Local Historic Districts Protect Property Values
What are the benefits of historic preservation? For years property owners in existing or proposed local historic districts (LHDs) have asked this question, and for years preservationists have answered in terms of protecting the appearance of significant neighborhoods.
It turns out that local historic districts also protect property values, according to a study released by the Connecticut Trust for Historic Preservation. The study, “Connecticut Local Historic Districts and Property Values,” was conducted by PlaceEconomics, a real estate and economic development consulting firm based in Washington, D.C. Donovan Rypkema, the firm’s principal, is the nation’s leading authority on the economics of historic preservation.
In local historic districts, which are established by municipalities under a state enabling statute, property owners must obtain a Certificate of Appropriateness from the town’s historic district commission before making any alterations to the building that would be visible from a public right-of-way, including demolition or new construction. The purpose of the review is to ensure that proposed changes are in keeping with the overall historic character of the district.
The goal of the study was to analyze what effect (if any) local historic district regulations have on residential property values. Similar studies in other states had found that LHDs tend to moderate the ups and downs of the real estate market--the highs are less high and the lows, less low. There was no direct comparative information about Connecticut, until the Connecticut Trust received a grant to commission this study, from the State Historic Preservation Office, Department of Economic and Community Development.
The researchers chose six local historic districts located in four towns--Canton, Milford, Norwich, and Windsor--where they compared property values recorded in the most recent revaluation with those from the previous revaluation, either five or six years earlier. They compared the percentage change in the average value of residential properties within the historic districts with the percentage change for properties outside the historic districts. The results were striking:
· There was no evidence that being located within a local historic district reduced residential property values. Instead, values in every LHD studied saw average annual increases ranging from four percent to more than nineteen percent.
· In three of the four communities, the value of residential properties within the local historic districts increased at a greater rate than properties with no such protection.
· In “head-to-head” square-foot comparisons based on age and style, properties within the local historic districts were worth more than similar properties not within the districts.
· Overall, there appears to be a two to four percent value premium resulting from location within a regulatory local historic district.
One town, Norwich, showed some anomalies, with property values within its two local historic districts rising more slowly than outside the districts. This may be due to different demographics. Norwich has a lower median household income and lower rate of homeownership than the other communities studied, and its LHDs--particularly Little Plain--have higher numbers of multifamily or commercial properties. Despite these differences, property values in Norwich’s LHDs did in fact increase. Furthermore, the commercial and multifamily properties saw value increases greater than the city-wide average.
Moreover, properties in Norwich’s local historic districts fared better than the rest of the city in another way: foreclosure rates within the districts were significantly lower--19.9 per thousand properties, as opposed to 28.9 per thousand in the city as a whole. Historic districts in the other study towns reported similar foreclosure rates; on average, the rate of foreclosures in LHDs was about half that of undesignated neighborhoods.
What accounts for the economic differences between local historic districts and other, similar neighborhoods? The study concludes that the difference is the greater level of stability with a regulatory historic district. As the authors point out, neighborhood character is an important component of property value, and the reason for having LHDs is to maintain the character and quality of neighborhoods. In other words, buyers can trust that the neighborhood around them won’t change for the worse--and that can be a valuable consideration.
“In some cases,” the study says, “sophisticated buyers may consciously pay more simply due to having the confidence that the character of the neighborhood they are buying into will not be subject to dramatic, adverse changes because there is a public body that reviews and then approves or denies proposals.”
Of course, this study covers only six districts in four towns, out of a total of 133 LHDs in 72 towns across Connecticut. But the authors include a description of the method they used to collect and analyze data, so that other communities can reproduce the study for their own LHDs.
Despite the economic benefits of local historic districts--to say nothing of the historical benefits--only a tiny fraction of historic buildings in Connecticut have the protection of local historic district regulations. In the four study towns, between 75 and 95 percent of houses more than 100 years old lie outside the LHDs.
As the authors conclude: “It isn’t that every one of these houses can, or even should, be preserved forever. But unless and until more communities take advantage [of LHDs], much of the architectural wealth of Connecticut remains at risk. Local historic districts have proven their worth, socially, culturally, and economically. But if the historic resources of Connecticut are to be available to tomorrow’s citizens, the work of those historic district commissions has only just begun.”
This article originally appeared in the January/February, 2012, issue of Connecticut Preservation News.