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Thursday, July 19, 2007

Heritage Designation and Property Values: is there an

Robert Shipley

Abstract

This paper describes research that was designed to examine the assertion that historic designation of properties, under the heritage legislation in Canada’s largest province, has a negative impact on the values of those properties. The actual selling price of subject properties was used to establish their value history trends, which were then compared to ambient market trends within the same communities. Almost 3,000 properties in twenty-four communities were investigated, in what is believed to be the largest study of its kind ever undertaken in North America. It was found that heritage designation could not be shown to have a negative impact. In fact there appears to be a distinct and generally robust market in designated heritage properties. They generally perform well in the market, with 74% doing average or better than average. The rate of sale among designated properties is as good or better than the ambient market trends and the values of heritage properties tend to be resistant to downturns in the general market.

Key words: Canada; Heritage; Historic Preservation; Listed Buildings; Property Values

By international standards the process for recognising the significance of heritage buildings in Ontario, Canada’s largest and most populous province, is not very rigorous. The basis of heritage preservation is, of course, the same as in other jurisdictions; that each generation should attempt to pass on cultural values through heritage sites that represent them.1 In 1975 the Provincial government proclaimed the Ontario Heritage Act. The guiding principles behind the Act can be found in the 1964 Venice Charter produced by the United Nations Educational, Scientific and Cultural Organisation (UNESCO), to which Canada is a signatory.

The Ontario Heritage Act gives responsibility for heritage to local governments. Individual properties can be designated under the Ontario Heritage Act and there is also a provision for the designation of `heritage districts’ where entire neighbourhoods of historical significance can be recognised. The criteria for designation are quite general with guidelines that require structures be judged to have `historic or architectural significance.'

To accomplish this recognition of heritage the Ontario legislation encourages
municipalities to establish Local Architectural Conservation Advisory Committees (LACACs). However, these committees of appointed volunteers can only recommend the designation of historically and architecturally significant properties to their municipal councils. Once designated, any planned changes to a property (usually just the building exterior) must be reviewed by the LACAC, which advise the local council which then makes the final decision. In the end, if the owner of a designated property decides to demolish the structure there is only provision for a waiting period of a few months.

The fact that the province has delegated the responsibility of heritage designation to the municipalities has had at least two outcomes. On one hand the local community can be said to be best suited to determine its own heritage and sense of what is culturally significant. On the other hand the application of the Act’s designation process has been uneven at best. Of the several hundred municipalities in the province, less than half even have Local Architectural Conservation Advisory Committees and only a handful of the largest cities have staff assigned to heritage conservation. It is also rare for a building to be designated without the consent of the owner. In the case of districts, once designated any individual owner within the area has the option to exempt his or her property from the provisions of designation. This all means that designated buildings are not necessarily representative of the types of buildings which might be most important to preserve. A new and more comprehensive Heritage Act was drafted several years ago in Ontario but has never been enacted. Other Canadian provinces, with the exception of Quebec, are little better off than Ontario.

Need for Research

The relative weakness of heritage conservation legislation in Canada has at least a couple of causes. One is the all-too-common notion that little is old enough in such a young country to warrant preservation. The second aspect that discourages architectural conservation is the prevalent North American attitude towards the sanctity of private property. In general, people do not like property regulations. In this regard, one of the most frequently raised arguments against recognising the special significance of certain historic properties is that the value of a designated property will be decreased. It is argued that designation restricts what owners can do with their property. This, in turn, it is said, limits the number of buyers willing to accept such restrictions, and therefore limits the demand with the result that the potential market price for the properties is diminished.

The perception that designation has a negative impact has even reached the courts. In 1992, a legal offer to purchase a home was not honoured and the subsequent civil trial featured the supposed loss of value due to the designation of the property as a central issue. The case is still being appealed. It is often real-estate professionals, including agents, brokers and appraisers, who advise people that designation will have this downward effect on the future selling price of properties. This advice is offered on the basis of what might be called a `received wisdom’, or something that is accepted without proof. When asked, the proponents of this view can point to no research or systematic study that supports their position. What they do sometimes have is anecdotal knowledge of some particular example. In fairness it must be said that the proponents of designation are often in the same position, that is, their assertions that designation is neutral or positive, are supported by specific examples.

Heritage is about cultural values and not about economics. It should not be suggested that heritage designation is undertaken with the expectation of enhancing the market value of a property. However, property owners are justified in hoping that they will not be penalised financially for recognising that their buildings have a cultural value to the community as a whole. If heritage designation is not being pursued because of misinformation about economics, then that notion should be addressed and a reasoned discussion about the issue ought to be joined.

The Antecedents and Development of the Present Project

While research has been done in the United States, Australia, Great Britain, and previously in Canada, there was clearly a need for further clarification of this issue. Reliable, systematically and statistically defensible data were needed to replace anecdotal information which can be specific, idiosyncratic and selected to support either point of view.

The principal question considered in this study was initially addressed in the period 1990± 1992 by the present author as the subject of his report, Exploring the value of heritage properties.9 That initial study examined property values within thecities of London and Kitchener, with populations of 300,000 and 125,000, respectively. The methodology used in the current study has been adapted and refined from the approach used in the initial work. There are three notable differences from the earlier work. First, the current study relied on the use of local volunteers to gather the survey data. Second, the sample size and distribution was approximately seven times larger than the original study. Finally, the analysis of the data gathered on properties for this study focused only on sales that occurred after the time of designation, whereas the previous survey considered the whole price history trend of properties that were eventually designated. The main reason for the latter point is that more time has passed since the designation of many of the properties and it is therefore more reasonable to look just at the period affected directly by the act of heritage recognition.

