Speeches

"The Economics of Historic Preservation: Taking a Leadership Role"
Organization/Conference: Downtown Rotary Club
Location: Madison, Wisconsin
Date: July 9, 2003

Thank you. A couple of years ago I was doing some work with a citizens’ group in Togliatti, Russia. At the end of the day our host — the director of the local Chamber of Commerce — took us to what we in this country would call a brewpub. Well, the upper level was a brewpub, but the walkout lower level was actually a beer club — you had to be a member to get in. Well, we went to the beer club and the manager came over to chat. And here’s the story he told.

It seems that a few years earlier there was a group of club members sitting around a table who had all been members of the local Duma — that is city council — when Russia was a Communist state. And over their beers they were bemoaning the loss of — no pun intended — the “comradeship” from their earlier days.

None of them wanted to go back to be a Communist form of government, but they just missed the brotherhood of their time running local government. So you know what they did? They formed the local Rotary Club. So all the Rotarians in Togliatti, Russia are former Communists. I just thought you might want to know. Heck for all I know some of you went to the University of Wisconsin in Madison during the Sixties and you’re probably former Communists, too.

My assignment today is to talk about historic preservation. But I would ask a favor of you. Please put out of your mind what you think is historic preservation. I suspect for many of you “historic preservation” is the local group of retired librarians writing letters to the editor and struggling to raise funds to save the mansion of the local rich, dead white guy.

Well thank god for those activists, those letters to the editor, those fund raising events, and even for those rich, dead, white guys, because the properties that have been saved are an important component of understanding ourselves as a people and constitute an irreplaceable collection of the art of architecture and landscape architecture that has been created in our country’s relatively short history.

But that part of historic preservation — saving old mansions — represents an insignificant percentage of preservation activities today. In fact, in the last two decades, historic preservation has moved from an activity whose goal was an end in itself — save old buildings in order to save old buildings — to a broad based, multifaceted group of activities that uses our built heritage not as an end in itself but as a means to broader and, frankly, more important ends.

One other area that might come to mind when you think about historic preservation and economic development is heritage tourism. And, indeed, heritage-based tourism is one of the fastest growing segments of the visitor industry worldwide. Here in the United States there have been numerous analyses of the relative impact of heritage travelers versus other types of tourists.

The results are remarkably consistent: heritage visitors spend more per day and remain in the state longer than other tourists. In Virginia, heritage visitors stayed longer, visited twice as many places which resulted in per visit expenditures two and a half times that of non-heritage visitors. Of course that’s Virginia, with lots of historic places.

But even in a state like Florida where tourism is equated with Disney World and the beaches, over 10,000 annual jobs are created just through the heritage component of their giant visitor industry. So is heritage tourism an important component of the economic impact of historic preservation? Of course. But even so, my best guess is that 99 percent of all the historic buildings in active use in the United States have nothing to do with tourism.

I’d like to spend the rest of my time today talking about economic elements of historic preservation that might not be quite so obvious. And I’d like to begin with housing. Of course nearly every city has its neighborhood of grand old houses built by bankers and captains of industry at the turn of the century of which it is rightly proud. But that’s not the housing I’m talking about.

Over the next ten years around 20 million net new jobs are going to be created in America. And that’s great. But nearly seven million of those jobs — 34 percent of the total — are going to pay less than $20,000 per year. Now I suppose that has all kinds of political, social, and philosophical issues involved. But I have just one question: where are those people going to live?

We’ve got some choices here. We could build houses way out in the country where land might be cheap, but we will exacerbate all of the problems of sprawl.

I suppose we could build a whole bunch of public housing. But I don’t know where the constituency is for that. Many have concluded that public housing is a noble 70-year effort that has failed. Mobile homes are part of the answer to affordable housing, but two-thirds of mobile home residents don’t own the land under their dwelling, obviating the traditional advantages of home ownership.

Or we can start paying attention to and reinvesting in our older and historic neighborhoods.

Now certainly not every building over 50 years old is or ought to be considered “historic.” But for the moment let’s take a look at the housing in this country built before 1950. And let’s for the sake of discussion consider older and historic neighborhoods without distinction. You all know about the census of population every ten years, but not everyone knows that there is also a periodic census of housing. What I want to do is to share with you some of what has been learned about these older neighborhoods.

• Think about those $20,000 jobs. What can they afford for rent? No more than around $500 a month. Well 48 percent of the housing built before 1950 that is tenant-occupied rents for less than $500 a month.
• There’s a basic principle in real estate that you can’t build new and rent cheap. And to demonstrate that, 84 percent of housing built in the last five years rents for more than $500 a month. In other words, out of the price range of those seven million workers. Of all households living below the poverty line, 32 percent live in older and historic housing.
• Of the people below the poverty line but still own their own homes, 30 percent of those houses were built before 1950.

