Posts Tagged ‘preservation economics’

Transforming Heritage Philanthropy

May 13, 2015

Last week in this blog I presented some concepts on how we can create a more democratic, diverse and inclusive heritage conservation in the United States, largely by applying the lessons of international heritage conservation over the last twenty years, notably the Burra Charter.  Preservation is a process, not a set of rules.

lincolns cottage best2

President Lincoln’s Cottage, Washington DC

The second challenge we face in bringing our field into the 21st century is organizational and financial.  When preservation was about monuments and house museums, it looked to the traditional 19th and 20th century model of the non-profit institution for its organizational and financial logic.  This was how Ann Pamela Cunningham formed the Mount Vernon Ladies Association; how William Sumner Appleton founded the Society for the Preservation of New England Antiquities, and indeed this was the idea that Congress had in 1949 when it chartered the National Trust for Historic Preservation to take care of great house museums.

woodlawn bestS

Woodlawn plantation, where it all began…

As I have pointed out many times before over the last decade, this model had financial problems, mostly due to the eternal misconception that ticket sales to tour a house museum could provide the revenue needed to operate same.  In fact, ticket revenues top out at about 20-25% of annual operating costs, and this was as true in William Sumner Appleton’s day as it is in our own.

Lyndhurst E besterS

Sorry, I don’t do windows..

Organizationally it is challenging as well because non-profits, especially historical societies and other groups who undertook heritage projects, tend to the orchidaceous, working to maintain not only artifacts large and small, but narratives.  This can lead to the classic problem:  you visit a site once in fourth grade and never need to return, because it is still the same.

dining room2

I swear someone moved that fork….

I covered all of this in my previous blogs about house museums here and here.  To me the value of conserving ANYTHING from history is that is can be re-examined and re-interpreted as new data come to light.  This is the opposite of many olden-days preservation efforts, which saw a singular story in their artifact(s).

office PAS

If you ask three inhabitants, you get three different stories..

It is also useful to look beyond the interpretive issues and focus on the organization.  Non-profits can be dynamic, evolutionary and creative, but those with a heritage bent will tend not to be disruptive, like every startup right outside that window here in Silicon Valley.  They also have historically tended to be reactive, arising in response to crisis.  This too, puts preservation into the legislative/regulatory world (you get a stop sign only after someone gets run over) but in a greater sense, we need to apply the lessons of the Burra Charter to how we organize and fund preservation/conservation.

money or culture

If only it were that simple…

What do you mean, Vince?  I mean you engage the community from the beginning not only in identifying heritage and how to save it in a culturally appropriate way, but you engage the community in the financial and organizational structure as well.  Crowdfund – which as everyone in Silicon Valley knows, is not a way to raise money for a project (you still think that?  where you been?) but a way to raise constituency and customer base in order to attract serious investors.

Porter House Los AltosS

In the olden days – and still today – preservationists wanted to find an “angel” with carloads of money to come save their rare treasure.  And indeed, when you are looking at buildings that were built for absurdly wealthy people, it makes sense that you would need one to keep it going.  But this model runs counter to the Burra Charter – if the community is not INVESTED in the project, they won’t give a damn about it and eventually that angel will go join the other angels and then where will you be?

HDL 38 best

Well, if you are here, it is a nice place to see…

This is to me another illustration of the Burra Charter’s utility – it works as well in suburban Chicago as it does in darkest Peru.  This doesn’t mean you don’t have major donors, and even principal donors, but you need to spread it out because to be sustainable you have to last GENERATIONS so you need to generate enthusiasm from the local community.  This is of course why people often turn to governmental institutions, since they represent the community and presumably have the resources over time.

c-m overhang

Except when they don’t…

Except when they don’t, which is why Congress created the National Trust in 1949, remember?  My entire career has taken place in the wake of the Reagan Revolution and the dawn of the public-private partnership, when every weight must be carried on several sets of shoulders.

msi karyatids

or heads…

35 years of whining about regulations means that conserving historic buildings, neighborhoods and structures today is a market-driven, project-based public-private partnership that takes advantage of the economic and community vitality that preserving things provides.  And it provides it at a better price point and lasts a hell of a lot longer than shoddy new stuff.  Historic Preservation tends to be for real capitalists, not the whiners.

high stair vic

There are too many steps!  I don’t wanna!  Waah!

