Heritage Investment Counter Cyclical Opportunity in Economic

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Heritage Investment Counter Cyclical Opportunity in Economic


    National Trust of England, Wales and Northern Ireland

    The Role of Heritage Conservation in a Sustainable Economy


    May 26, 2009

    Donovan D. Rypkema

    Heritage Strategies International

    Washington, DC, USA

    Thank you for inviting me. I am both honored and humbled by the opportunity to be here today.

Before I get into my assigned topic of the day, I want to mention that I’m

    just finishing up an assignment for the Inter-American Development Bank. The project is the first phase of an effort they are undertaking to try to identify the common denominators of success for heritage based center city revitalization efforts. This first phase was to do a literature review, and then design a methodology for a case study approach in six or seven cities around the world.

    What we’ve learned is that there are a number of papers, journal articles, case studies and a couple of books in the area of the intersection of heritage conservation and economics. Very few of them, however, look at multiple sites and make evaluations based on market based measurements such has property values, rent levels, tax generation, etc.

    But three of the analyses that I specifically identified as being particularly useful to this project come from Great Britain: the Heritage Counts series of English Heritage, Kate Clark’s excellent work measuring the Lottery Fund’s impact, and the analysis of investment returns by the Royal Institute of Chartered Surveyors for English Heritage.


    So for those of you who have a particular interest in economics and heritage conservation the lit review should be up on the website of the Inter-American Development Bank in the next month or so. And I really believe that the subsequent phases of their project will give us all some new understandings.

    As you all know, the world is in economic chaos. One of the outcomes of economic globalization is that there are no longer safe havens from international financial crises. Governments, working individually and together, have initiated an unparalleled array of responses to stem the economic decline.

    The biggest danger, however, is not that this very deep recession lasts another 18 or 24 or 36 months. The biggest danger is that we do not learn from this crisis and apply those lessons to future policies. Governments have two simultaneous challenges: 1) in the short term how to get the economy rolling again; and, 2) in the intermediate and long term, how to restructure our economies so that they become sustainable.

    Heritage conservation has a central role in responding to both of those challenges.

    Europeans generally understand the components of sustainable development: environmental responsibility, economic responsibility, and social/cultural responsibility. And these three components create three important nexus: for a community to be viable there needs to be a link between environmental responsibility and economic responsibility; for a community to be livable


    there needs to be a link between environmental responsibility and social responsibility; and for a community to be equitable there needs to be a link between economic responsibility and social responsibility.

    We have known for some time that unless we make significant changes quickly, our environment is not sustainable. What we have learned in the last 180 days is that we have built our economy on foundations and assumptions that are also not sustainable.

    To immediately stimulate economies it has been necessary to quickly appropriate public funds to stabilize credit markets and especially to put people back to work again. But even though those expenditures are necessary to have an immediate impact, they should be made in areas that are creating long term assets, not merely short term fixes.

France has committed 100? million per year for the next four years to the

    restoration of heritage buildings. Why? To create jobs, to extend the life of valuable assets, to make sure valuable skills aren’t lost, and to support the local economy.

    In Hong Kong under the heading of Global Financial Crisis the government is doubling the amount of money made available for heritage conservation, half for investment in government owned buildings, and the other half as grants to private owners of heritage structures.

    And Norway is perhaps the best example. The national budget of Norway is highly oil revenue dependent. And when the price of oil drops from $140 per


    barrel to $40, obviously there’s a huge impact. So the Norwegians, too, enacted a financial crisis package. And how did they spend their money? Mostly on long term assets like measures for greater energy efficiency, repairing and developing their railway system, bike paths and walking trails, and 26 million Euros for heritage conservation most of which is going for

    rehabilitation and maintenance of privately owned historic properties and to add fire safety systems to historic wood buildings and churches. I fact over nine percent of the Norwegian crisis package is heritage related.

    Why was this the Norwegian approach? Because they learned in their last recession in the 80s that it put people to work and enhanced local skills and enhanced local economies.

    These countries have recognized that stimulus investments should be long term, and that heritage resources are long term assets. Unfortunately that has not remotely been the case in the US where we are essentially buying Big Macs with a 40 year mortgage.

Here’s my back of the envelope calculation of the American stimulus plan:

    ; 57.8% of the money is going to be spent on operating expenses and

    cash distributions, the impact of which will be entirely in the next 12


    ; Another 14.8% will be spent on short term assets those that have a

    life of 5 years or less.

    ; 17.4% of the money will go towards assets with a useful life of

    between 5 and 19 years.

    ; Leaving 10% of all of that money invested in long-term assets.


    My grandchildren, who are not even conceived yet, will spend most of their working lives paying off this bill.

    But on this side of the Atlantic at least some have a more responsible approach. Two months ago there was a hearing of the EU Parliament about the role of heritage conservation in times of financial crises. At that hearing I made somewhat of a distinction between the immediate counter-cyclical strategies, and longer term strategies to move us toward a sustainable economy. Since that time I’ve concluded that was a false choice. If we make

    the appropriate decisions to stimulate the economy now, they can support the transition to a sustainable economy. Conversely if we commit ourselves to strategies advancing a sustainable economy, it can have an immediate stimulus effect.

    So I would like to offer to you today principles of sustainable economic development, and then suggest how heritage conservation advances each of those principles.

    What would a sustainable economy look like? I would suggest it would have ten characteristics.

    First, a sustainable economy would be based on using local assets.