Now you can say, “well but those poor people have housing subsidies to take care of the affordability issue.” Seventy percent of households with incomes less than $20,000 receive no housing subsidy of any kind. I don’t know about Madison, but many communities have someone in city hall, a building inspector or a police chief or a member of the city council who will say, “Yeah, but those old houses are about to fall down.”

As it happens, this housing survey also looks at the condition of housing and identifies units that suffer from severe physical problems — arguably the properties that ought to be torn down. You know how many pre-1950 houses are identified as having severe physical problems? Three percent! Another 8 percent are identified as having moderate physical problems, meaning that 89 percent of older and historic housing isn’t on the physical problem list.

So when you see a house being torn down in an older neighborhood in your community, don’t just weep for the architectural character or cultural significance or historic importance that is being lost forever. Also say to yourself, “Well, there’s one more unit of affordable housing that we’ve thrown away.”

We can replace an affordable housing unit through some Federal program, of course, but a study last year by the General Accounting Office pegged the cost of Federal housing programs at between $75,000 and $135,000 per unit. The vast majority of what we see as deteriorating housing stock can be put back into safe usable condition for far less than that.

Now some cities have a hot-shot economic director who says, “Well, I understand how other places are going to have to worry about this affordable housing for workers business, but our town is going to be part of the new economy, the high-tech economy, the cutting-edge economy. And those are all high-paid jobs so we don’t have to worry about the affordable housing issue.”

Well, Mister “We’re The New Economy” Economic Development Director, let me ’splain you something. In the next ten years for every new job for a computer programmer we’ll need seven clerical workers; for every chemist we’ll need 43 cashiers; for every operations research analyst we’ll need 73 janitors.

Furthermore, the so-called new economy workers are driven by quality-of-life issues on where they want to live. Quality of life means good childcare, and childcare workers make less than $11,000 a year. Quality of life means nice restaurants. Waiters — and we’ll need 300,000 more of them over the next ten years — make $12,730 a year. Quality of life means clean and safe buildings, which require janitors and guards and they make less than $16,000 a year.

So high-tech, high-pay, new economy cities…good for you, but you’re going to have to have a whole bunch of workers who don’t get paid like you do. Those workers are going to need a place to live. So you better be insisting that older neighborhoods be protected and enhanced if for no other reason than to make sure your kid’s nanny has a place she can afford to live.

Another area where historic preservation plays a major economic development role is in downtown revitalization. I’m often introduced as a preservationist, but what I really am is an consultant in economic development who works almost exclusively in downtowns and neighborhood commercial centers, and I’ve been doing that for 20 years.

Less than two decades ago business leaders, political officials, city planners and others looked at their deteriorating downtowns and said, “Well, if downtown is going to survive at all it will be as the city’s government and financial center.” Of course that was a recipe for a downtown active from 9 to 5, five days a week.

This not only wasn’t a healthy downtown socially and culturally, but was a profligate waste of millions of dollars of investment in public infrastructure that was there, in place, on call 24 hours a day, 7 days a week. And in days when being conservative with taxpayers’ dollars is high on every politician’s agenda, allowing the ongoing deterioration of downtown has been recognized as the ultimate in fiscal irresponsibility.

Across the country there are, of course, a variety of approaches that have been used in downtown revitalization efforts. But I cannot identify a single example of a sustained success in downtown revitalization that does not have historic preservation as a key component of that effort. That doesn’t mean, I suppose, that it isn’t theoretically possible to have downtown revitalization without historic preservation, but I haven’t heard about it, I haven’t read about it, I haven’t seen it, I haven’t been there.

In fact by far the most cost-effective program of economic development — not just of historic preservation or downtown revitalization — but the most cost-effective program of economic development of any kind, is a program called Main Street. Main Street is commercial district revitalization in the context of historic preservation. Wisconsin, by the way, has one of the best Main Street programs in the country.

Main Street started as a program for downtowns of small towns. In the last 20 years some 1650 communities in all 50 states have had Main Street programs. Over that time the total amount of public and private reinvestment in those Main Street communities has been $16.1 billion.

There have been over 56,000 net new businesses created generating nearly 227,000 net new jobs. There have been 89,000 building renovations. Every dollar invested in a local Main Street program leveraged nearly $40 of other investment. The average cost per job generated was $2,500, less than a tenth of what many state economic development programs brag about.

I said that Main Street began as a program of economic development in the context of historic preservation for small town downtowns. In recent years, however, the fastest rate of growth in Main Street programs has been in neighborhood commercial districts in larger cities.

