Historic preservation in declining city neighbourhoods: Analysing rehabilitation tax credit investments in six US cities

Abstract

Historic preservation is common practice across the world, including in US cities. At the same time, population decline, economic distress and vacancy prevalent in declining cities, also known as legacy, shrinking or post-industrial cities, creates a pressing threat to a vast array of urban historic buildings. In the USA, recent planning and policy emphasises strategic demolition and/or targeting resources in potentially viable neighbourhoods, with little attention paid to historic preservation. To fill this gap, we use a comparative case study of federal historic rehabilitation tax credit (RTC) investments from 2000 to 2010 across the neighbourhoods of six legacy cities: Baltimore, Cleveland, Philadelphia, Providence, Richmond and St. Louis. This is the first study to use disaggregated, longitudinal RTC data to analyse investment at the neighbourhood scale. We use the Hirschman-Herfindahl Index to evaluate investment concentration and US Census 2000 data to characterise neighbourhoods where developers chose to undertake RTC projects. The findings show that RTC investments occurred across a wide range of places, including very low- and low-income neighbourhoods, and produced both market-rate and affordable housing across each city’s neighbourhoods. The findings indicate that preservation occurs across a wide range of legacy city neighbourhoods and inform urban planners and policymakers about locations where the private sector is willing to invest with favourable financing.

Keywords

affordable housing built environment historic preservation neighbourhood planning shrinking cities tax incentives urban decline

Introduction

Historic preservation has become common practice around the world, including in US cities. At the same time, population decline, economic distress and vacancy prevalent in declining cities, referred to in this paper as legacy cities, threatens a vast array of urban historic buildings. Legacy cities, also known as shrinking cities, are ‘a group of American cities that have rich histories and assets, and yet have struggled to stay relevant in an ever-changing global economy’ (American Assembly, 2011: n.p.). In the USA, the Legacy Cities Partnership (LCP) identifies 48 such cities, mostly in the Midwest and Northeast. Legacy cities grew during the early 20th century with development stagnating after the Second World War (Legacy City Design (LCD), 2015; LCP, 2015). As with declining cities around the world, legacy cities contain a wealth of historic resources alongside surplus buildings, leading planners and policymakers in the USA to prioritise demolition.¹

Scholars and advocates argue that preservation offers a variety of benefits, including increased property values (Thompson et al., 2011; Zahirovic-Herbert and Chatterjee, 2012). Historic character is a community asset and a vital component for successful downtowns (Filion et al., 2004) and, in the USA, historic tax credit projects underpin recent downtown housing growth in many cities (Ryberg-Webster, 2013). The National Park Service (NPS), housed within the US Department of the Interior, claims that the 20% federal historic rehabilitation tax credit (RTC) is ‘the nation’s most effective Federal program to promote community revitalization and encourage private investment through historic preservation’ (NPS, 2015: 1). Yet, few empirical studies address preservation incentives, including the RTC (Ryberg-Webster, 2013, 2015a) and none examine disaggregated, neighbourhood activity across multiple cities. RTC impact studies aggregate data to the state and national levels (e.g. CUPR, 2014) and a lack of publicly available, project-specific data limits analyses of neighbourhood RTC investments.

This research fills this gap by empirically exploring RTC activity from 2000 to 2010 in neighbourhoods, operationalised as Census tracts outside of the downtown or central business district, across six US legacy cities: Baltimore, Cleveland, Philadelphia, Providence, Richmond and St. Louis (Hill et al., 2012; Katz, 2006; LCD, 2015; LCP, 2015; Mallach, 2015).² The research focuses on neighbourhoods as these are the primary spaces where city leaders struggle to decide what to demolish and/or where to direct limited resources.³ The research questions if the federal RTC is a policy lever that spurs investment in distressed communities and/or supports affordable housing. Understanding RTC activity across legacy city neighbourhoods offers a counter to dominant narratives that claim a lack of market viability justifies demolition.

To explore federal RTC activity in legacy neighbourhoods, we ask three questions:

Are RTC investments occurring in legacy city neighbourhoods? How much is invested and what are the general characteristics of these projects?

What is the distribution of RTC investments across legacy city neighbourhoods? Do only a few legacy city neighbourhoods capture RTC investment or are projects spread across the city?

What are the income characteristics of neighbourhoods where developers choose to undertake RTC projects? Does the RTC incentivise investment in very low- and low-income areas and/or support projects in moderate- and middle-income tracts?

