Making – or Picking – Winners: Evidence of Internal and External Price Effects in Historic Preservation Policies

Douglas Noonan and Douglas Krupka

No 4110, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Much has been written identifying property price effects of historic preservation policies. Little attention has been paid to the possible policy endogeneity in hedonic price models. This paper outlines a general case of land use regulation in the presence of externalities and then demonstrates the usefulness of the model in an instrumental-variables estimation of a hedonic price analysis – with an application to historic preservation in Chicago. The theoretical model casts doubt on previous results concerning price effects of preservation policies. The comparative statics identify some determinants of regulation that seem, on the face of it, most unlikely to also belong in a hedonic price equation. The analysis employs these determinants as instruments for endogenous regulatory treatment in a hedonic price analysis. OLS estimation of the hedonic offers results consistent with much of previous literature, namely that property values are higher for historic landmarks. In the 2SLS hedonic, robust estimates of the "own" price effect of historic designation are shown to be large and negative (approx. -27%) for homes in landmark districts. Further, significant and substantively important (positive) external price effects of landmark designations are found. The paper concludes with a discussion of the policy implications of these findings for historic preservation.

Keywords: heritage valuation; built heritage; hedonics; real estate economics (search for similar items in EconPapers)
JEL-codes: R21 R31 R52 Z1 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2009-04
New Economics Papers: this item is included in nep-ure
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Published - published in: Real Estate Economics, 2011, 39 (2), 379-407

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Journal Article: Making—or Picking—Winners: Evidence of Internal and External Price Effects in Historic Preservation Policies (2011)
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