The first and hugely successful Urban Main Street program is in Boston where it was the top economic development priority for Mayor Menino. Subsequently there have been urban Main Street programs established in Baltimore, Washington, DC, San Diego, Philadelphia, Milwaukee, Dallas, Detroit and elsewhere. New investment is today taking place in gritty urban neighborhoods that in many instances have seen nothing but the departure of people and capital for two generations.

Now Main Street is not a “big fix” response to commercial district revitalization. It is bottom-up, small-scale, incremental — business-by-business, building-by-building, block-by-block. But through that effort what has been recognized another critical economic contribution of historic preservation — the natural incubation of small businesses.

You know the real growth in net new jobs in this country is not created by Fortune 500 companies. Eighty-five percent of all net new jobs are created by firms employing less than 20 people. One of the few costs that small, independently owned, growing businesses can control is occupancy cost — rent.

It’s not an accident that these small businesses aren’t starting up at the regional shopping mall or the corporate office park. They cannot survive paying the rents those spaces command. An inventory of small-scale, older, price-competitive space is essential to incubate the small, innovative, creative, start-up businesses that our economy requires if it is to grow. And that space is found in older and historic buildings downtown and in neighborhood commercial centers.

Probably the most broadly based, citizen-driven movement in the country today is Smart Growth. I’ll be brief on this issue and only say this: historic preservation is not just one of the tools of Smart Growth, it is the indispensable crucial tool.

Historic preservation constitutes a demand-side approach to Smart Growth. I’m not at all opposed to acquiring greenbelts around cities or conservation easements on agriculture properties or transferable development rights. Those are certainly important and valuable tools in a comprehensive Smart Growth strategy. But they only reduce the supply of land to be developed; they do not address the demand for the use of that land.

The conversion of a historic warehouse into 40 residential units reduces the demand for ten acres of farmland. The economic revitalization of Main Street reduces the demand for another strip center. The restoration of the empty 1920s skyscraper reduces the demand for another glass and chrome building at the office park.

Again, I don’t mean to be critical of supply-side strategies, but without demand-side responses, their success will be limited at best. Simply put, there can be no Smart Growth without historic preservation. Period. No exception. Any anti-sprawl strategy that does not have historic preservation at its core is Stupid Growth. Period.

Smart Growth is an interesting political phenomenon. Republicans support it for fiscal responsibility reasons. Democrats support it for environmental reasons. Remember those tests you used to take in high school that would give you four words or phrases and then ask you what their connection was? Well let me give you such a test: Amazon rain forest, endangered species, vehicle emissions, recycled paper. Well every fifth grader in Wisconsin would hear that list and say, “Environment.” And she would be right, of course. But when you think of it there really isn’t much direct connection between reused paper and endangered species. And yet we readily accept it’s all about the environment.

Now if I were to say, “economic development, neighborhood stabilization, smart growth, and downtown revitalization,” maybe some of you might say “historic preservation,” but I dare say the vast majority of Madisonians would not, and certainly not every fifth grader in the city. Preservationists are having an amazingly wide impact, but have yet to weave the web of awareness regarding preservation’s impact among the public in general.

We all diligently recycle our Coke cans. It’s a pain in the neck, but we do it because it’s good for the environment. Now even though a quarter of everything dumped at the landfill is from construction debris, we don’t often think about the environment in relation to the demolition of historic buildings. But let me put it in context for you.

Let’s say that today we tear down one small, two-story, 25- by 100-foot masonry building in downtown Madison. We have now wiped out the entire environmental benefit from the last 1,344,000 aluminum cans that were recycled. We’ve not only wasted an historic building, we’ve wasted months of diligent recycling by the good people of Madison. Now why doesn’t every environmentalist have a bumper sticker saying “Recycle your aluminum cans AND your historic buildings.” Either that or let us off the hook from having to sort those Coke cans every week.

Now I think it is becoming more widely understood that concern for the environment and smart growth are important elements in long-term economic health. But ultimately economic development is about jobs. The measurement of the impact of any economic activity is generally measured in number of jobs created — directly and indirectly — and the amount of additional household income generated.

For example, in Wisconsin the manufacture of a million dollars worth of food products generates 24.6 jobs and adds $497,000 dollars of household income to Wisconsin citizens. The same amount in wholesale trade adds 29 jobs and $660,000 in household income. A million dollars in new construction adds just less than 34 jobs and $699,000 in household income.

What about the rehabilitation of an historic building? 36.1 jobs and $790,000 in household income — two more jobs per million than new construction, seven more jobs than wholesale trade, 11.5 more jobs than agricultural processing. $91,000 more in household income per million than new construction, $130,000 more household income than wholesale trade, $293,000 more household income than agricultural processing.

Does this mean we don’t want agricultural processing, wholesale trade, and new construction? Of course not. But there are very few types of economic activity that are more potent in terms of job creation and the increase in local household incomes than is the rehabilitation of older and historic buildings.

