The Price Premium of Heritage in the Housing Market: Evidence From Auckland, New Zealand

Abstract

Heritage is one of many urban features that shape the form and identity of any city. City regulations that protect heritage can have two contradicting effects: preserve property value on depress real state market, and; generate opportunity costs for homebuyers who renounce to future development opportunities. In this paper we evaluate the extent to which heritage protection strategies affect the housing market. We analyze heritage effects in a market that faces high demand pressure and important institutional shocks; Auckland, New Zealand. After controlling for a large number of factors, and spatial effects, we find a significant negative price penalty of around -10% for houses located within heritage areas, on average between years 2006-2016. Yet, we also identify an external and local price premium, related to the number of heritage sites around the house. This density effect is of about 1.7% for an additional site in a radius of 50 meters around the house, and decreases as the radius under analysis expands. We also find a price premium for a house located on a different heritage protection strategy, Special Character Areas, for which the effect is positive and reaches 4.3%. Reported effects are robust to several specifications but are highly dependent on time dynamics.

Keywords: heritage, heritage premium, special character areas, hedonic prices, housing market, economic valuation

JEL Classification: C21, R1, R2, R5, Z10