Economic Argument for Historic Preservation: Older Housing is Affordable Housing

Elaborate on why the L.A. Conservancy commissioned a study to specifically examine the economic benefits of historic preservation in Los Angeles.

Adrian Scott Fine: The L.A. Conservancy initially commissioned this report when we were celebrating our 40th anniversary. We had long wanted a data-based analysis to help make the case that preservation “pays.” We began by looking primarily at the economics, then we broadened our scope to look at affordability, density, gentrification, etc. We wanted the study to address the tough issues.

Candidly, there were some surprises along the way. We had no idea that HPOZs in Los Angeles were going to be as diverse as they are, or have so many multi-family units. Public policy exchanges and Twitter chatter are focused mostly on how single family-homes and luxury housing stand in the way of building dense, affordable housing; and, HPOZs get lumped into that issue framing. Sadly, HPOZs are being attacked left and right as being the entities that stand in the way of providing affordable units. But that’s not an accurate description of what’s going on economically, as HPOZs actually are providing a lot of the multi-family housing.

It is important to note the nexus of density and affordable housing. Surely, density is part of the solution set; but a myopic focus on density doesn’t necessarily mean you get affordable housing. In L.A., currently we’re prioritizing density but losing affordable housing; it’s contrary to the goal that the City of L.A. is espousing. This report sheds light on that failure; our next step is to share this report with policy advocates and decision-makers who should be reading it. Ultimately, it is for the L.A. Conservancy to build an action agenda that translates the central findings of the report into policy recommendations.

Donovan Rypkema, elaborate on the economic mission the L.A. Conservancy invited you to assume and the vital role of historic preservation in placemaking.

Donovan Rypekema: Our approach was to cast a wide net. Adrian Scott Fine and Linda Dishman talked about key issues in play at the moment—housing, density, affordability, etc.—and asked us to look at what preservation is and how it’s positively affecting the city.

While there are a few exceptions, our basic approach is to examine historic neighborhoods rather than individual buildings. We looked at density, small businesses, start-ups, affordability, diversity, and a range of measurements about what’s happening in historic districts [HPOZs].

You’ve got some historic properties in L.A., and some of them are in an HPOZ. Some have a degree of oversight but to a lesser degree are the National Register districts that are not locally designated; but because of CEQA [California Environmental Quality Act], there is some review. You have individual monuments too. And then you have 30,000 or so properties that SurveyLA identified as eligible historic properties, but that aren’t under any protection.

Historic properties end up being about four percent of the city’s land area. You’ve got to have density and more housing, but you’ve got 94 percent of the city that doesn’t fall under any definition of historic. The idea that historic districts are what’s keeping us from having affordable housing and are responsible for gentrification is just nonsense. 

You’ve personally been doing  city-level studies for three decades; what’s distinguishes the urban landscape of Los Angeles and its historic preservation challenges? 

A number of things— the patterns are consistent, but there were some very interesting deviations from other places. We’ve probably done a dozen city-level studies like this, including New York, Savannah, San Antonio, Raleigh, and Indianapolis. In terms of local protections found in Los Angeles, there are far fewer historic commercial districts than in most places, and that is reflected in lots of ways, including jobs. In Los Angeles, about 1.8 percent of all the jobs are in historic districts, whereas it’s 8 or 8.5 percent in New York City and 30 percent in Savannah.

For a lot of reasons – including L.A.’s bottom-up approach to nominating HPOZs – there’s a much lower share of commercial districts that are designated historic. That doesn’t mean it’s either good or bad, but it shows the pattern. What’s more pronounced in other places are the patterns of preference for small, start-up, and creative-industry businesses that, in other places, really show a statistical preference for being in historic neighborhoods. That’s just not demonstrable here, because there aren’t many designated historic commercial districts. There are plenty of great historic districts, but they’re residential neighborhoods, not commercial.

Another distinguishing feature we saw was diversity, because it was so counter to the cliché that historic districts are where rich, white people live. That’s not the pattern in Los Angeles at all. In fact, historic districts are statistically more diverse in terms of race, ethnicity, age, and income than in the city as a whole—even though historic zones include only 3 percent of the population and 4 percent of the parcels. It’s more than a demographic mirror of the city— it’s a greater reflection of the diversity of the city.

How have you organized your research and ultimate findings?

We understand it’s a major issue, so we looked at density in historic districts versus other residential areas, and it’s almost twice as much. In fact, the densest historic districts are decidedly denser than other areas of the city. When you look at the housing and transportation measures, it’s more affordable—or less unaffordable—in these historic districts than in the city as a whole.

There is a greater use of public transportation—24 percent—by people who live in historic districts. The other interesting thing is that when you look at the age curve and population by age, it’s almost identical except for millennials. This finding about millennials is very consistent with national analysis that shows 34 percent of all homes, 44 percent of houses built between 1920 and 1960, and 54 percent of homes built before 1920 are bought by millennials.

I think this disproportional skew is driven by the three C’s: the character of the neighborhoods, the cost of the housing, and the convenience.

Compared to your other city-level examinations of historic preservation, what role do city rules, regulations, and protections won by the preservation movement over the years have on the economic resiliency of these neighborhoods?