Philanthropy has changed in the last 35 years as well.  Now, donors are impact investors who want to see results, not simply attendees at black-tie galas or members of exclusive clubs.  People want metrics, and while we may be MORE that way out here in Silicon Valley, it is a nationwide, and indeed a worldwide phenomenon.  We have seen the rise of social entrepreneurship.  We have seen the distinction between profit and non-profit blur (you don’t need to make a profit in Silicon Valley to be one of the world’s biggest companies after all) and we have seen the slow decline of old-line membership organizations.  We need the Uber-app for heritage conservation, the one that let’s you donate with a click and get a pic of the difference you made NOW.

jaquard loom

And of course follow the thread if you wish

Our brave new world of apps and sharing and creative destruction needs to be embraced by the heritage field, but we do have a deep-rooted bias against it.  Ann Pamela Cunningham wasn’t just trying to save Mount Vernon, she was trying to save the Union, and in a very real sense, an already obsolete agrarian aristocracy.  What did she say in 1874?  Oh yeah, this:

Ladies, the home of Washington is in your charge…Let no irreverent hand change it, let no vandal hands desecrate it with the fingers of progress…Let one spot in this grand country of ours be saved from change.[i]  

old loco

Aaaugh!! Progress!!!!

She was particularly cheesed off by the “manufactories” that could be seen from Mount Vernon.  Not only was preservation anti-economic and anti-Progress, it was anti-Industrial Revolution, which actually has echoes in the contemporary philosophy of William Morris.  But setting yourself up outside of the economic logic of your world cannot work over generations.  Which is why we, in the heritage field, will continue to embrace and engage our current social economy so we can succeed in twenty years.

old techno

And we do need to get rid of some overhead…..

There are lots of ways to do this.  Successful house museums are the ones with diverse programming, extensive community engagement, and leveraged gift/book shops with vigorous online presence.  Successful preservation organizations are the ones who are able to kickstart enough people to convince the donor/investors to participate and ramp them up to the next level.  Yes, we need members and galas, but at the end of the day the dynamic organization is going to get the honey.

012409_0815

can’t rest on your laurels, much less your Turrell

The opportunities for social entrepreneurship are massive – heck they are doing it in Barcelona with Gaudi already and the Wall Street Journal is reporting it.  The biggest opportunity out there, and the biggest lesson of the valley is that you want to be a desired brand that people will pay for.  The National Trust for Historic Preservation was created so that Congress didn’t have to try to save these old houses.  Tomorrow it can be the brand every historic building owner wants.  There is an obvious analogy:

leed plaqueS

LEED.  LEED certified.  Architects have it on their business cards after their name.  LEED is awarded by the U.S. Green Building Council but you have to PAY FOR IT.  They used to do it just by design – you designed something and checked off their boxes for nice things like graywater treatment and bike racks and you got a LEED plaque even if the building required 20,000 truckloads of garbage to build.  They got smarter, noticed that half of their certified buildings weren’t performing to standard, and started to get the kind of metrics modern investor/donors need.  They are a must-have success story and someone in the heritage field will figure out soon how to brand themselves that way.  I blogged about this 3 years ago here.

ballaghmore castle sng

Do you get points for insulating walls that are 3 feet thick?

So how does heritage conservation become socially entrepreneurial?  By building on community engagement.  By insuring that heritage is at the center of neighborhood planning.  My reminding everyone that their favorite neighborhoods and commercial districts are historic and by trading on and trading for that superior value-add.

852-54-w-armitgs

But is there parking?

But What About International Heritage?

Internationally, the case is simultaneously simpler and more complex.  Most countries do not have tax incentives for historic preservation – I remember presenting to a group in Ahmedabad, India in 2008 and the Ahmedabad Times only covered one element of my speech – tax incentives for preservation.  Now, seven years later, India actually has them, but in general the philanthropic model of the Anglo-American NGO is foreign in most places.

doshi and vm

Balkrishna Doshi and I, Ahmedabad, 2008

Nonprofits in the U.S. live and die on the tax deductibility of contributions – there is far less of this culture in other places, which suggests one thing:  If and when they adopt a philanthropic culture, it will be an entirely new model.  Data mining, place-sharing, community-leveraging, economic modality-defying and disruptive for sure.

PearlLamAPt furnitur

This is not your mother’s china…

China and India will fill up with social corporations faster than we can perceive, and we may be learning from them how to pay for – and organize – the basic human concept of determining what elements of the past we need to have in the future to sustain ourselves.

