Cost-Benefit Analysis as a Check on Excessive Historic Preservation

Local governments across the country, from the smallest towns to the largest cities, have unique preservation ordinances. The laws protect buildings like the Empire State Building, Frank Lloyd Wright’s Fallingwater, and the Betsy Ross House from the risk of demolition.

But these preservation laws, with their strict limitations or even prohibitions on a property owner’s ability to demolish, redevelop, or repair their property, are not limited to iconic buildings. Local governments can designate any property, from a private home to an entire neighborhood, as historic if the designation complies with their adopted ordinances.

In a recent paper, Alexander Kazam, a clerk for the U.S. District Court for the Southern District of New York, argues that modern historic preservation has run amok and that local governments must place substantial checks on their ability to designate private property as historic. Kazam urges local governments to conduct a formal cost-benefit analysis before making any decisions about a private property’s designation. Weighing preservation’s costs against its proposed benefits, Kazam suggests, would rein in excessive historic preservation and prevent local governments from making such decisions based on the influence of special interest groups.

Kazam estimates that local preservation laws consider more than 25 percent of the lots in Manhattan and nearly 20 percent of properties in Washington, D.C., to be historic—including even mundane locations like gas stations and strip malls.

Kazam attributes the proliferation of historic designations to the fact that, when local governments act as land use regulators, they are not subject to the same oversight as their federal counterparts. Unlike a federal agency, a local preservation board can designate private property as historic without first justifying its need, considering the costs and benefits of preserving the particular property, or identifying alternatives to preservation.

Because local governments do not conduct cost-benefit analyses, Kazam argues, preservation efforts tend to be excessive, arbitrary, and influenced by politically powerful groups who recognize that preservation can be an effective tool to prevent new development.

Furthermore, if property owners want to contest their properties’ designation, Kazam notes, they find little relief in the courts. As long as a local government satisfies minimal judicial requirements, such as notice and an opportunity to be heard, courts will generally refuse to strike down local historic designations.

In the absence of rigorous judicial review as a potential check on excessive preservation designations, Kazam recommends that local governments conduct a cost-benefit analysis before they subject private property to strict historic preservation regulations. If the local government is unwilling to do so, Kazam states that the state should step in and conduct an analysis on the local government’s behalf.

Since the Reagan Administration, executive orders have required federal agencies to balance a regulation’s estimated costs against its expected benefits. Since then, administrations from both parties have mandated the use of cost-benefit analysis in developing new regulations, arguing that such analysis promotes predictability, reduces uncertainty, and prevents “interest-based and anecdote-driven” regulations.

Local governments and their constituents, Kazam suggests, would reap the same benefits if they employed the federal regulatory model and conducted careful analysis before adopting local regulations like historic preservation.

Kazam acknowledges that some critics of cost-benefit analysis argue that economic analysis is biased against regulation because it tries to monetize priceless goods, like the value of a human life or clean air. But Kazam responds that this critique is less about the utility of cost-benefit analysis than it is about the particular methodology that agencies use.

Responding to these concerns, Kazam developed a cost-benefit analysis adapted to historic preservation that he urges local governments adopt.

In Kazam’s model, local governments must consider four costs: lost development potential, lack of affordable housing, environmental impact, and aesthetics. Local governments, Kazam argues, must balance these costs against historic preservation’s benefits, such as its impact on tourism, the environment, architecture, community building, and education.

Kazam relies on recent scholarship and federal agency models, like the U.S. Environmental Protection Agency’s social cost of carbon, to quantify and qualify historic preservation’s many costs and benefits.

By considering historic preservation’s cost and benefits through a formal analysis, Kazam argues, local governments would evaluate the tradeoffs associated with preservation. Kazam claims that such evaluation would lead to more appropriate designations.

Many local governments, however, do not have the resources to conduct formal cost-benefit analyses, which Kazam admits can be costly and time-intensive. To solve this budgetary constraint, Kazam suggests that states, rather than local governments, establish offices modeled after the Office of Information and Regulatory Affairs to conduct cost-benefit analysis on local historic preservation efforts. In larger cities with larger budgets, Kazam recommends that local governments amend their ordinances to require their professional staff to perform a formal analysis before making a historic designation.