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Analyzing the Economic Impacts of Historic Preservation

12-09-2015 17:35

Although preservation has long been recognized as an important stimulus for economic development and community revitalization, recent studies have made significant gains toward achieving a more accurate and comprehensive understanding of its total economic effects. Advanced research methodologies and sophisticated input-output models for data analysis have provided economists with the tools necessary to identify the direct and indirect effects of preservation activity and to track the flow of preservation expenditures through local and regional economies with considerable precision.

In recent years, however, such studies have increased in accuracy and broadened in scope, and economists have begun to rethink the basic methods used for research on the economic effects of preservation. What should be counted among the direct and indirect effects of preservation spending? How should data be collected on complex subjects such as heritage tourism and commercial activity in historic downtown districts? And how should "quality of life" factors-reduced rates of crime in historic neighbor-hoods, for example, and the aesthetic and environmental benefits of preservation-be quantified?

These and related questions were the focus of a one-day seminar held at the Brookings Institution in Washington, D.C., in October 1998. More than 30 experts attended the seminar, including representatives from the World Bank and the National Trust for Historic Preservation and economists from major research universities, government agencies, and private firms.

Sponsored by the National Center for Preservation Technology and Training (NCPTT), the Center for Urban Policy Research (CUPR) at Rutgers University, the Harvard University Department of Urban Planning and Design (DUPD), and the Brookings Institution`s Center on Urban and Metropolitan Policy, and organized by Professors David Listokin and Michael L. Lahr, the seminar provided a forum for discussing fundamental research issues and identifying new directions for future studies.

In a brief introduction, David Listokin, a professor of Urban Planning at Rutgers` CUPR and a visiting lecturer on historic preservation at Harvard`s DUPD, set the tone for the seminar by emphasizing the challenges that economists face in gaining access to useful data. Due to prohibitively high collection costs, economists are unable to gather data specifically for economic impact studies and therefore must rely on data from a variety of sources. Professional organizations are among the most common sources, but their records are typically organized in a format designed to suit institutional priorities, not the needs of research economists.

Listokin suggested that economists could improve the availability of useful data by working with such organizations to ensure that the needs of economists are included in ongoing information collection programs-a point that was repeatedly echoed by other seminar participants throughout the day.

Heritage Tourism, Property Values, and Urban Revitalization

Individual presentations addressed the full range of topics related to the economic impacts of preservation, including heritage tourism, property values in historic districts, and the benefits of historic property designation.

Catherine Shaw, director of marketing research for the Travel Industry of America (TIA), discussed the survey data that her organization collects on heritage tourism and how it can be used by economists. TIA, a professional organization of travel agents, lodging and transportation providers, and tourism-related businesses, conducts research to provide its members with essential data for their day-to-day operations. TIA`s ongoing efforts include a telephone survey which tracks public interest in travel to historic sites and has so far compiled nearly 20 years of data, and monthly distribution and collection of approximately 20,000 questionnaires from travelers who have recently visited a heritage tourism destination. Analysis of this information seeks to establish travelers` spending patterns, transportation and lodging preferences, and interest in various types of historic attractions.

The spending patterns of travelers visiting historic destinations was addressed in greater detail by Bill Siegel, president of Longwoods International, a tourism consulting firm. For his research, Siegel typically obtains data by surveying travelers soon after they have completed a trip. His studies have addressed a variety of issues, including the role of historic activities (such as visits to historic landmarks and house museums), "folk culture" (attractions such as "interesting architecture," local music, and unique local cuisine), and high culture (such as large museums and art galleries).

Siegel has found that the largest percentage of on-site spending by heritage tourists goes toward "spin off" costs such as lodging, food, and retail purchases; by contrast, spending for items such as entry fees for historic sites or museums tends to be minimal.

Siegel and other seminar participants also discussed the need to better define "heritage tourism" and to distinguish it from other types of travel. Many economists have differing opinions on what constitutes heritage tourism. If a traveler visits Williamsburg, Va., for a business conference but also spends an afternoon touring Colonial Williamsburg, should the trip be considered a heritage tourism excursion? What percentage of the traveler`s total trip expenditures should be regarded as heritage tourism spending? Economists must come to a consensus on such issues if future studies are to produce useful and readily comparable information.

