the last decade, which is twice the rate for the city of Greensboro as a whole.
I'm pretty sure that the rate in the historic district itself is higher than 53%. A neighbor who has been planning to sell his house and retire to the country told me that he was putting off his plans because his own research shows that the historic houses are appreciating at about 10% a year. Part of that increase is driven by renovation investments that my neighbors are making.

I know it's counterintuitive to many free-marketers (including me) that an intrusive regulatory mechanism like the Historic District Design Guidelines should actually encourage investment -- but facts is facts. I don't care if you're Milton Friedman: the data here and elsewhere show that that's what's happening.

But there's something else at work as well. Alexis de Tocqueville, the 19th-century Frenchman who wrote about American democracy, admired Americans' peculiar tendency to form small associations, though more recent writers have noted the waning of tendency.

I attribute a good deal of the the economic strength in our area, which, according to Bill Christian, includes strong employment, rising incomes, and increasing demand for high-quality retail, to the activity of our small-scale associations. Groups like the Summit / Bessemer Business Association and my own neighborhood association have worked hard to focus city services and resources on our area, and obviously it's working.

Alexis is smiling on us.


Anonymous said...

Do you have a more detailed post to the statistics that they used? I guess one reason why I am a bit skeptical (hopefully for you I'm wrong!) is that we ran a study here in Chicago of the comparative appreciation values of homes in our historic districts vs. non-landmarked, and the non-landmarked areas outpaced the appreciation of the landmarked areas on the order of 10% a year or more. Given the very high cost of single family homes in the city (in the 750,000-4 million plus range on standard city lots) a 10% difference in annual appreciation rate is a huge value in terms of lost appreciation if you are landmarked.

I also saw a similar study done in Denver, where it showed that the historic districts lagged behind the non-landmarked areas in terms of market cycle. Thus, while it appeared that there was some market advantage (5%) to living in the landmarked areas, that was true only when the "newer" areas were heading into a mild decline; when you went back a couple of years later and added in the next few rounds of comparative housing numbers, it turned out that the market had rebounded faster in the "newer" areas, and the landmarked areas were further behind.

I'm also curious about whether the overall number of historic areas impacts market value. As in, if you have one or two areas, then the limited supply would drive the price higher, given a fixed number of people interested in preservation; the more you landmark, then the supply is greater, so the price premium of landmarked homes evaporates.

Similarly, if the average home being built on lots "new" is rather modest in size (either by virtue of your market or zoning restrictions), then I can see where landmarked homes might offer more bang for your buck and give a price premium. But in larger urban areas, like NYC or Chicago, the price point differential between the "best value" for the property would discourage new construction. For example, would I spend $700K on a lot with a 1500 SF vintage worker's cottage with 2 BR and 1 bathroom, or would I invest an additional 500K to build a new 5 BR 4 Bath single family home on that lot that would sell on the market for $2 million?

I'm just trying to find ways to correlate the data to give a more realistic model on how landmarking impacts housing prices.

David Wharton said...

I don't have a breakdown of the data from the most recent market study, but I'm going to ask for it.

Greensboro's historic districts don't have "landmark" status; that's a higher level of protection and restriction. We have three locally-designated historic districts, and 11 that are listed on the National Register of Historic Places.

Listing on the National Register qualifies many properties for federal and (in many states) preservation tax credits while still allowing for a good deal of flexibility in renovation.

It's an economic development tool that can work in a lot of situations, but, as you say, it has to be carefully considered. When well used, it usually helps property values to rise (sometimes at a faster rate than newer properties), and nearly always halts economic decline, according to Donovan Rypkema.

You can find a number of studies here.