Media Briefings

GAME OF ZONES: New evidence of the impact of gentrification on property values and designation of conservation areas

  • Published Date: October 2017

Growing numbers of wealthy and educated homeowners in a neighbourhood make it more likely to be designated a conservation area, according to research by Gabriel Ahlfeldt, Kristoffer Moeller, Sevrin Waights and Nicolai Wendland, published in the October 2017 issue of the Economic Journal.

Analysing data on over a million property transactions from Nationwide Building society, the study also finds that the designation of conservation status has no immediate effect on properties prices within the new zones. But there is often an immediate increase in property values just outside the conservation areas.

The researchers provide a detailed analysis of restrictive conservation policies and the associated costs and benefits to local homeowners in England. The findings suggest that the policies generally work in favour and not against the interests of local homeowners. But the implications for society as a whole are less clear.

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The study begins by developing an analytical framework in which residents with a taste for architectural distinctiveness stand to benefit from preservation since it solves a coordination problem. The problem arises where individual homeowners make undesirable alterations to their properties or fail to keep them well maintained.

While removing a troublesome tree here or installing double-glazing windows there may make sense for an individual homeowner, such changes quickly destroy the character of the neighbourhood if everyone makes them. Therefore, if local homeowners like the character of their neighbourhood, it is worthwhile imposing strict regulation and maintenance obligations in the form of a conservation area.

This analysis predicts that if homeowners are able to game the system, then neighbourhoods will be more likely to be designated in areas where residents have a greater preference for architectural amenities.

Moreover, in terms of timing, designation is likely to happen in gentrifying neighbourhoods because the inflow of wealthy residents will make it more likely that the perceived benefits of designation exceed the costs of restricted property rights.

In line with these predictions, the authors find that an increase in the number of affluent residents, and residents who hold a university degree, significantly increases the chances of an area being given conservation status. Concretely, a 1% increase in the degree share is associated with an 11% increase in the designated land share – a strong effect.

Using more than a million property transactions from Nationwide Building society, the researchers also find that the designation of conservation status has no immediate effect on properties prices inside conservation areas (although it does increase price growth over time). The zero immediate effect implies that designation occurs when the costs of regulation are exactly equal to the benefits for local owners.

In the context of gentrification and increasing benefits of designation over time, this suggests that conservation areas are designated as soon as they become worthwhile from the perspective of local owners – that is, when the benefits have risen to equal the costs.

In contrast, there is often an immediate increase in property values just outside the conservation areas. This finding is also in line with the analysis because homeowners just outside a conservation area enjoy the benefits when passing through or looking at a protected area, without facing the cost of property rights restrictions.

The authors’ findings provide some support for conservation area policies as regulation helps homeowners to solve a collective action problem, preventing some owners or landlords from ‘free-riding’ on others who invest in the historic housing stock. Importantly, the results show that the policy generally works in favour and not against the interests of local homeowners.

The implications for society as a whole are less clear. There are benefits – for example, to commuters or tourists living in other areas – and costs – for example, due to limited supply of new housing and affordability problems for first-time buyer – to residents living outside the conservation area.

The results of this analysis suggest that by delegating the decision of whether or not to designate a neighbourhood as a conservation area to local homeowners, costs and benefits to residents living outside such areas are ignored.

ENDS


Notes for editors: ‘Game of Zones: The Political Economy of Conservation Areas’ by Gabriel Ahlfeldt, Kristoffer Moeller, Sevrin Waights and Nicolai Wendland is published in the October 2017 issue of the Economic Journal.

Gabriel Ahlfeldt and Sevrin Waights are at the London School of Economics. Kristoffer Moeller is at TU-Darmstadt. Nicolai Wendland is at Touro College Berlin.

For further information: contact Romesh Vaitilingam on +44-7768-661095 (email: romesh@vaitilingam.com; Twitter: @econromesh); or Gabriel Ahlfeldt via email: G.Ahlfeldt@lse.ac.uk