The results of the original study of London and Kitchener were that in 64.4% of the survey cases in London, the individual designated properties performed better than average in the city’s real-estate market. Another 33.3% of the cases showed that the performance of the designated properties was consistent with the performance of the market in London. Only 2.2% of the properties exhibited performance below the average real-estate market. These results were shown to be consistent with those for Kitchener as well, which had 60% of properties above average, 40% at the average and no designated properties performing below average.

The information derived from the 1990± 1992 study proved to be of considerable interest to people in the Canadian heritage community. It has been widely republished in a variety of journals ranging from academic to those serving professional associations in the real-estate field as well as popular magazines aimed at home renovators.

In 1996, an interest was expressed by the Ontario Ministry of Culture, Recreation and Citizenship, as well as by the Architectural Conservancy of Ontario and individual LACACs, in expanding the research. It became evident that collecting data for a large number of communities of varying sizes and geographical locations would strengthen the findings of the research. This would also prove to be more useful for local communities, as there would be a greater likelihood that the study would have included a community comparable with their own. The terms of reference for the current project were set out in April 1998.

Research Focus

Given the need to deal with the perception that exists in some quarters of the real estate industry, a null hypothesis was used for the focus of the study. The statement of the null hypothesis was: `if a given property is designated as having heritage significance, then the sale price trend of that property after designation will track lower than the average market trend for the community’ . The average market trend was used as the comparison in this study for three reasons. First, the actual selling price of heritage properties was used and some were above, below or the same as the average dollar value of properties in the community. But these values were used only to establish the trend or trajectory of the values of designated properties which were then compared with the ambient trend.

Secondly, because of the nature of designatable properties they are by definition special in some way it is difficult to find similar properties for comparison purposes. In some cases there are reasonable comparisons. An example of this is where one house in a row has been designated as representative of the type. More often this is not the case and so the average property value trend in a community is a better baseline for testing the assertion that designation is generally a negative force. Some would argue that individual appraisal of properties might overcome these factors but appraisal also has its limitations and is not an exact science. Depending upon whether an appraisal is done for a bank, which needs to know the minimum price it might expect for selling a property quickly, or a vendor, who wants to know the maximum that the market might bear for a property, appraised value can vary by as much as 30%.

Finally, the average property value trend has been used in other reputable studies such as Rypkema’s `Preservation and property values in Indiana.'

Scope of the Research

The research described in this paper set out to examine the sales history trends of designated properties in as many Ontario communities as possible. Attention was given to size, character and geographical spread of the communities, in order to allow the findings to be applicable to all regions of the province. Participation was sought from a wide variety of communities with respect to the size and character in order to establish a sample which was broadly representative. In the end, 24 communities participated in the study ranging in size from Ottawa (population ca 300,000) through medium-sized cities such as Guelph (ca 80,000), down to smaller places such as Port Hope and St Marys (less than 20,000). The communities also represented a range from the very urban, such as Kitchener, to the very rural, such as Mississippi Mills. The geographical spread covers places from the far south-west at Windsor to the north in Sault Ste Marie. In some cases there were not enough data available from communities to establish a market trend and allow analysis, butthat information too has its significance. In the final analysis, data were available from fourteen communities.

While the main focus was on individually designated properties, data were also gathered from a number of designated districts. These included Meadowvale Village in Mississauga, the Doon Heritage Conservation District in Kitchener, the Brant Avenue district in Brantford and the main street of Bayfield, Ontario. The great majority of the properties examined were residential but data were gathered on some commercial properties.

Limitations of the Research

As with all studies, several limitations must be recognised. The first limitation is the fact that this study dealt with only one of many issues affecting property values. While undertaking this work, the researcher visited Meadowvale Village in Mississauga. During that visit, several planes passed noisily overhead on their final approach to Toronto’s International Airport. That phenomenon could be seen as having a potentially negative effect on local property values. On one side of the Village there is a Conservation Authority-protected wetland area with a watercourse, marshes, walkways and wildlife. That feature could be seen as having a positive impact on local property values. While it is virtually impossible to isolate one factor affecting property values, this study has done its best, by gathering data on a consistent basis from communities across the province and making the same comparisons in each, to draw some general conclusions about the single matter of heritage designation.

The second limitation concerns the fact that the study was a comparison of trends in property value using the average property value trend within communities. Sales history data about populations of properties rather than individual examples of architecture were being examined and the study does not purport to be a systematic set of property-specific appraisals.

The final limitation concerns the small sample size within some of the individual communities. While lists containing large numbers of designated properties were collected to begin the project, a total of 2,707, a great many of these were eliminated from consideration in the study because they were not in private ownership and thus not in the market-place. The numbers were further reduced because many of the properties had fewer that two recorded sales within the time period under consideration and, therefore, had no measurable sales history. In the end, 328 properties with sales histories were considered. This sample was again reduced to 208 for analysis purposes because only properties with sales after their designation were included. The small sample within some of the individual communities was compensated by the inclusion of many communities in the study. Whereas the results in a given community, such as Mississippi Mills, with only eight examples, may be inconclusive because of a small sample size, replication over a large number of communities serves to strengthen the findings of the study.

To read the remainder of this article please refer to International Journal of Heritage Studies, Volume 6, Number 1 (March 1, 2000), p. 83-100.