Microeconomics essay sample

This report describes what this kind of capital produces, and what would determine the optimal level of preservation effort.
The Key Element Of This Model

The purpose of the present study is to shed light on the effects of designation on property values in residential neighborhoods.
Not infrequently, planners, preservationists, and community officials are accused of catalyzing the displacement of low- and moderate-income renters and homeowners and of small businesses when they support the historic designation of older neighborhoods.
Planning and Policy Implications
The designation of historic districts in residential neighborhoods has grown in popularity in the United States over the past two decades. Many planners have embraced designation policies as tools in the management of neighborhood preservation and rentalization. However, opposition has arisen in some cases based on the assertion that official designation could accelerate property values, thus increasing tax liabilities and rents and leading to rising displacement of low-income and elderly households. Existing research provides only a few insights into this issue. An analysis of residential historic district designation in Washington, DC, finds little support for the displacement threat. Further research is necessary on the timing of designation and the intervening effects of the federal historic preservation tax credit.
Ever since pioneering legislation was passed in Charleston, South Carolina, in 1931 and New Orleans, Louisiana, in 1937 the historic district technique has been employed as a device to protect neighborhoods and areas of historic and architectural importance. While only a handful of communities adopted historic district ordinances in the 1940s and 1950s (Reed 394), today there are more than 1,200 historic districts scattered across the United States. Furthermore, encouraging historic districts has become a matter of national policy. The National Historic Preservation Act of 1966 empowered the National Park Service to create the National Register of Historic Places, a listing of landmarks and historic districts considered to be of significance beyond merely local or regional levels (Public Law 89-665).
Of course, historic district statutes vary from community to community and state to state in the stringency of their provisions. But typically they establish official boundaries around a historic area and provide for the creation of a commission to rule on individual applications to demolish or alter a property or to build a new structure in the area.
The commission is usually made up of from three to ten volunteers selected by the local government for their expertise or experience in matters related to preservation. An appeals process is provided for affected property owners who disagree with a commission decision (Reed 394).
The proliferation of historic districts nationwide in the past 20 years testifies to their popularity among preservationists. Historic districts vary, however, in their effectiveness at protecting historic buildings and spaces, depending on the strength of their legislation and the level of political support for their ideals. Many property owners and businesspersons resist passage of such ordinances, fearing that they will be unduly restricted in using real estate located inside a district.
They worry that they will not be able to make desired exterior alterations to a building or yard, that they will be prohibited from demolishing a structure and replacing it with a new one, or that they may not be allowed to change the use of the building, as, for example, from residential to business premises. At bottom is their concern for the economic effects of designation (Listokin).
Another concern is germane both to property owners and to renters. Both groups may oppose designation of a historic district, fearing that property values will inflate and cause municipal tax assessments to rise. Some property owners argue that they will be burdened by steep increases in property tax liabilities. Disabled or retired homeowners on fixed incomes feel especially vulnerable. Renters, fearing the indirect effects of rising assessments, may worry that landlords will boost rents substantially to meet the increased costs of property taxes. In short, the issues for these people are involuntary displacement and excessive economic burdens.
Designation and Property Values
In recent years, as more communities have gained experience with designated residential historic districts, attitudes among property owners and businesspersons, while still cautious, seem to have softened somewhat. Historic districts in Boston, San Francisco, Seattle, New Orleans, and Charleston have demonstrated their appeal to tourists, real estate investors, preservationists, and others. Reinvestment, property appreciation, and business success have resulted, in many communities.
The rise of private reinvestment and gentrification in older inner city neighborhoods during the late 1960s and 1970s contributed substantially to local government designation of more historic districts. But gentrification also alerted many low- and moderate-income households, especially minorities, to the disruptive effects that these dynamics could have on their lives. Recalling the widespread opposition to federal urban renewal clearance and relocation programs in the 1950s and 1960s, campaigns among social activists and community organizers in the 1970s and 1980s to limit the impacts of private reinvestment sought out convenient, highly visible, unitary targets at which to direct protest efforts.
