Posted by Dr Gabriel Ahlfeldt,
SERC and LSE
What’s heritage worth? Valuing such intangible cultural goods is
challenging. It is similarly challenging to evaluate policies like Conservation Areas, which aim to preserve historic or architectural local character
in England.
In a recent report commissioned by English Heritage, my colleagues Nancy Holman, Nicolai Wendland and I try to
unpick the economics of Conservation Areas using a combination of quantitative
and qualitative techniques. (See here for some FT coverage.)
Over 9,800 Conservation Areas have been designated in England since the
1960s. For economists, the challenge in assessing such policies is that most of
what they deliver to their surroundings – and society as a whole – is not directly
traded on the market. And since there are no directly observable prices, it is
difficult to put a number on people’s willingness to pay for their effects.
We therefore looked at observable market outcomes – as reflected in
more than 1m property transactions across England since 1995. Exploring more
than 8000 conservation areas, we found that property prices are generally
higher inside conservation areas – about 9% controlling for other factors – and
also tend to increase with the density of historic buildings. We also conducted
111 in-depth residential interviews with residents living in 10 Conservation Areas.
Here, we found that the premium people pay for living in conservation areas
rises with a neighbourhood’s aesthetic quality, as ranked by local residents.
All this is compelling evidence that there is a willingness to pay for
the aesthetic quality and the historic character of the neighbourhood, at least
by those living in these areas.
Are there any downsides? For homeowners, Conservation Areas pretty
significantly constrain the degree to which properties can be altered. We might
expect these constraints could cause property values to decline following a
designation. However, looking at over 900 recent designations across England,
we couldn’t find any significant effect on prices. Owners we interviewed also
generally express positive attitudes towards the planning constraints that come
with designation, and the planning system more generally.
This is good news for policymakers, since it suggests Conservation
Areas secure local social benefits without costs to individual homeowners. Rather,
designation captures externalities that are then capitalised into house prices.
In doing so, Conservation Areas solve a form of prisoners’ dilemma. If all
local homeowners look after their historic houses, everyone is better off. But
individual homeowners might be tempted to let their properties go to seed, while
free-riding off nearby properties’ ‘character’. A regulation that ensures collective action
makes such free-riding much harder to do.
It’s harder to say whether more conservation area designations are in
the interest of society as a whole. For
instance, we don’t know if Conservation Area designations limit the supply ofnew housing in some regions, or the country as a whole. If they do, too
many designations may create gilded cages – beautiful towns in which living
space becomes unaffordable for the average household. More work needs to be
done to answer this question.
