Arguing for Preservation as an Economic Development Strategy

by Letters 4 the Damned

There is strong debate regarding historic preservation as an economic development strategy. While it seems common sense that the rehabilitation and land marking of historic homes would improve the quality of life in a neighborhood, some argue that the methods utilized to measure this are imperfect or largely flawed. The arguments against how these numbers are obtained are sound, reasonable, and therefore prone to changing opinions. Due to this, proponents of historic preservation should be aware of these arguments and prepared to argue against them whether through direct rebuttal or the use of related information that shows an opposing relationship. The current methodologies utilized and in question are as follows: basic cost studies, economic impact studies, regression analyses, state-preference studies, and case studies. While the methods seem complicated because of their economic nature a basic understanding is essential to countering arguments that are not pro-preservation. The arguments against preservation as an economic development strategy are highly specific in nature but strongly grounded in realistic application and therefore rather convincing. While studies vary as to these specifics, commonly assessed themes do occur and  “included in nearly all of them is an effort to measure [the economic] impact in four areas: The creation of jobs and household income from the rehabilitation process itself; the impact of heritage tourism; the impact on property values stemming from the protections of a local historic district; and economic development indicators from preservation-based downtown revitalization program[s] such as Main Street.” (Rypkema, Cheong, Mason, 15)

Scientifically speaking there are two ways to gather and assess information, from a qualitative or quantitative perspective. One of the major concerns in the academic field is the validity of qualitative data. Since historic preservation offers both private and public goods and because it is often difficult to quantitatively measure public benefits from historic preservation, qualitative analysis such as survey research becomes necessary to aid in the process. Most commonly, qualitative data is utilized to aid in measuring these priceless or public goods while economic equations and theories help to approximate the quantitative value. However, both economic and qualitative analyses are susceptible to uncertainty. This leaves historic preservation proponents open to attack and although it’s economic results are mostly positive in nature, small uncertainties can swing a public debate. The preservationist must remain thorough, concise, and factual in response. The aim of this paper is to outline the more common arguments for and against preservation in an attempt to aid or guide the pro-preservationist in acquiring public and political support. More common arguments to present in favor of preservation are the economics of individual historic preservation projects and their effects on nearby property values and local or regional economic markets.

Randall Mason, a professor of planning and historic preservation at the University of Pennsylvania writes, “There is broad agreement that the benefits of historic preservation outweigh the costs. More specifically, the economic costs of preservation are outweighed by the benefits-both economic and cultural-of a robust historic preservation sector.” (Mason, 5) A common found result of individual historic projects is that “under certain conditions” preservation projects are “comparable economically to projects involving new construction.”(Mason, 5) Donovan Rypkema from PlaceEconomics in D.C. was responsible for proving that new construction is not less expensive than rehabilitation/preservation or vice versa. Rypkema’s work in large provides a layout of the conditions when rehabilitation is comparable to new construction and can provide a solid argument for pro-preservationists when advocating projects that fall under these conditions outlined by Rypkema. Through the use of Rypkema’s pro forma calculations a preservationist can get an idea of approximately just how beneficial individual projects can be. Variables in these equations consider “existing and proposed public subsidies, such as tax deductions, credits, or abatements” as well as cost benefit analysis. (Mason, 6) Economists also provide much literature that supports the land marking and regulation of individual parcels in relation to property values.

The large majority of economic studies conclude that the value of residential parcels is increased due to being designated a historic landmark. A 1993 study in Canada by Rypkema strongly supports this conclusion citing that “In every heritage district designated in Canada in the last 20 years, property values have risen despite the fact that development potential has been reduced.” Furthermore in NYC, NY an independent budget office concluded that there was a “significant price premium associated with inclusion [of a property] in an historic district.”(as cited in New York City Independent Budget Office 2003, p.2) In other studies historic designation has been found to increase property value from 5-20 percent. The small minority of studies that did not support this argument showed no evidence on the contrary, in fact, they were mostly just inconclusive. In summary, historic designation increases property values especially in regards to residential buildings and this in turn undoubtedly has a positive effect on economic development at the local level. Though designation of residential buildings and areas is proven effective, it is far from the only positive effect of preservation. In order to examine preservation specifically as an economic development tool for local and regional economies, economic impact studies become quite helpful.