[i]Quoted in Sherr, Lynn, and Kazickas, Jurate, Susan B. Anthony Slept Here: A guide to American Women’s Landmarks., New York and Toronto,Times Books, Random House, 1976 and 1994, p. 464.

County Hospital

March 3, 2010


In Chicago today the news is the unanimous decision of the Cook County Board to rehabilitate the historic Cook County Hospital Building (1914, Paul C. Gephardt) as medical offices. Seven years ago the building was to be demolished after the new John Stroger Hospital replaced it, but Landmarks Illinois and Preservation Chicago and others were able to find enough County Board allies to prevent demolition, and the unanimous action yesterday illustrates the shift. The project also ably illustrates several intriguing aspects of rehabilitating historic buildings.

First, there is the associational aspect. While the hospital had several historic firsts: blood bank; indigent care, certain emergency room procedures. Yet many people of course had very negative memories of the hospital since it was the medical last resort for so many of the most indigent for so many years. I remember going there in 1983 to see a friend who had gotten his head cracked for supporting Harold Washington’s mayoral candidacy. It was not an environment to elicit enthusiasm, but it wasn’t as bad as I expected, having grown up with horror stories of the public hospital. What is intriguing here is how the negative associations are translated into a push for demolition. We got similar reactions in the effort to save one of the Jane Addams Homes, replete with the negative association we formed of public housing in the 1960s and 1970s.

But of course we toured the homes with people who had lived there in the early, glory days of public housing, who had nothing but positive memories of the place in the late 1940s. The problem with negative historical associations is that they can be employed to demolish an otherwise beloved place. I always recall the example of Stop N Shop on Washington Street in the Loop. Until the early 1980s, it was a rare and wonderful downtown grocery with all of the finest delicacies – I remember gigantic chocolate-dipped strawberries in an era before strawberries all became gigantic (steroids?). Stop N Shop was a real treat and a beloved place. It also occupied a stunning 1930 Art Deco building, but the entire block was slated for redevelopment.

Now, you would have a problem demolishing a lovely store with positive associations, so Stop N Shop was closed, and a discount men’s clothing store (two pairs of fuschia trousers for $10!) was put in its place for a few years. By the time demolition came around, no one was bothered by losing the cheap pants – but they would have been upset about the chocolate-dipped strawberries.

Back to Cook County Hospital. We also have the aesthetic issue, and here the hospital’s grand Beaux-Arts facade with paired fluted columns, elaborate terra cotta ornament featuring garlands, cartouches, human and animal sculptures and grand arched entrances proves worthy. Not only that, but compared to the refrigerator box that is the new Stroger Hospital, the Classical detailing and refined proportions began to look better and better. I suspect that if the new hospital had a more felicitous design, the rapture people developed with the old hospital might not have been as intense.

Photo by Antunovich Associates courtesy Landmarks Illinois.

Then, of course, you have the issue of construction then and construction now. Building built before 1930 tend to be REALLY WELL BUILT, and Cook County Hospital is a good example. Despite the bands being used to stabilize the terra cotta details, the steel and concrete structure has been investigated and found to be sound. Antunovich Associates did a re-use plan via Landmarks Illinois that helped forestall demolition last decade because it proved the building was still a viable structure. Blair Kamin’s excellent piece in the Tribune notes also that rehabbing the structure saves about 900 truckloads of landfill debris, not a small number. This is of course WHY PRESERVATION IS SUSTAINABLE. And green. (BTW check out the new GREEN issue of Preservation Magazine – or go to the National Trust link at right!)

Now, the other intriguing aspect of rehabilitating historic buildings is of course the economic aspect. The County Board did dither about the cost – apparently $23 million more (about 20 percent) to rehab rather than to demolish and build new. Ignoring the social and environmental costs of those 900 trucks of debris, this aspect of course triggers a familiar response – preservation costs more.

Does it? Demolition and a new office building would cost $85 million instead of $108 million, which is more IF both buildings do the same job for the same period of time. Which I doubt.

Old buildings, like old windows, are generally built with stronger materials than modern ones. Beyond structure, this is a gut job, and the big cost is that decorative facade, accounting for 80 percent of the cost differential. They are talking about TIF financing, an overused tool, but if they were to make it a private building it would immediately be eligible for tax incentives which would make up the entirety of the difference. Just like preservation tax incentives are intended to do.

But comparing a lovely old Beaux Arts landmark with a new refrigerator box is like comparing apples and Tupperware. There is a functional comparison, but the new building would NOT have a decorative facade. Would it need one? No, but you never NEED beauty or grace in life, do you?