Main Street programs have long been a corner-stone of preservation activity in communities across the nation and, in turn, a major stimulus for preservation-related spending.

Doug Loescher of the National Trust gave an overview of the Main Street program and described the type of economic data that individual Main Street communities routinely collect on historic downtown districts. Loescher emphasized that the Main Street program does not focus solely on preservation activity but instead uses a comprehensive approach to foster economic growth. It is, in short, as much an economic development and downtown revitalization program as a preservation program, a fact that economists must take into account when assessing the effects of Main Street initiatives on local economies.

The data produced by the Main Street program may prove useful to economists studying the economic impacts of historic preservation. From the outset, the National Trust has stipulated what data must be collected by individual Main Street communities and, therefore, what is collected annually on a national scale.

At the same time, the information supplied by individual communities tends to vary widely and is not organized in a standardized reporting format. As a result, the compiled data available from the National Trust may be difficult for researchers to use effectively. It is, however, a largely untapped resource that has the potential to serve as the basis for detailed studies on preservation spending at the local level.

Beyond the downtown district, the economic landscape of many communities has been reshaped by the establishment of historic districts in residential neighborhoods. Donovan Rypkema of the Real Estate Services Group presented the results of his recent work on property values and demographic trends in National Register and local landmark districts. Such issues have been the focus of several studies conducted by the Real Estate Services Group.

In Evanston, Ind., for example, Rypkema examined the relationship between preservation activity and real estate market values in two comparable historic districts- one a National Register district, the other a local landmark district. He found that property values in each district rose at a higher rate than the community average, but the rate of increase in the local district was markedly stronger than in the National Register district. Occupancy patterns in the local district were also significantly more stable, and the racial diversity of residents was greater than the community average. Rypkema concluded that such findings attest to the efficacy of strong local landmark ordinances and the importance of grassroots preservation activism.

Other projects undertaken by the Real Estate Services Group have studied the effects of preservation on community demographics. An analysis of residential occupancy patterns in a historic district in Elkhart, Ind., determined that the district mirrored the overall demographic structure of the entire community.

Similar findings resulted from a more elaborate study of National Register districts in Philadelphia. Rypkema also determined that the districts included in the Philadelphia study were more racially diverse and were losing population at a slower rate than other neighborhoods in the city. Based on these studies, Rypkema suggested that preservation promotes diversity and provides a measure of demographic stability not generally found in urban real estate markets. While these factors clearly demonstrate the far-reaching benefits of preservation activity, how they can best be quantified by economists remains a challenge.

David Clark, a professor of economics at Marquette University, addressed the research methodologies that are commonly used to study the effects of historic designation on property values. Clark highlighted the factors that economists must consider in conducting such studies. He spoke in particular about the two methods used to track changes in property values: the hedonic and repeat sales analysis. In his work, Clark has employed a hedonic approach, which he believes to be the most comprehensive and accurate means of analysis. The hedonic approach surveys a broad range of factors, including the effects within the neighborhood designated as a historic district, spillover effects (those outside the neighborhood), and potential costs such as compliance expenses (expenditures by property owners to meet design guidelines) and bureaucratic costs (for management of the district).

The other research method commonly employed is repeat sales analysis, which focuses on changes in sale prices of properties following an event (such as the establishment of a historic district). It offers potentially better controls for assessing housing quality and neighborhood characteristics, but its major disadvantage is that it can only be employed in a neighborhood where historic designation has recently changed.

Clark optimistically noted that the information needed for property value studies is fast becoming more readily available. Several years ago the only way to compile adequate data on property values in a particular neighborhood was to spend countless hours in the local courthouse examining tax rolls and deed transfers. Commercial firms, however, now offer this information for a small fee. Because of the vast quantity of high-quality data that has recently become available, economists are now able to conduct property value studies more efficiently and to spend more time on data analysis and less on data collection.

Economists are already using the increased availability of data for cutting-edge research on property values. Robin Leichenko of the Center for Urban Policy Research at Rutgers and Edward Colson, a professor of economics at Pennsylvania State University, discussed their current project, which focuses on property values in historic districts in a fairly large and diverse sample of Texas cities. The information is drawn from appraisal listings and real estate multiple listing services. Their research showed that historic designation increased property values in Texas communities by between 5 and 20 percent.