Economic impact studies assist in answering several questions. One of these more common questions is, does preservation yield fiscal benefits for the public sector? Majority of opinion is that it does positively impact the economy as a whole. These effects are not only positive on a direct basis but yield positive indirect benefits as well, rebounding through the economy like Shaquille O’Neal at a Lakers game. This multiplier effect caused by preservation exceeds several other sectors that contribute to public benefit. By comparing equal investment across different sectors to the fiscal benefit of preservation, preservation exceeded the majority of other major sectors including book publishing, pharmaceutical production, and electrical component production. Whether the economic benefit was measured by employment, income, or tax revenue, preservation came out on top in all of the above areas. The following table illustrates the results of the study performed by urban planning academia Listokin, Listokin and Lahr in 1998.

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Social scientists in Colorado, Florida, New Jersey, and Maryland all came to a similar conclusion. Benefits range from 20,000 plus new jobs in Colorado to a 1:2 dollar return ratio for Florida for each grant dollar invested towards preservation. Furthermore the federal Main Street program utilized in Florida resulted in a staggering 10:1 return in state revenue. The Main Street program, which began in the early 80’s, has assisted around 1,700 communities since it’s inception totaling 17 billion in reinvestment as well as hundreds of thousands of jobs and above 90,000 rehabilitated buildings. An average return from the Main Street program can be expected to be around 40 dollars for every 1 dollar invested. In regards to further evidence of increased employment, when compared to new construction, rehab projects generated twice the employment as discovered in New Jersey by Listokin and Lahr. There is no doubt that studies on historic preservation and economic development overwhelmingly yield positive benefits. This is a strong point in the debate but is often attacked through an argument about the validity of the methods used to obtain these results. The outcomes and conclusions are solid and as I wrote before seem to be a mere matter of common sense. Due to the overwhelmingly positive results of these studies, opponents are left to attack the methods used to obtain these results as their prime argument. Thus, preservationists need to be aware of the weaknesses of these methods as a matter of preparedness. Hopefully these preservationists will also be able to refute said weaknesses. Scientific sources that discuss the validity of the methods used might be used to counter the argument of preservation opponents. Most importantly though we must identify these frequently declared weaknesses.

Each type of study listed in the opening paragraph contains its own weaknesses. Basic cost studies such as the one used in Rypkema’s pro forma calculations are quantitatively driven relying “on straightforward math and descriptive statistics.” (Mason, 12) This type of positivist approach is typically hard to rationally argue against. More common though with basic cost studies the problem does not rely in the equation but rather what data is used in the equation. As Mason writes regarding cost benefit analyses, a type of basic cost study, “decisions about which costs and benefits are included in the frame of a particular study should be examined carefully.” Where cost benefit analyses suffers is in its lack of comparison to other possible economic alternatives. This leads to an incomprehensive study because all the possible variables have not been accounted for. Though CBA results can be valuable in a debate, economic impact studies are more commonly used because of their easily understandable results and simple format. Both are quantitative studies but economic impact studies take into account the effect preservation has on a regional economy through its resulting multipliers and positive externalities.

Economic impact studies are probably the most convincing information to utilize in a pro-preservation debate as long as the pro-preservationist is aware of the studies weaknesses. As with basic cost studies economic impact studies do not account for all the preservation values. Most commonly they rely on market data and whatever they cannot equate to market prices is typically unused and left out of the study, again, leading to an incomprehensive study. As with basic cost studies the economic impact studies are also commonly attacked for not considering possible opportunity costs. However, “economic impact studies are more effective and meaningful when measuring the effect of investment being imported (not re-circulated) in to a particular, bounded regional economy—for instance, a tourism project drawing most of its visitors from outside the region.”(Mason, 15) When arguing economic impact studies focusing your argument on investment rather than recirculation would be more reliable in debate and less prone to rebuttal.