The fact is we ALREADY have a decorative facade and we know it looks good – much better where it is than in a landfill. This building got a lot of public support in the eight years it took demolition to turn into rehabilitation.

And it is prominent – this building has a giant plaza in front of it and then an expressway – it is a face of the city and deserves to be preserved as much as other faces of the city like Michigan Avenue or Lake Shore Drive.

Preservation as the road to recovery

December 18, 2009

One of the gratifying things about being in the historic preservation/heritage conservation field is that it is future-oriented. Usually the position preservationists take – which may seem radical at the time – becomes the mainstream position later. So all those blogs of mine earlier this year about preservation as the road to economic recovery? Here is it from the AIA today:

http://info.aia.org/aiarchitect/thisweek09/1218/1218rc_historicpreservation.cfm

“Embracing the Economics of Historic Preservation: Reusing and
renovating already-constructed buildings can lead the way out of this
recession”

Thanks to Joan Pomaranc at AIAChicago for forwarding this!

Owning in an historic district

December 3, 2009

I own a house in a historic district and last year I blogged about how thankful I was for that fact. Real estate is an asset whose value is largely external – it comes from its location, which is to say, its surrounding buildings and environment. Because my house is in a historic district, its value is assured. Economic studies for over 40 years have confirmed this fact in communities across the United States.

If you look at the history of historic districts – which I did in my dissertation – you find that the first modern historic districts emerged in the 1950s in communities that were concerned about drastic changes to their environment and thus the value of their homes. Urban renewal was one threat, which proposed outright demolition. The other threat was posed by postwar zoning ordinances, which dramatically increased density and thus owners of brownstones or single-family homes faced the prospect of massive highrises next door.

So homeowners in places like Beacon Hill in Boston and Brooklyn Heights in New York did what their forefathers did a generation earlier with zoning: they crafted legislation to protect their environment and thus their home value. Often they also secured downzoning – this happened in Greenwich Village in 1961, and in Chicago’s trio of lakefront landmarks in the 1970s – Astor Street, Old Town, and Mid-North.

Now, some people, motivated by greed or some sort of Ayn Rand ideology, argue that they don’t want historic districts because it will limit their value. How can this be true? Well, we have the examples of teardowns, where people are able to cash in on windfall profits because they can tear down a house and build a bigger one.

The libertarian ideology goes right out the window as soon as you realize that what allows the teardown is zoning: it’s just another government handout. In fact, the zoning that makes teardowns possible and profitable ALSO protects the value of some of those teardowns by insuring that I can’t build an abbatoir next door. Indeed, that it why a Supreme Court Justice (Sutherlan – who was as conservative then as Scalia is today) upheld zoning in 1926. So people who bought houses wouldn’t have knackering houses next door.

Historic districts were born at the same time as zoning and for the same reasons and they are in fact simply a more precise and surgical tool compared to zoning, which can sometimes be a blunt instrument. They also secure value, and I will not be surprised when some teardown neighborhoods hit the skids when McMansions start falling apart in 2020 during the height of the baby bust. After all, I have seen how they were built.

There is a vital economic principle at work in historic districts: uncertainty. The reason people get all NIMBY about things and fear change is simple: they fear uncertainty. This has economic agency because uncertainty discourages investment and consumer confidence and other things that are seen as positive for a growing economy. This is another stick in the eye of free market ideologies, because in reality, markets only operate well under conditions of security and certainty. Bandits and plagues and earthquakes are generally BAD for markets. Historic districts, like other zoning devices, create a sense of certainty that insures value over the long term, even if it might discourage short-term windfall profits.

Historic districts create another alchemy which led me to question one of the basic assumptions I have been talking about here. Ownership. We want the certainty of a stable environment to preserve our home value, an argument Dartmouth economist William Fischel has made excellently. But I also studied historic districts in Manhattan, and found a strange condition. People wanted historic districts and the certainty of an attractive, healthy and wealthy environment, but they didn’t own. A majority of the residents of places like Greenwich Village and Hamilton Heights were renters, not owners when they sought historic status. Moreover, I found that renters were investing tons of sweat equity in Greenwich Village rentals from the 1910s onward. This counters the ownership and equity theory.

Why? I think it comes back to the certainty principle. You might have equity, but that is an abstract concept. And in the 2009 world of upside-down mortgages, it has proved often illusory. But where you sleep and eat and the buildings and streets you travel to work and shop and recreate – those are real. They are certain, and you derive value from your environment whether or not you accumulate value in it. You can’t take it with you. But you can have it with you all the time you are here.

