Property Rights and Values

Historic Preservation advocates are always banging heads with “property rights” advocates who shun all landmark regulation as a “taking” or private property. The more principled and ideological of these opponents not only oppose landmarking, they also oppose zoning and almost any form of environmental regulation. Indeed, it is environmental laws that really chafe the drawers of property rights types.

Preservation gets thrown into this stew, even though preservation laws are remarkably more flexible than most other types of land use regulation. But most people don’t know that and think preservation is an arcane design police led by pointy-headed architectural historians who don’t know that plastic windows save you thousands in heating bills.

More about plastic windows later (much more)

The fact is , buildings under landmarks laws are almost never restricted as to use – not true of zoning codes. Landmarks agencies can’t tell you what color to paint your house (unlike appearance codes in subdivisions). They can make it very difficult for you to demolish your property – but never impossible.

So why do property rights advocates argue these things? Because they don’t know better, or because they have been fed bad information. Years ago a group in Winnetka got incensed that the town had been surveyed for historic and architectural significance so they sent letters to everyone with the dire hyperbole: “Your House Has Been Targeted!” Similar propaganda campaigns are going on right now in various Chicago neighborhoods.

This is where values come in – as in economic values.

The latest property rights fans (fans always sounds better than fanatics, don’t you think?) in Chicago are fighting for their right to demolish their property and are rightly concerned that landmarking will make demolition difficult. They assume you get tons more money for demolishing a perfectly good building than for rehabbing it. They assume they will make money on a real estate investment.

But these guys have no sense of history, or capitalism. Capitalism means you can make money. It also means you can lose money. The last 30 years of history has seen rising property values. That is an historical anomaly. I can think of houses built for $10,000 in 1860 that sold for $4,000 in 1930. Anyone familiar with real estate blockbusting in the 1960s knows that most houses in changing neighborhoods were sold at a loss (and then resold at a big profit). Throughout the 1970s even when prices rose, 16% interest rates made real estate a weak investment.

The problem with our current housing bubble is that there are lots of people who don’t know this history and assume that if they buy a house for X price now, they get to sell it at 2X five years from now, because that is what they did between 1999 and 2004. So they flip one into another into another and pretty soon an $850,000 two-flat is expected to recapitalize at $1.7 million before the next Olympics.

How much profit is enough? In some of these backlash neighborhoods, old residents fearful of gentrification have joined with their gentrifiers, fearing a loss of their primary asset. Only that is an economic impossibility for old-timers. Anyone who owned a property in any part of Chicago in the 1980s (or even 1994) and still owns it now has doubled if not tripled their asset. Landmarking a two-flat worth $800,000 that was worth $80,000 in 1989 is no hardship.

What if someone is willing to pay that price, add $50,000 to knock it down and then build 3 or 4 units (which may or may not require a zoning change), which they are? How much does teardown add to value? If the suburbs are an indication – nothing.

A smart capitalist does not go into a neighborhood and pay more for a two-flat than anyone else. Some people are buying it for a two-flat, and others might want to tear it down. Moreover, since prices have shot through the roof, the differential for teardowns has grown smaller, at least in most neighborhoods (the case of a two-flat in Streeterville is different). Maybe an $800,000 two-flat gets $850,000 for a teardown. This is less than a 10% premium. Maybe the developer is smart and lowballs it at $750,000 to cover his demo cost. Whatever – as the values shoot up, the increment gets smaller and smaller.

In 1985 I saw a cottage listed on the 800 block of Paulina for $18,000, and a six-flat nearby for $44,000. The average property in that neighborhood today is worth twenty times as much. I can’t see hardships in those numbers. Plus, we are dealing with historic districts here, which even many libertarians will accede to because – like zoning – they affect everyone in an area. In fact, through history, historic district landmarking has preserved and enhanced values.

So should these places have been landmarked in 1985? Sure, but back then preservation was the tool of capitalists trying to gentrify the neighborhood and kick out the working people, so the city was not in favor of it. Tactic failed. The neighborhood gentrified anyway and now preservation is a communist tool stealing people’s hard-flipped money.

The renters who did get gentrified out of the neighborhood are the ones who are out of pocket, but that happened before the landmarking.

Go figure. A little history always messes with people’s principles.

Then again, maybe I’m just sore I didn’t buy that six-flat in 1985.

FIVE AND A HALF YEARS LATER UPDATE:
One of the nice things about my job in the heritage conservation/historic preservation world is that history is on my side. I wrote this three years before the housing bubble burst. I TOLD YOU SO. Just sayin’…..

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One Response to “Property Rights and Values”

  1. Makeorbreak Says:

    Thought this might interest you, The Landmarks Preservation Council of Illinois just announced its fourth annual Chicagoland Watch List on Wednesday

    http://www.suntimes.com/output/entertainment/cst-ftr-preserve15.html

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