Historic preservation creates jobs and household income during the construction process, but what is the impact on property values? This particular issue — how does a local historic district affect property values — has been looked at more frequently than perhaps any other issue of preservation economics. And regardless of region of the country, size of the community, age of the community or methodology utilized, the results have been remarkably consistent — the worst-case scenario is that properties within a local historic district have rates of appreciation parallel to the overall market, and in most cases the rates of appreciation are significantly greater than either the overall market or comparable nondesignated neighborhoods.

Now to some that may seem counterintuitive. After all, doesn’t having a local historic district mean there is one more layer of approvals necessary before I can do something with my property? Well, yes, it usually does. But the positive impact on property values stems from that old real estate cliché: the three most important things in real estate are location, location, location.

Think about what that means. The saying isn’t “the three most important things are roof, walls, and floor,” but location, location, location. Unusual among investments, the economic value of real estate is largely generated external to the property lines, are generated not by the property itself but its context.

Almost once a week I’m in some community and they drive me through their nicest neighborhood, point at some great old Victorian house and say, “If that house were where you live in Washington, it would be worth $3,000,000.” Yeah, but it ain’t!

Real estate values emerge from their local context. And that’s the positive impact on values of historic districts: the protection of the context within which the individual property is located. It’s not that anyone loves going through the hoops of another regulatory body but rather the assurance that the lunatic across the street isn’t going to be able to do something crazy to his property that will diminish the quality of the context of the location from which your value stems.

I mentioned earlier that Smart Growth was one of the few areas where there is a broad consensus across the political and philosophical range. That is not true of overall urban policy, on which there is little consensus.

There is one area where there is widespread agreement: the conclusion that our cities would be healthier if we had diverse, economically integrated neighborhoods, that it isn’t particularly healthy to have neighborhoods that are all white or all black, all rich or all poor.

America and its cities are extremely diverse, racially, ethnically, educationally, and economically. But at the neighborhood level that isn’t true. The vast majority of American neighborhoods — especially newer ones — represent a very narrow slice of a given community’s population. But the exception to that in everywhere I’ve looked is in the historic districts. Those neighborhoods are, most often, essentially a mirror of the diversity of the entire community.

Why? Two reasons, I think. First, the underlying quality of the historic neighborhood has wide appeal that crosses over economic, social, racial and ethnic differences. Secondly, when there is a wide variety of housing options — in size, condition, age, price — there is a wide variety of human beings who will choose to live there. That diversity of the housing stock is usually true in historic neighborhoods and almost never true in new subdivisions. And a diverse housing stock means a diverse neighborhood.

There is one final economic consequence of current understanding of economic development variables that is affected by historic preservation. It is the matter of community differentiation.

In Italo Calvino’s Invisible Cities Marco Polo is describing to Kublai Khan the various cities of the Khan’s vast empire. In depicting the city of Trude, here is what he tells the Khan:

If on arriving at Trude I had not read the city’s name written in big letters, I would have thought I was landing at the same airport from which I had taken off. The suburbs they drove me through were no different from the others, with the same little greenish and yellowish houses. Following the same signs we swung around the same flowerbeds in the same squares. The downtown streets displayed goods, packages, signs that had not changed at all. This was the first time I had come to Trude, but I already knew the hotel where I happened to be lodged; I had already heard and spoken my dialogues with the buyers and sellers of hardware; I had ended other days identically, looking through the same goblets at the same swaying navels.

Why come to Trude? I asked myself. And I already wanted to leave. “You can resume your flight whenever you like,” they said to me, “but you will arrive at another Trude, absolutely the same, detail by detail. The world is covered by a sole Trude which does not begin and does not end. Only the name of the airport changes.

That’s really why preservationists struggle to save historic buildings and neighborhoods — to avoid having the “world covered by a sole Trude which does not begin and does not end.” In economics it is the differentiated product that commands a monetary premium. If in the long run we want to attract capital, to attract investment to our communities, we must differentiate them from anywhere else. It is our built environment that expresses, perhaps better than anything else, our diversity, our identity, our individuality, our differentiation.

Each community’s historic built environment is an important component in “our describable outside.” The efforts over the last several years by many of you in this room well represent the “moves you are making in the place you live to signify your intent and meaning.” I had a brief tour of Madison this morning and that intent and meaning is not difficult for even a casual visitor to grasp — an exceptional community, proud of its past, preparing for its future, and doing everything possible to make sure that Madison is a place of high quality of life for its citizens today.

Today’s citizens thank you, tomorrow’s citizens will thank you, and I thank you for the opportunity to be here with you today. Thank you very much.

© Donovan D. Rypkema
PlaceEconomics
1785 Massachusetts Avenue, NW
Washington, DC 20036
202-588-6258
DRypkema@PlaceEconomics.com