The research provides insight into where developers use this incentive and the market potential for reinvestment. The findings suggest that the RTC supports rehabilitation across a range of neighbourhoods, from very-low-income to upper-income tracts. In other words: under the right financial circumstances, investment can occur in legacy city neighbourhoods. This core finding has broad implications for planning and urban policy in declining cities around the world, which may have different incentives and regulatory structures but face similar challenges in reinvesting in older, distressed communities. In the USA, the findings suggest that planners and policymakers can support additional RTC activity by creating National Register historic districts, targeting public improvements in areas with historic buildings, ensuring that local zoning allows for adaptive reuse, and otherwise encouraging the private sector to rehabilitate historic fabric. Outside of the USA, the research offers general insight into the potential use and benefits of incentives to spur historic rehabilitations in declining city neighbourhoods.

The federal historic rehabilitation tax credit

The US government offers a 20% income tax credit for rehabilitating buildings listed in the National Register of Historic Places, with the NPS and each state’s preservation office providing oversight. The RTC encourages private-sector investment in historic properties. Congress adopted the credit in the 1970s to counter existing preferential treatment for demolition, alleviate urban decline and repurpose outmoded commercial and industrial buildings (Ryberg-Webster, 2015b).⁴

In 2014, the NPS reported 1156 new projects totalling US$5.98 billion in investment. The RTC ‘is the largest Federal program specifically supporting historic preservation, generating over $73 billion in historic preservation activity since 1976’ (NPS, 2015: 1). It has underpinned more than 40,000 projects, bringing ‘new life to deteriorated business and residential districts, created new jobs and new housing, and helped to ensure the long-term preservation of irreplaceable cultural resources’ (NPS, 2015: 1–2). RTC projects most often produce housing, with developers rehabilitating 255,994 existing units and producing 248,303 new units since 1976. In 2014, RTC projects involved 19,786 housing units, including 11,417 new units, of which 57% were affordable (NPS, 2015: 3).⁵

RTC projects must comply with the federal Secretary of the Interior’s Standards for Rehabilitation and be income-producing, which includes apartments or commercial uses and excludes public buildings and owner-occupied housing.⁶ Developers complete a three-part application process: Part 1 certifies the building’s eligibility for the credit; Part 2 certifies compliance with federal rehabilitation standards; and Part 3 certifies the completed project. The NPS approves the final application before the Internal Revenue Service releases the credit. The RTC has significant costs, including legal, preservation and application fees, thus limiting its usefulness for small projects.

About 30 states offer a state-level RTCs that developers can pair with the federal credit. State provisions, including the credit percent and eligible buildings, vary widely. This study does not include state-level data, but readers should note the presence of this incentive. Maryland (Baltimore), Virginia (Richmond) and Missouri (St. Louis) adopted an RTC in the late 1990s; Rhode Island (Providence) offered an RTC from 2002 to 2008; Ohio (Cleveland) adopted one in 2006; and Pennsylvania (Philadelphia) adopted a credit in 2012.

Legacy cities and historic preservation

Legacy cities face persistent population decline, disinvestment in the built environment and severe economic distress (Dewar and Thomas, 2012; Mallach, 2012b). The dominant legacy city policy discourse calls for demolition in the face of low demand (Dewar and Thomas, 2012; McGahey and Vey, 2008), raising concerns amongst preservationists (ACHP, 2014). To maximise the impact of limited financial resources, targeting investments in a limited number of legacy city neighbourhoods by capitalising on assets and amenities has risen in popularity (Thomson, 2008, 2012). Research shows that targeting stabilises housing markets, attracts private investment, raises the stature of neighbourhoods, facilitates spillover effects and realises economies of scale (Accordino and Fasulo, 2013; Galster et al., 2006; Thomson, 2008).

Scholars note that historic buildings are potential assets (Blakely, 2001; Carr and Servon, 2009; Clark et al., 2002; Mallach and Brachman, 2013; Pastor and Benner, 2008), but preservation is typically marginalised in the legacy cities literature (Ryberg-Webster and Kinahan, 2014). Mallach (2011) and Verderber (2009) discuss conflicts between preservation and demolition, while Mallach and Brachman (2013) anecdotally include preservation as a component of revitalisation. Other studies focus on preservation in specific legacy cities (Ryan and Campo, 2013; Ryberg-Webster, 2015a).

Recent work by Mallach (2015) shows that legacy cities experienced some positive revitalisation trends during the early 21st century and concludes that there is an increasing dichotomy between resurging downtowns and legacy cities’ distressed neighbourhoods. Research shows that RTCs have underpinned downtown revitalisation (Ryberg-Webster, 2013), but little is known about the use of RTCs in these cities’ neighbourhoods.