    Second, there would be widespread, measurable local benefits.


    Third, sustainable economic development would depend primarily on the private sector, particularly small business.

    Fourth, the components of a sustainable economy would be contributors in economic downturns as well as up cycles.

    Fifth, a sustainable economy would participate in economic globalization but mitigate cultural globalization.

    Sixth, sustainable economic development strategies would acknowledge quality of life as a major component of economic competitiveness.

    Seventh, sustainable economic development strategies would be long term.

    Eighth, sustainable economic development would not be a zero sum game where for one country to win another has to lose.

    Ninth, a sustainable economy would advance the cause of environmental responsibility.

    Finally, a sustainable economy would advance the cause of social/cultural responsibility.

    Others might have a different list, but perhaps this is a starting point.

    How does heritage conservation fit the criteria for a sustainable economy?


    Start with local assets. Obviously, the historic buildings themselves are local assets, but it doesn’t stop there. Heritage buildings are invariably where

    millions of pounds of infrastructure investment has already been made by previous generations. All too often that infrastructure is left unrepaired and underutilized as we substitute peripheral development for neighborhood reinvestment.

    One of the great success stories for cities and for heritage conservation has been center city revitalization. In every European city I have visited that has experienced an economic rebirth of its core, heritage conservation was a key component of the success. That has also been true in the US. And conversely the examples of very expensive failures in center city revitalization have nearly all had the destruction of historic buildings as a major element. Center city revitalization through heritage conservation is one of the best examples there is of sustainable economic development.

    In fact by far the most cost effective program of economic development in the United States - not just of historic preservation or downtown revitalization - but the most cost effective program of economic development of any kind, is a program called Main Street. Main Street is commercial district revitalization in the context of historic preservation. Main Street started as a program for downtowns of small towns. In the last 25 years some 2200 communities in all 50 states have had Main Street programs. Over that time the total amount of public and private reinvestment in those Main Street communities has been nearly $45 Billion. There have been 83,000 net new businesses created generating nearly 370,000 net new jobs. There have been 200,000 building renovations. Every dollar invested in


    a local Main Street program leveraged nearly $27 of other investment. The average cost per job generated - $2,500 - less than a tenth of what many state economic development programs brag about.

Widespread, measureable benefits how does heritage conservation stand

    up there?

    Well, consider the process of building rehabilitation itself. Last week I was in Wisconsin so let me offer that state’s numbers as a typical example. In Wisconsin, a million dollars spent in the rehabilitation of an historic building adds 22.0 jobs and ultimately $792,000 in household income to the state’s

    economy. That is 6.5 more jobs and $243,000 more in household income than $1,000,000 of manufacturing output in Wisconsin.

    This greater degree of economic impact is a result of labor intensity. As a rule of thumb in the United States, new construction is half materials and half labor. Rehabilitation will be sixty to seventy percent labor with the balance being materials. This labor intensity affects a local economy on two levels. First, we buy a heating system from across the country and lumber from half way around the world, but we buy the services of the plumber, the electrician, and the carpenter from across the street. Further, once we install the sink, the sink doesn’t spend any more money. But the plumber gets a hair cut, buys groceries, and pays local taxes each recirculating that paycheck within the

    community. That is what makes a sustainable local economy.


    But this ratio of labor intensity isn’t limited to the US. Analyses done in the West Bank in Palestine, in Viet Nam and in Scandinavia have demonstrated this same pattern.

    Those aren’t just jobs. They are good, well-paying jobs, particularly for

    those without formal advanced education. They are not make-work jobs; they are real, productive jobs.

Heritage conservation strategies target the construction trades one of the

    industries most affected by this recession. Simultaneously, there is a shortage of craftsmen in a variety of restoration skills. So job training, job creation, and a life time profession can be encompassed within the same strategy. In other words, immediate stimulus but generating a long term asset. Next a sustainable economy is orientated toward the private sector, particularly small business. I am certainly not against public employment. In times like these we need to have public employment as part of our social safety net. But public employment is not a long term generator of economic growth; that comes from the private sector, particularly small business. In the UK small business employs 59% of the workforce.

    The heritage industry itself is largely made up of small businesses

    contractors, architects, conservationists, historians, consultants. Unlike building highways or skyscrapers where the bid winners are invariably giant, multi-national firms, on heritage projects the expertise is usually in small firms who spend their profits at home.


    Next on my list of a sustainable economy is that its components would contribute in economic downturns as well as up cycles.

    Heritage conservation fits this criteria in a couple of ways.

    First, in economic downturns a variety of factors affect the ability to implement large scale plans. Financial constraints, political conflicts, and environmental concerns are all reasons that large projects are often delayed or shelved. Heritage conservation, however, can be done at virtually every scale, from the smallest shop building to massive revitalization of large urban areas. Smaller projects can proceed while larger ones are still on the drawing board, thus providing a measure of employment and income stability to a local economy.

    Second, the recovery from this chaos is likely to be varied geographically, with some cities and regions returning to economic health sooner than others. Because heritage buildings are spread throughout a country and are located in both the largest cities and the smallest villages, a heritage-based strategy can be useful at any stage of the business cycle.

    Third, regardless of whether a local economy is in an up or a down phase, emphasis should be directed toward projects that are catalytic to other economic activity and leverage public funds with private investment. One of the most impressive economic characteristics of heritage conservation is how the investment in one building tends to spur investment in nearby buildings. Further, many European countries have developed incentive programs through which public investment is matched two and three and

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