Posts Tagged ‘the economics of zoning’

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.

“Right” Zoning

October 16, 2006

wells and eugenie

Originally uploaded by vincusses.

Jonathan Fine of Preservation Chicago spoke to my Preservation Planning class today and introduced them to an excellent phrase: “Right” zoning. This is more accurate than “downzoning” which is a phrase commonly used to describe what happens when a local alderman or city decides to reduce the allowable density in a district.

The recent book on the history of Chicago zoning describes the “downzoning” of the lakefront communities of Gold Coast and Lincoln Park in the 1970s and 1980s, which often followed landmarking of the area. Real estate expert Jared Shlaes opposed the downzoning in a 1980 report, and the book now judges that Shlaes was probably on the wrong side of history.

Terminology is always loaded, and while “downzoning” accurately notes that the rezoning reduces the allowable density, the MORE ACCURATE term “right” zoning reflects the fact that the so-called downzoning actually reflects the REAL DENSITY found in the district.

People forget that almost every city was “UP-zoned” in the late 1950s and 1960s. Chicago doubled its density in 1957, in an effort to impel development in an age of suburban highway development. It didn’t work exactly, but there are lots of whingers who still dream of selling their rowhouse for a skyscraper nonetheless, and that 1957 zoning is still sitting there (despite a 2004 rewrite) encouraging them.

Jonathan also pointed out that historic districts are LESS onerous than downzoning because people can still add space (and value) to the rear of the their property, whereas with downzoning they might not be able to add on at all. I hadn’t thought of that. But he is right, and he has also proposed a new “renovation zoning” category that would downzone an area but allow existing owners to upzone ONLY if they rehab their own house. What fun – a law that protects community owners while sealing out the carpetbagging developers!

I have been looking at the creation of historic districts – usually precipitated by threat of new development and often by really bad new architecture – and I have to agree with Fine when he says “There would be no preservation movement if we were building great buildings.” The dreck – often really expensive dreck – populating parts of Lincoln Park is responsible for getting people agitated about preserving what they have. Because what they have – even if it was common a century ago – is priceless and irreproducible now. Historic districts are a manifestation of people’s disgust new buildings and their desire to control their own environment – it’s appearance yes, but mostly its value – social, economic and architectural.