Historic Buildings and Rehabilitation Expenditures: A Panel Data Approach
Cyrenne, Philippe, Fenton, Robert, Warbanski, Joseph, The Journal of Real Estate Research
Using a panel data set, a hedonic model is estimated to determine the characteristics of buildings that have influenced the market value assessments of a set of historic and non-historically designated buildings. Holding constant the characteristics of buildings, the findings indicate higher assessed values for some classes of historic buildings. Furthermore, using a two-stage Heckman sample selection model, the findings show that the expenditures on renovations contribute significantly to the change in assessed values of buildings, although less than might be expected. These and other results may be helpful in the design of cost effective rehabilitation strategies for historic preservation.
The issue of the rehabilitation of historic buildings has attracted considerable attention from policymakers in the United States and Canada.1 Supporters of historic building preservation claim that apart from the direct benefit of improving the building stock, there are secondary benefits related to increased tourism, employment, energy savings, and waste reduction.2 While the secondary benefits are undoubtedly important, often an important element of the discussion is the issue of the expected gains in assessed values and hence property taxes that may result from the granting of assistance.
This paper reports on some background research on this issue by examining the types of buildings that have been rehabilitated, and the effectiveness of those expenditures in influencing the assessed values. Using a unique panel data set, the research uncovers the factors that have affected the market value assessments of both historic and non-historic buildings in the Exchange District of Winnipeg, Manitoba, Canada. The area contains one of the largest collections of turn-of-thecentury buildings available for rehabilitation and reuse. The area was chosen because it corresponds to the area that has been targeted for municipal tax credits.
There are a number of advantages that result from using a panel data set for the examination of the effect of historic designation on renovation and building values. First, is the ability to track changes both in designation and renovation over time for a set of historic and non-historic buildings. Second, an important advantage of the panel data used in this study is that it allows one to overcome a major problem involving hedonic models of building values, which is making sure that all economically relevant building characteristics are included. Third, the data set that is employed includes information on a set of non-historically designated buildings in the same area, which means the model has the potential to isolate the effect of historic designation on assessed values.
A number of empirical questions are addressed. First, how does historic designation influence the assessed value of historic buildings? Second, what is the effect of a number of key characteristics of buildings on the assessed values of buildings in the area? Third, is there a local externality from the presence of historic buildings on the assessed values of nearby historic and non-historic buildings? Fourth, is there a difference between the effectiveness of expenditures on rehabilitation for historic versus non-historic buildings? Finally, is there a difference in the characteristics of buildings that were rehabilitated versus those that were not?
To address these questions, a hedonic model is developed to estimate the factors that influence the market value assessments of these buildings. Using a threeperiod panel data set, two models are developed to uncover these effects. The first model is designed to uncover the factors that determine the assessed values of both historic and non-historic buildings over the period. The findings indicate that, controlling for a number of key characteristics of buildings, the assessed value of a building is higher for some classes of historic buildings. …