As long as I live in a historic district, I will have this value and this certainty.

Eco-nomics

November 22, 2009

Y’all should be members of Preservation Forum, because then you get Preservation Forum magazine (go to http://www.preservationnation.org) which has the latest and greatest articles on preservation as a movement and a science.

We are used to thinking of preservation as a movement, an advocacy position, and indeed historically preservation was an odd position to take in the postwar world of “new is better.” Preservation was not only an advocacy position, it was a David-and-Goliath (or Don Quixote-and-Windmill) proposition in the era of urban renewal and even today preservationists can seem pretty powerless – witness the thoughtless and willful destruction of the Michael Reese Hospital campus in Chicago right now.

But preservation is increasingly a science. Since the 1980s we have touted the economic virtues of preservation as it creates heritage tourist destinations. For the same period of time we have touted the benefits of preservation tax incentives for developers. As early as the late 1970s, the preservation movement was thinking of preservation as an energy-saving device, and for a couple of years preservationists have touted the fact that buildings that exist are greener than those not built yet.

But in 2009 you need even more, because we are now in the wiki-world of cloud computing and data-driven nobody-in-silos-anymore webwise decisionmaking. Last summer I blogged about how the world now offers data for everything – and it would not only be reasonable but RESPONSIBLE for those about to demolish Michael Reese Hospital to count and quantfy their pollution, their contributions to landfill, and to tell us exactly WHEN the replacement buildings would be paying off their debt to the ozone layer. (See A Sustainable Proposal July 23, 2009 and Test The Proposal a day later)

But Preservation Forum is already on it. The current issue “Broadening Perspectives” features several excellent articles on the latest in the MOVEMENT, and it turns out the latest in the movement is all about economics and ecologics and their interplay. Check out this pull quote: “Density Data would tend to indicate that tax credit projects are reducing VMTs at a rate of between 30 and 40 percent.”

Cool. That isn’t simply the 1990s data we got on how preservation contributes twice as much per dollar invested to a local economy as highways and new construction, or how many billions in investment and jobs tax incentives have contributed. Nor is it the 2000s data on how historic buildings are more energy efficient ALREADY. It is both combined into a supercool algorithm. Investing tax incentives in preservation projects not only contributes to the economy, it helps the environment by reducing Vehicle Miles Traveled, since historic buildings are in already built-up, reasonably dense locations that are walkable or served by public transit.

In the state of Maryland, $1 billion was spent on tax credit preservation projects from 1996 to 2008. This obviously did a lot for jobs and taxes, etc. It also, according to the article by Evans Paull, meant a reduction in CO2 emissions of between 16,000 and 21,000 metric tons a year. $1 million in tax credits equals 100 metric tons of CO2 saved. Awesome.

atonement

October 10, 2008

Yom Kippur is the Day of Atonement. World financial markets responded with a belated atonement for a decade of make-believe profits fed by gypsum-and-pressboard McMansions. McMansions with the life expectancy of a McNugget. Now the spoiled spoon-fed MBAs – the real welfare moms – are queueing up for the dole. That’s not really a fair comparison: actual welfare recipients only get their checks monthly while the MBAs show up every week or two. And they get more in one day than Health and Human Services or Social Security get in a year.

But it seems like the atonement isn’t done until the banks are nationalized.

Are U of C economists going to have their Nobel awards revoked?

Tell me again why we are rescuing these people, who never rescued anyone.

Finances and the End of the Free Market

September 23, 2008

The recent revelation of George W. Bush as the leader of the new United States of Soviet Socialist Republicans has been an historical shocker. Heir to a political legacy based on opposition to Franklin Roosevelt’s New Deal, the serial federal bailouts of the last week made Roosevelt look like a libertarian by comparison. It doesn’t seem to disturb those who have trumpeted free markets or put onerous free market deregulation requirements on the Asian bailout a decade ago. It does disturb people like me, who never bought a building with less than 20% down or even tested half the depth of my credit card limit. I was raised on fiscal responsibility and it has been more than a bit sickening to watch the drunken frat party on Wall Street for the entirety of my adult life. Not to mention the pretend conservative blowhards on TV and the radio. They should spend the rest of their lives eating their false words. And getting a real job – how long can you be a carny, after all?