The effect of different appraisal methods on historic property values was discussed by Richard Roddewig of Clarion Associates, Inc. Economists face a number of problems in attempting to assess the degree to which historic designation affects the marketable value of a given property.

Value is, in many cases, a relative term. A property`s historic and cultural value may be far greater than its market value, for example, and its investment value may be different still. For obvious reasons, economists must give careful consideration to these factors in conducting economic impact studies. No simple formula exists for assessing the effect of historic designation on property values. Roddewig noted, however, that professional appraisers` experience with historic properties has increased dramatically in recent years, and useful information about key issues such as easements and landmarks ordinances is now readily available. Historic property appraisals are consequently becoming increasingly accurate. Thus, while economists still need to examine appraised values with a measure of caution, these concerns should become less of a factor as appraisers` experience with historic properties continues to improve in the coming years.

Input-Output Models: Measuring the Economic Impact of Historic Preservation

Sophisticated economic models typically use data generated from various preservation-related activities to estimate their overall economic impacts. Rutgers University Professor Michael Lahr, a national I-O expert, surveyed various regional input-output (I-O) models available and discussed the major differences among them. William Schaffer, a professor of economics at the Georgia Institute of Technology, spoke about the features common to all I-O models and the fundamental assumptions upon which they are based.

I-O models attempt to track with precision the over-all effects of a given project on the economy of a given area. By tracing the course of a specific amount of money after it enters an economy, an I-O model accounts for the changes that take place in every sector of the economy due its entry and, hence, its resulting effects on related sectors.

The impacts estimated by I-O models are not entirely verifiable, but they tend to be fairly accurate in practice and remain the best means available for estimating regional economic impact. The prohibitively high costs that would be involved in compiling comprehensive survey-based I-O tables currently stand in the way of efforts to develop more accurate models.

In addition, despite the significant differences between models, such as the types of regional data used to scale the model for the various sectors of the economy (e.g., services versus manufacturing), they tend to produce strikingly similar results, which provides yet another measure of their general accuracy.

George Treyz of Regional Economic Models, Inc. (REMI), discussed the distinctive features of the economic model that his firm has developed. The REMI model is considered an "integrated and dynamic" model for two reasons. First, the REMI model incorporates time-series econometric data and modeling-in essence, the year-to-year measurement consequences of spending on a project as opposed to only the cumulative long-run impacts-and, second, maintains equilibrium attributes of I-O. By accounting for such factors through the REMI model, one can see the impacts of staged effects and one can determine the effects on projects and changes in life quality on such economic items as wage levels, home prices, and migration flows at specific points in time.

Indeed, using this model, George Treyz showed how a change in the quality of life would affect the economy. Ensuing discussion at the seminar underscored the difficulty for economists to agree upon appropriate methods for quantifying "quality of life" (QOL) factors. It was clear, nonetheless, that QOL figures prominently among the benefits of historic preservation and should therefore be considered in future studies.

Also significant are the subtle but important ways QOL improves the environ-mental aesthetics of communities. Hence, as estimates of QOL become more available, the approach demonstrated by George Treyz is likely to gain popularity.

Conclusions While issues of data quality must be resolved if the economic impacts of historic preservation are to be accurately and comprehensively assessed, the wealth of data gathered for preservation advocacy purposes stands ready to be used for economic impact studies, provided economists are willing to approach it with appropriate caution.

Unstated assumptions- that tourists enjoy visiting historic communities, for instance, or that Main Street programs are effective in stimulating economic growth- often influence the means by which various organizations collected such data and, there-fore, the compiled results.

Such data offer important opportunities, but economists must be aware of the potential pitfalls that may be encountered if this information is not subjected to critical and rigorous analysis. To conduct objective and accurate economic impact studies, economists must be willing to ask difficult questions-Do all communities benefit from heritage tourism? Does preservation always increase property values?-to balance the biases often inherent in data collected for preservation advocacy.

Publication Date: Spring 2000


Author(s):Daniel Vivian, Mark Gilberg & David Listokin

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