 The most obvious impact is that the rate of demolition is measurably less. We looked at 20 years’ worth of building permits—both number of permits and cost—and got lots of help from Ken Bernstein, whom I’ve known since he was at the Conservancy.

Another finding was that 22 percent of the dollars spent in historic districts was for new construction. This idea that somehow these neighborhoods are mummified or stuck in place is just not true.

In fact, it’s not that the regulations dictate that a neighborhood has to stay the same forever and no change is acceptable, it’s that the change that’s made has to be in the character of the neighborhood. That’s an appropriate role for regulation, and it really puts aside this idea that protections exist just to freeze these places in amber forever.

There was a great report that came out around the time we were starting our report from some researchers at UCLA in conjunction with UC Berkeley. They looked at all the neighborhoods in L.A. from 2000 to 2015 and identified—based on their definitions—all the neighborhoods that were gentrifying. We overlaid their map with all the HPOZs and found almost no correlation. There was some overlap, but 90 percent of their map had no historic designations.

The issue of housing affordability is true in every place, but it clearly has an order of magnitude greater impact here than in other cities. National Register districts that are not local districts have no HPOZ protections, but here there’s at least a cursory review [through CEQA].

I do think there is an underutilization of federal tax credit in Los Angeles. It’s a great tool that, for whatever reason, is not used as often and as completely here as it is in other places.

What precisely, from your L.A. research, are the economic benefits of preserving these historic neighborhoods?

Much of our approach is revealed preference analysis: Not asking what people think, but how they act. There’s this decided pattern of young people and the creative class, knowledge workers, start-ups, and small businesses with a preference to be in historic neighborhoods because of the kind of character they represent. That has big economic implications.

We didn’t spend a whole lot of time on it, but there’s also an issue of labor intensity in rehabilitation versus new construction. As a general rule of thumb, if I’m building a new building in the United States today, half the money goes to labor and the other half for material. If I’m rehabilitating a historic building, it’s going to be 60 to 70 percent labor. That difference means that if you spend a million dollars, you get more jobs and local income. The rehabilitation has a primary impact with the number of jobs, but there’s a secondary impact because when you install a sink, the sink doesn’t spend any money, but the plumber who installed it does. The greater share of labor, the greater the rollover effect is for local income.

Another economic benefit found in the report is the rate of appreciation of houses in historic districts outperforming the marketplace. Theoretically, it’s less affordable, but when that’s almost everybody’s major asset, it makes a difference when the property is less subject to loss.

“Density,” in the current California housing debates, is the key word. Speak to “density” from the point of view of this L.A. Conservancy commissioned research and study.

 One key finding is that historic districts in L.A. are denser than other neighborhoods. The second relates to ADUs (Accessory Dwelling Units). Preservationists in many places around the country are still fighting back, but I think preservationists in L.A. to a larger extent have just adopted ADUs as a positive. The good news about being in a local historic district is that there is some influence on the character, scale, and quality of what goes into those neighborhoods. It’s a really enlightened and compromising position that the preservationists take in Los Angeles, and is untrue of other places.

The other thing is preservation-once-removed: We were tipped off to look at strip malls in L.A. There are 675 strip centers, 7 million square feet of building space, 24 million square feet of land area—almost all of it near transit. If you wanted to add density, there’s the target.

We made a back of the envelope calculation that if you put four- or five-story buildings on those strip center lots, you could keep the 7 million square feet of commercial space, add 63,000 housing units with a parking space for each one of them without mucking up the neighborhoods around them. That’s a huge amount of density without screwing up anything. 

The proposals on the table in the State Capitol this past year would’ve frozen the approval process of those HPOZs. If the evidence shows that preservation is the economically better choice for density and affordability, why is this not implemented?

It would have frozen some, and it would’ve eliminated the restrictions of others. At least nine of the existing HPOZs would’ve been taken off the table if SB 50 passed.

No one gets into preservation to look at that. The motivation for preservation advocates is not real estate economics; it’s the quality and character of the city and the embodiment of history that those buildings represent. However, economics do matter as preservation is competitive, cost-effective, and offers incentives that do not come with new construction. This study and others done across the country demonstrate the many ways preservation offers real value and cities should adopt policies that support it.

Lastly, in an era where people don’t read their newspapers, how do you make your point on the value of historic preservation?

This is going to sound like artificial humility, and I don’t mean it that way, but I got the Louise du Pont Crowninshield Award a couple of years ago from the National Trust for Historic Preservation, but the specific phrasing was for contributions, not achievements. I made some contributions, but I don’t think the achievements have been met yet.

This issue is that basic information hasn’t really translated into policy decisions as much as I think it should. It’s hyperbolic, myth-driven nonsense that steps in the way of preservation.

Another thing that isn’t as connected but improving is the environmental side of preservation. The environmental movement is so concerned with green gizmos that they’ve missed the obvious: By definition, if you tear down an old unit of housing, you tear down an affordable unit of housing. You can’t build new and rent cheap, it cannot be done. In L.A., you have to build more housing, but step one is to—designation or not—quit tearing down stuff that provides affordable housing.

To read the full study, please visit laconservancy.org/preservation-positive.