The stomach does another churn when you realize how much of our urban and rural landscape was destroyed by free-money-no-credit-check real estate developments. I bought and sold a house between December and March of this year and had to get several mortgages because I bought the new (1897) house before I sold the old (1873) one. If you read the papers, you might wonder how this could happen what with the subprime mortgage crisis and its successor, the entire-credit-system crisis. Well, you have to be able to see the trees for the forest. Both of my houses were historic and in historic districts in Oak Park. I asked one mortgage banker about defaults and his answer was simple: we don’t have any bad loans in Oak Park. The bad ones are in new developments on the fringe.

Which makes perfect sense, because just as the government is now bailing out irresponsible financiers and insurers, they got to that position by promoting ecologically irresponsible, high-energy-consumption subdivisions on the periphery. They not only gambled with easy credit, they gambled – and lost – on the environment. Those farm fields were by no means ecological treasures, but they weren’t covered with gypsum, concrete, styrofoam and sticks like they are now.

Besides the death of the Reagan Revolution, the current bailout has spurred all kinds of I-told-you-sos, which it deserves. Some of my favorites are the Henry Paulson Nigerian e-mail, which you can see on BoingBoing, along with a site that asks the Feds to bail each of us out of all the silly purchases we have made in our lives. Good luck on that count, but we can dream- even those of us who have always been rooted and responsible.

how does economics work?

April 22, 2008

There was a great symposium Saturday at the Chicago Architecture Foundation, one of several in conjunction with their exhibit on the history of Chicago preservation: “Do We Dare Squander Chicago’s Great Architectural Heritage?” that runs through May 9 (See it now!). Prof. Bob Bruegmann opened it up with an excellent history of teardowns and the inquisitive, expectation-overturning perspective he brings to everything. Prof. Richard Dye, an economist, explained the economics of teardowns. Both men suggested that an upside of teardowns was that they shouldered a bigger portion of the tax base, a fact that neighbors of teardowns are perhaps loath to admit. Bob did note that increased values could mean higher taxes for the teardown-adjacent in their little historic houses as well, and he also sagely discussed the new penchant for small houses, which are of course greener and thus more chic and popular with the wealthy.

Which is part of the objection to teardowns – lots of people hate them not for what is lost but what replaces them – ersatz castles with turrets and lions and gargoyles and balustrades that scream “I just got a lot of money and I don’t know how to use it!” (That is of course an Obamaesque elitist opinion).

Anyway, back to the economist Dye, who talked about how markets work to maximize value in good locations, which lead to teardowns, and markets fail because houses are durable goods built for current fashion but last longer than those fashions. Cathedral ceilings, great rooms, bathrooms that would make a Saudi prince blush, and other trappings of 1999 are popular examples of the fashionista excesses of McMansions and Lollapalazzos.

So I was suddenly struck – as a historian – by the fact that the teardown phenomenon emerged at the same time as the TIF phenomenon, and mindful of the big fight in Oak Park over extension of the downtown TIF, I asked whether there was a connection between these things, since teardowns occur largely in inner-ring residential suburbs that rely on a residential tax base, and since (I presumed) TIF districts limit the amount these places can rely on commercial taxes, hence teardowns – by increasing the tax base – might be related.

This got Dye’s hackles up. His short answer was no but his long answer – which came first – was that I had an understanding of TIFs that was much clearer than his and he has studied them. Zing! TIFs are simply a financing mechanism he said. Fair enough, but I told him later it was an honest question – I noticed a cohort and asked if there was a correlation. In my neighborhood the school district negotiated carve-outs to the TIF district and blamed it for their reduced income. The first TIF happened at the same time as the first teardown. That doesn’t mean they are related but you can see where the question comes from.

And my hackles get up when people describe any development – commercial or residential – as shouldering more of the tax burden. The suggestion is that I would be paying more taxes if the development didn’t happen. I hope someone at the various land institutes is studying this, because it counters both intuition and experience. Consumers have a hard time with this argument basically because taxes are historically unidirectional, and the conceptual leap “But your taxes would have gone up 200% if we hadn’t spent $25 million of public money on that shopping center” is hard for the average guy to make.

If there is a new development, property values go up and so do my taxes. If I oppose a new development and granted some queer quirk of history, stop it, values presumably are depressed, and so are my taxes. This seems to me related to Bruegmann’s argument – shared by a whole lot of economists – that regulations add costs to real estate and thus reduce affordability.

But of course real estate economics is about location, not cathedral ceilings or giant master bathrooms or high end appliances or Frank Lloyd Wright, as Dye and so many others noted. Teardowns occur in choice locations near transportation, amenities and where zoning suggests it.

