Historical buildings add value, interest, and beauty to cities. Beautiful architecture of the past deserves to be recognized and saved, just as we preserve other types of art. We must also recognize, however, that our cities are not museums but living and evolving centers of commerce and culture.
Historic preservation represents a tradeoff between saving old buildings and making way for new ones. This tradeoff carries economic consequences. By limiting a city’s available square footage, preservation restricts supply. As demand for space increases with a growing population, the limited supply sends prices up.
Preservation advocates often argue that saving historic buildings increases property tax revenue and thus fills city coffers. This is true in a static sense; restricting the supply of housing in a neighborhood will certainly drive up the price of housing units. But property-tax revenues should be viewed with an eye toward the realities of a dynamic real-estate market. If a property owner or developer wishes to demolish or renovate an older property, he must believe that the new property will be of greater value than the existing building. Of course entrepreneurs can make mistakes, but arguing that preservation leads to increased property values overlooks the long-term economic appreciation of redevelopment.
Applying historic preservation to whole neighborhoods rather than to individual properties makes the city even more of a museum. Rather than requiring preservationists to select only the most historically valuable properties to protect within a neighborhood, historic districts give commissions the power to limit development in the entire district, resulting in considerable economic losses. For example, the New York City Landmark Commission recently determined that an undistinguished BP gas station lies within the bounds of its SoHo historic district, thus putting on hold the station owner’s plans to redevelop the property into a mid-rise condo development. This abuse of historic designation comes at the cost of new housing that would enable more people to live in a desirable neighborhood and allow the landowner to make optimal economic use of his property.
By artificially inflating rents in historic neighborhoods, the landmarking process can drive out worthy uses. Traditionally mixed-income neighborhoods can become affordable only to the wealthy; inexpensive restaurants and shops can no longer pay their rising rents. While such trends can occur for different reasons, the historic-preservation process undoubtedly contributes to the problem.
Most city preservation commissions focus on the benefits of saving historic buildings without considering these factors. Serious consideration of the economics of preservation could help identify which efforts are the most vital and which are simply too costly. The federal model of Regulatory Impact Analysis provides a guide for cities looking to introduce cost considerations into the historic-preservation process. At the federal level, agencies must perform cost-benefit analysis of significant regulations. Such analyses are not infallible, but they do force regulators to consider the economic consequences of the rules they make. At the local level, regulators should likewise be required to look at the opportunity costs of historic preservation—which normally include preventing the construction of newer and larger buildings that could house more neighborhood residents. Federal Regulatory Impact Analysis also requires agencies to monetize a regulation’s benefit. At the local level, this would obligate preservationists to acknowledge that some landmarks provide fewer benefits than others. Cost-benefit analysis provides a yardstick for comparing preservation efforts: eliminating some of the least vital historic designations could also reduce redevelopment pressure on the most valuable historic buildings.
Regulatory Impact Analysis also requires agencies to examine alternatives to regulation. As economist Edward Glaeser has observed, preservation is not necessarily a choice between demolition and preventing all new development. Permitting development on top of historic facades allows for preservation at street level without the consequences of restricting supply. While not always popular with architectural critics or preservationists, this compromise should at least be considered as an alternative to wholesale development bans—particularly in areas, like New York, with the most valuable real estate.
The free-market alternative to landmarking buildings and historic districts is not a complete dearth of historic buildings. For a price, the market will continue to meet the demand for historic architecture. Just as we value antiques for their rarity, old buildings will continue to become more valuable over time, naturally increasing the opportunity cost of redeveloping them and making their preservation more likely. Cost-benefit analysis may lead to fewer landmarks, but the value of the remaining historic buildings will rise.
Historic preservation advocates often cite the work of Jane Jacobs. In The Death and Life of Great American Cities, Jacobs famously wrote that neighborhoods need old buildings to support mixed uses. She wasn’t explicitly advocating the preservation of old buildings, though, but instead arguing against slum-clearance efforts that eliminated economically viable old buildings. Nor did she desire the price spikes and restricted supply that result when buildings are preserved to the exclusion of new construction. City preservation commissions have the power to enforce high costs on the residents of their cities; in turn, they should be required to examine the costs and benefits of historic designation.