A third type of study, that is often utilized to measure causal relation between two variables such as educational attainment and income, is also utilized in historic preservation. Most commonly these regression analyses studies measure the economic relation between landmark designation and property value, both on an individual and on a distance-based basis. Through the use of the hedonic method, a type of regression analyses, preservationists “measure the effect of a popular historic site on land values at various distances from the site” they then compare these results to a statistically identical non-historic area. (Mason, 15) Another type of regression analyses called the travel-cost method measures the cost individuals are willing to incur to visit a specific historical site. In regards to the weaknesses of regression analyses, the literature I am using as reference seems to not mention any such weakness. If, after reviewing more specific references on regression analyses, a preservationist comes to this same conclusion then these studies may make for an irrefutable and strong argument in favor of historic preservation. A fourth type of commonly cited study, however, is largely qualitative and much more refutable thus caution should be taken, as these stated-preference studies contain more uncertainty then the other previously mentioned types of study.

There are two types of stated-preference studies used in preservation. They are contingent valuation, and choice modeling. Due to historic preservation resulting in both private and public goods it is a necessity to have a type of study to measure these public goods. By utilizing contingent valuation the entirety of preservations benefits can be more comprehensive. Public benefit is at the core of preservation and through the recognition of these priceless qualities it’s true value can be more accurately reported. Originally developed in the environmental economics field, CV or contingent valuation gained much support through its involvement in the Exxon oil spill to measure the legal damages and costs the spill caused in relation to public goods. The success of CV has led to it being used as a main alternate for economic impact studies. However still, “some criticize CV methods at the conceptual level because they are not based on actual markets and data from actual transactions” and the hypothetical nature used to measure willingness to pay is often open to much inaccuracy. (Mason, 17) Due to the substantial difference reported by economic studies on measuring reported willingness to pay and actual pay, CV is open to attack and easily refutable. This makes CV a popular but dangerous source in presenting preservation arguments. Choice modeling is the second type of stated preference study used to measure the benefits of preservation.

Choice modeling is also survey based but is based on a ranking system rather than simply picking from a list of answers. The descriptive nature of the question framework also leads to data on what attributes of a good are most valued. In historic preservation choice modeling is used to measure the whys rather than the overall cost one is willing to incur to visit a historic site. This leads to a more detailed view of the most appealing attribute of the historic site in question. Again, due to the qualitative nature of choice modeling, like CV, the findings can be refuted in numerous ways presenting an interesting but dangerous argument. Case studies are another popular source of information that is open to rebuttal based on its qualitative nature.

Measuring the validity of case studies can be done through identifying those with “clear analytical frameworks and not merely anecdotal information.”(Mason, 18) Case studies unlike the other forms of study do not focus on measuring the value of “preservation goods per se” and the most reliable case studies typically involve rigorous qualitative research and incorporate quantitative data through the use of descriptive statistics. (Mason, 18) For the most part, case studies offer an informative view of historic preservation projects, and due the narrative nature of the study they are an “effective means of disseminating information about new policy development or results of research.” (Mason, 18) There is much information to debate the positives of preservation on economic development yet as stated earlier in order to best defend preservation the advocate must be familiar with the weaknesses of the methods used to study historic preservation. This is and will continue to be the primary argument against historic preservation and economic development until the research methods improve over time. Until then advocates must become familiar with and utilize as much literature as possible to properly defend historic preservation as an economic development strategy.

After perusing many scholarly articles on historic preservation as an economic development strategy the literature that presented the best overview and most relevant detailed information was that of Randall Mason and his discussion paper Economics and Historic Preservation: A Guide and Review of the Literature. Not only did this paper provide the most concise and detailed overview of the economic benefits of preservation but it also identified the weaknesses used to refute the preservation argument. In regards to other reference literature the paper also contains an annotated bibliography of what is titled the First Ten Readings containing a list of ten readings best for informing readers new to the issue. Other reference materials I utilized to aid in my further understanding outlined by Randall Mason was a report to the advisory council on the economic impacts of historic preservation which contained more recent data and updated information and further explanation of the issue. I would strongly recommend reading these two papers in their entirety to any advocate of preservation that wishes to successfully defend its economic benefits.

– Christopher Kolezynski

References:

Mason, R., (2005). Economics and Historic Preservation: A Guide and Review of the Literature. Pennsylvania, PA: The Brookings Institution.

Rypkema, D., Cheong, C., & Mason, R. 2011. Measuring Economic Impacts of Historic Preservation: A Report to the Advisory Council on Historic Preservation. Washington DC: Advisory Council on Historic Preservation.

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