Oh – there it is. A stick in the eye of the free market. Zoning. Seems government controls that, and it seems to have an oversized influence on the teardown market. My town downzoned a bunch of areas – to their actual size – recently because of outrage over teardowns of small houses just outside the historic district. Interestingly, inside the historic district there are loads of cases where they simply add lots of units on the rear, thus capturing more of their land value. Land value that comes from zoning.

Now, I’m not an economist but I am an historian and I know that Justice Sutherland was a fierce advocate of property rights and I know that the reason he upheld zoning in 1926 (I mean gee whiz he could have gotten someone else to write the opinion – he wanted his fingerprints on this one) was that it upheld property rights in the abstract and property values in specific. Location makes the big differences in price, but zoning creates the demand for teardowns in all sorts of markets – which is where teardowns are occurring. Teardowns have ripped across this country in the last 15 years with unprecedented speed affecting all sorts of communities.

Correct that – there is a precedent and it is zoning. Between 1916 and 1926, 591 zoning ordinances were enacted regulating the properties of 30 million people. Talk about a fad – that is like the iPod. Don’t tell me it didn’t have to do with property values. But somehow this topic – government granting value through zoning – doesn’t have much place in the discussion, which is queer. The whole point of Chicago’s 1957 zoning ordinance – which doubled downtown density – was to get downtown development going. TIF is a form of financing yes, but it is also a government subsidy to stimulate development in the same way zoning is a government subsidy. They are both clever in the sense that they are subsidies where you don’t have to write a check.

Now before the numbers crunchers get their knickers in a twist, look at the history. We zoned in the 1920s and then we rezoned in the 1950s, so we should have zoned again in the 1980s, but we didn’t. We didn’t rezone until the aughty-aughts (2003) and then zoning had so many damn community activist inputs raising costs that it wasn’t much good at granting value.

Oh wait, I thought of another precedent for teardowns – blockbusting. The Austin neighborhood in Chicago – about three square miles – went from all white to all black in 5-6 years. Now blockbusting was a technique whereby a speculator offered one or two white homeowners on a block a lot double what their house was worth and then sold it to a black family at a slightly inflated price, because they were buying in a white neighborhood. The speculator could afford to lose money on the transaction, because once it was complete, thanks to racism, they would be able to buy all of the other houses on the block for half price and sell them for full price.

Teardowns are different of course. Speculators find a nice neighborhood location with good amenities, offer someone a good price for their house, knock it and build a newer bigger better house. The neighbors see that and often decide they would like to cash in as well, so they get the same good price for their house, right?

The trick here – as far as an amateur like me can understand – is that real estate is all about externalities. I was taught that real estate is a commodity and an asset whose value is not intrinsic but based entirely on its surroundings. I had a real experience of this in the early 1990s when I bought two Frank Lloyd Wright houses for a dollar. As we priced out the rehab, it became clear that these houses – despite their pedigree – had a negative value of at least $40,000 apiece. Why? Location. I should share this story with Dye and Dan McMillen, since it underscores their contention that location outweighs all other factors. Even regulations, I suppose, since those are generally advocated by residents who want to maintain their property values, just as they did in 1926. I agree with the economists who say that regulations increase prices (by increasing costs) but there is a massive “D-OH” here: that is the economic expression of what the people wanted.

But the real stick in the number-crunching eye is this: people aren’t rational consumers. The majority of our economy is a consumer economy and the biggest consumer item is the personal home. There are economists who study consumer rationality, and maybe they should look at the uber-tacky McMansions and dissect some of that consumer irrationality (I suspect it is simply the absence of a visual sense).

I have studied some economists who look at land value and regulation like Glaser and William Fischel, whose most brilliant insight (related in the Homevoter Hypothesis) came at a zoning meeting when a neighbor he knew and respected opposed a development that was obviously going to be good for the neighborhood. Fischel’s eureka moment came when he realized the property owner was motivated by a simple principle: uncertainty. You can tell me it is going to be good, you can tell me I will bear less of the tax burden, but all of that is in the future and I want to keep what I have now. I am not certain how that development will turn out and I am not certain what will happen to my taxes.

Zoning arose in response to what Fischel terms “the radical uncertainty created by the truck and the automobile” and all of the various regulations from historic districts and moratoriums in response to teardowns arise from the same motivation. Some people hate what is lost and some hate what replaces them. But everyone hates uncertainty.

