When Over-Preservation Impedes City Growth

As the “gig economy” spawns attacks on Uber Technologies Inc. and Airbnb Inc., those afraid of change have opened a new front in the war on economic dynamism. Increasing swaths of major cities — including over a quarter of Manhattan and a third of Baltimore — have been designated as historic landmarks in order to force out developers. This overpreservation impedes development and revitalization, freezing neighborhoods in time and depressing economic growth.

“Not In My BackYard” interests in New York “use historic preservation as a way to limit development,” says former Landmarks Commissioner Margery Perlmutter. Not surprisingly, these NIMBYs are concentrated in richer, politically connected areas. Groups in the Upper West Side, Upper East Side, SoHo and TriBeCa have managed to preserve between 30 and 70 percent of their neighborhoods, while poorer areas like East Harlem are less than 1 percent designated for historical preservation.

But this isn’t a story about gentrification, with Millennial hipsters trying to squeeze out racial minorities: There is great profit to be made in transforming outdated buildings in richer areas.

Abolishing presumptions against beneficial land use would benefit all urban dwellers.

NIMBY crowds don’t like developers coming in to create multifamily units and other mixed-use development, what with the construction hassle and a bias toward aesthetic inertia.

When zoning laws won’t prevent such development, they go to the extreme measure of lobbying city officials to “preserve” unremarkable buildings.

The overpreservation trend is not limited to Manhattan, but bifurcates on legal lines, depending on the property-rights rule different federal appellate courts have adopted.

Overpreservation occurs where there are fewer due-process rights for property owners. While New York (Second Circuit) is inundated with historical designations, as is Baltimore (Fourth Circuit), cities with more robust property protections, like Philadelphia (Third Circuit) and Chicago (Seventh Circuit), bear preservation rates of 1 to 5 percent.

The underlying rule on which the circuits are split has to do with due-process protection of property rights. A basic tenet of property law with which all first-year law students are familiar is that an owner has the right to put his property to any beneficial use unless proscribed by law. In places like New York and Baltimore, however, courts invert that presumption. They require an owner to show “entitlement” to the developmental use, usually by reference to statute or regulation, in order for there even to be a colorable due-process claim.

Now, there’s nothing wrong with landmarking buildings that are architecturally, culturally or historically unique. The streets would flood with architects’ tears if the Chrysler Building were to fall. But there is no reason to preserve run-of-the-mill gas stations, which has happened.

Moreover, preserving to avoid development is economically short-­sighted. Where zoning provides a flexible approach that allows neighborhoods to develop as the character of cities changes, preservation freezes neighborhoods in amber and has deleterious effects over time. “With some neighborhoods in Manhattan approximately 70 percent landmarked, and others in Brooklyn more than 25 percent landmarked,” the New York Real Estate Board in 2013 said, “large swaths of the City effectively have their development potential curtailed.”

Those most harmed by overpreservation are the urban poor and minorities. The Real Estate Board found that “housing production — and especially affordable housing production — is markedly lower on landmarked districts than in similar but non-landmarked areas.” And as the Manhattan Institute concluded in 2010, “[r]estricting new construction in historic districts drives up the price of housing. … This, in turn, increasingly makes those districts exclusive enclaves of the well-to-do, educated, and white.”

Baltimore officials have offered tax credits to incentivize private housing development in preserved neighborhoods. But, as the University of Ken­tucky Center for Poverty notes, properties in historically designated poor neighborhoods appreciate in value quickly. Thus a low-income development is “transformed from an affordable unit to one for residents of higher income. This (re)commodification of older housing stock then feeds shortage of affordable housing rather than reduces it.” It’s overpreservation that thus creates the gentrification bubble.

Relatedly, landmarked neighborhoods drive up the value of surrounding areas, ensuring that rents are raised in a “buffer zone” beyond the NIMBYs’ concern. Plus the downturn in development affects construction jobs and robs the city of potential tax revenue. And environmentalists should also be upset: preserved buildings often cannot meet environmental standards due to the nature of the building materials used in olden times.

To stem the tide of overpreservation as a misbegotten tool against any economic change, courts and lawmakers across the country should better secure property rights. For example, when the Supreme Court returns from its summer recess, it will have a chance to take up a case — Stahl York Avenue v. City of New York — that challenges a bizarre rule allowing municipal bureaucrats to freeze development even though the local zoning board has no problem with it.

Ilya Shapiro is a senior fellow in constitutional studies at the Cato Institute, where Randal John Meyer is a legal associate.