Because gentrification rarely proceeds by central direction, but rather, through the individual investment decisions of hundreds or thousands of people, identifying a protest target is usually difficult. Not surprisingly, then, historic district designation, always an action of the public sector, offered government as the pressure point. Thus, in some communities historic district commissions, local preservation offices, planning commissions, and other units of local government have become the targets of mobilized citizens’ groups.
Over the past decade, as historic district designations have proliferated in many communities, opposition among low- and moderate-income persons and small businesses has also mounted. Because fewer of these people are property owners, their fears are more likely to be based on the alleged displacement effects of designation, rather than on the restrictiveness of property controls or the dampening of property values. Therefore, they argue more or less the converse of property owners: that property values will rise in response to designation, causing rent increases and hikes in real estate tax liabilities.
As this newer form of opposition has become more intense in communities with previously designated districts, preservationists have found themselves in the position of arguing that, while appreciation in property values occurs in historic districts, it is not due to designation, but rather, to the effects of other economic forces. One result is that more careful analyses have begun to emerge.
An example is a study prepared for the Boston Redevelopment Authority (Engle and Avault). The residential property tax assessment data is examined for several Boston neighborhoods. The adjoining Beacon Hill and Back Bay neighborhoods were analyzed as a single study area. Designated a historic district in 1955, Beacon Hill exerted so little influence on the study area’s rate of growth in assessments that it was not until 1962 that assessments began to rise significantly beyond those of the city overall. But designation of Back Bay in 1966 paralleled a sharp rise in study area assessments. Yet, while assessments in the study area were higher than in the city overall, the rate of growth in assessments in the study area from 1966 to 1972 (136 percent) did not substantially diverge from that of the city overall.
As for the Beacon Hill Back Bay area’s relative growth in assessments (383 percent) for the full study period (1946-72), it was exceeded by rates in Charlestown (619 percent), the Central/North End neighborhoods (531 percent), the South End (415 percent), and the Fenway/ Kenmore area (458 percent). None of these neighborhoods had been designated a historic district by 1972, although all had vintage building stocks.
Therefore, although the Boston study provides mixed evidence of the impact of historic district designation on property values, it does not demonstrate that growth rates were out of proportion to other reinvestment areas where no designations had occurred.
Further insights on the historic district designation issue are available from a consultant’s study of a neighborhood in Brooklyn. Three sections of the Park Slope district were examined, each with differing social, economic, and architectural properties. These sections were compared to three study areas from the adjoining nondesignated portion of the Park Slope neighborhood. It was found that, in most of the study areas, “the greatest property value increases occurred prior to designation.”
After designation, “market values in the comparable areas . . . increased at roughly the same rates as those within the districts”. A survey was also conducted of residents in the Park Slope historic district and found that “only 15 to 25 percent of the respondents mentioned the designation as one of the reasons for moving into Park Slope,” although many cited the appeal of the architecture. The study concluded that “increases in market values have resulted from a number of factors in which designation did not play a major role.
A third source of intelligence on this issue arises from research in Chicago (Schaeffer and Ahern 1988). One residential neighborhood listed on the National Register of Historic Places and two designated as local districts were examined. Housing sales data, secured from the files of a local real estate company, were used to measure property values. Schaeffer and Ahern found a statistically significant increase in the rate of housing sales in the national district, but not in the local districts, after their respective designation dates. To the extent that rising turnover in ownership contributes to enhanced sales prices, one would expect that property values would accelerate after designation.
Pursuing this issue, it is found that, indeed, price increases in the national district were statistically significant after designation, while those in the local districts were not. The difference might be due to the more stringent controls imposed on property use in the two local districts. These controls, they reason, could have the effect of discouraging property owners and would-be buyers from investing in housing. The National Register district, on the other hand, offers buyers the prestige of property ownership in a nationally recognized neighborhood, with few, if any, controls influencing use and enjoyment of property.
Works Cited
Engle, Robert F. and John Avault. Residential Property Market Values in Boston. Boston Redevelopment Authority, Research Department, Boston, MA. 1973
Listokin, David. Living Cities. Report of the Twentieth Century Fund Task Force on Urban Preservation Policies. New York: Priority Press Publications. 1985
Reed, Thomas J. Land Use Controls in Historic Areas. Notre Dame Lawyer 44, 3: 394. 1969
Schaeffer, Peter V., and Cecily P. Ahern. Historic Preservation and Economic Value. CBES Working Paper No. 2 (August). Denver, CO: School of Architecture and Planning, University of Colorado. 1988

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