Lazy Money

January 30, 2006

My student Dorothy Bobco wrote me a marvelous note the other day about “lazy money”. Here is a quote:

“I think I have figured out why people get so upset when they think their property values are going down. They are losing free money, lazy money. You can buy a house and do nothing and the value will probably go up. If anything happens that changes that, they lose money that they did not have to work for. That is what makes them mad, losing money they did not have to work for. It is laziness and greed that drives the real estate market. ”

It made me think again about the Berghoff and their transparent gambit to tear down a rare 1870s Loop Building – one of only two cast iron facades in Chicago – by moving out the city’s most popular and profitable restaurant. When I spoke to Neal Steinberg at the Sun-Times about this, he made a great observation that the Berghoffs would try to get $25 million at a stroke for the land, instead of $1-2 million a year for 20 years. Lazy money. Money you don’t have to work for – as opposed to the tedious business of running a business (especially one so old fashioned that it offers benefits!) Yes, I know they are going to operate the bar for a while and the restaurant as a banquet facility, but that is how the gambit works. You change the business, eliminating the consituency and crafting excuses (the business is not profitable; the business doesn’t need this location; the facilities are run down) for demolition when the time comes two or three or five years from now.

It also reminds me of those anti-landmarks neighborhood groups – the kind that crop up when a neighborhood is about to be landmarked. They are usually young urban professionals (just like the supporters) but unlike the supporters, they are addicted to lazy money. They bought a greystone in 1995 for 3% down and have flipped it so that now they NEED their new building to be torn down for a six-flat because they have borrowed $700,000 based on their decade-old investment of $9,000. These are lazy money addicts, and they get violent when they don’t get their fix. Overdose is over-equity.

This is not fundamentally different than other market areas that see over-capitalization and over-speculation, like the late 90s dot.com bubble or the 80’s banking scandals and our current energy scandals. Who can blame them for being lazy when they get rewarded for it during the good times?

But who can blame the hard workers who put so much time and sweat into their homes and buildings – for wanting to save them, keep them from harm? Especially the harm of the lazy.

When Charities Demolish

October 7, 2005

Directing the Historic Preservation program at SAIC can be awkward – like when the School or the Museum run afoul of the historic preservation community. When Don Kalec started our degree program in 1993 AIC vetoed City landmark designation of the Sharp Building. The building was later landmarked, but only after an exterior cleaning (very good) and window replacement (bad) that our faculty failed to influence. More recently, I have been called to answer for the Museum’s demolition of the Goodman Theatre (Howard van Doren Shaw, 1925) and the School’s interest in Mesa development’s new highrise atop the Kroch’s building on Wabash.

People always are astonished that institutions whose mission is to protect and promote artistic things could propose the destruction of artistic things like landmarks. I am not astonished. This is normal in the post-1980 world.

Over the last quarter century institutions – universities, hospitals, churches and the like – have become the prime demolishers. The reason for this is pretty simple – the last quarter-century has witnessed the dramatic diminution of the public sector as well as the emergence of a host of tax incentives for historic preservation. Private developers can make money on preservation but not-for-profit institutions can’t. The same quarter-century of dwindling public resources has forced not-for-profit institutions to adopt the “grow or die” attitude of venture capitalists, leaving them with an unquenchable thirst for land. They absorb smaller hospitals and universities and they need buildable sites.

Look at LPCI’s Chicagoland Watch list released two weeks ago. Three hospitals, five churches, a public school, a post office, a club building and a train station made up most of the list. Not-for-profit and government buildings. We still have to worry about private developers when it comes to suburban teardowns (one entry on the list) and new office towers (also one entry) but mostly it is the charitable and educational who are stomping history into dust.

This was already true in the early 1990s when Loyola University tried to acquire and demolish the Hotel St. Benedict Flats. Last-minute landmarking stopped them, and a private developer came to the rescue and made good money. That same year (1994) the University of Illinois and the City began the demolition of Maxwell Street. The University of Chicago has been slowly shredding the greystone neighborhood closest to its hospitals and even DePaul has been picking off Loop buildings, although they did save the old Goldblatt’s store on State Street.

Perhaps that is why the Getty has been funding campus preservation studies (an exhibit just opened at Columbia College – ask Tim Wittman) and held a conference on the subject a couple of years ago in Chicago. Another type of not-for-profit that demolishes historic buildings – churches – is a massive subject unto itself. So, don’t send to know for whom the bell tolls…..


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