The RTC is a federal incentive with no local approvals. Therefore, it is not a tool that local governments can directly employ as part of a targeting programme, although cursory evidence suggests that RTCs support revitalisation (Ryberg-Webster, 2013, 2015a). Owing to their age and current conditions, legacy cities have a large stock of historic resources suffering from neglect, deferred maintenance and abandonment. Authors argue that preservation should have a catalytic impact as ‘the renovation of properties begins a cycle that improves the economic attractiveness of the neighborhood’ (Rypkema, 1991: 68–69). Additionally, developers can use the RTC regardless of the income status of eventual tenants, which Brophy et al. (2003) argue is important for legacy city neighbourhoods. A better understanding about RTC projects in legacy city neighbourhoods can help planners and policymakers make decisions about demolition and targeted investments, while also building knowledge about if and how RTCs further revitalisation.

Historic preservation as urban revitalisation

Historic preservation has longstanding ties to urban revitalisation (Birch and Roby, 1984; Listokin et al., 1998; Ryberg-Webster and Kinahan, 2014; Silver and Crowley, 1991; Wojno, 1991). While urban preservation existed prior to the Second World War (Page and Mason, 2004), the profession grew rapidly in the post-war era with the adoption of the National Historic Preservation Act in 1966. In the 1970s, federal resources for revitalisation dwindled and neighbourhood development organisations emerged, with some groups using preservation to produce housing for existing, low-income residents (Ryberg, 2011).

Scholars broadly address urban preservation, focusing on downtown revitalisation (Ryberg-Webster, 2013), heritage tourism (Carr and Servon, 2009), politics and power (Saito, 2009; Zhang, 2011), race and inequity (Domer, 2009; Logan, 2012) and gentrification (Allison, 2005). Studies demonstrate that historic designation has a positive effect on property values, including a strong spillover effect (Coulson and Leichenko, 2001; Ijla et al., 2011; Zahirovic-Herbert and Chatterjee, 2012), although a few reach the opposite conclusion (Heintzelman and Altieri, 2013; Noonan and Krupka, 2011). Sohmer and Lang (1998: 425) argue that historic resources offer a competitive advantage as ‘the authenticity historic buildings represent is marketable in an environment that all too often features routinized and formulaic development’.

Little research exists on the federal RTC, including Ryberg-Webster’s (2015a) analysis of RTC activity in Richmond, Virginia and Ryberg-Webster’s (2013) comparison of RTC activity in ten downtowns, showing its strong contribution in housing production. Cohen’s (1998) case study in Baltimore indicates potential for using RTCs as part of mixed-income neighbourhood development strategies. Economic impact studies about the federal RTC quantify programme impacts at the state or national scale, finding positive direct and indirect effects (e.g. Cronyn and Paull, 2009; CUPR, 2014). They suggest that the RTC leads to market-rate and low-income housing rehabilitation and production (Center for Urban Policy Research, 2014; NPS, 2015), but offer only anecdotes about neighbourhood investments.

Methodology and data

This research explores neighbourhood-based RTC activity from 2000 to 2010 in six legacy cities: Baltimore, Cleveland, Philadelphia, Providence, Richmond and St. Louis (Table 1). The cities are a convenience sample, drawn from a non-public data set provided by NPS Technical Preservation Services division, of RTC activity from 1997 to 2010 in 12 cities. This research uses the six legacy cities within the data set.⁷ This is the first analysis using disaggregated RTC data and the findings, while not generalisable, offer transferable lessons to other legacy cities and drive future research (Stake, 2003; Yin, 2014). The six cities lost significant population since 1950, have low median household incomes and high poverty rates compared with national averages (Table 1). A majority of housing units in these cities were built before 1960, providing a reasonable basis for assuming that their neighbourhoods have RTC-eligible buildings. While the RTC is not the only form of preservation – there can be historic designations and other local funding programmes – it serves as a proxy for gauging the market for historic rehabilitations.⁸

Table 1.

Summary of case study cities.

	Population (2010)	Population change (1950–2010)	Median household income, $ (2010)	Poverty rate (2010)	% of Housing built before 1960
Baltimore	620,961	−35%	41,385	24%	73%
Cleveland	396,815	−57%	26,217	35%	81%
Philadelphia	1,526,006	−26%	37,192	27%	74%
Providence	178,042	−28%	37,632	29%	76%
Richmond	204,214	−11%	40,496	26%	59%
St. Louis	319,294	−63%	34,582	27%	79%
USA	308,745,538	104%	53,046	15.4%	31%

Source: US Census, 2010; US Census American Community Survey, 2010.

Three questions guide our inquiry: (1) Are RTC investments occurring in legacy city neighbourhoods? How much is invested and what are the general characteristics of these projects? (2) What is the distribution of RTC investments across legacy city neighbourhoods? Do only a few legacy city neighbourhoods capture RTC investment or are projects spread across the city? (3) What are the income characteristics of neighbourhoods where developers choose to undertake RTC projects? Does the RTC incentivise investment in very low- and low-income areas and/or support projects in moderate- and middle-income tracts?

To answer the first question, we provide descriptive statistics about RTC projects across the case study cities’ neighbourhoods, including the share of RTC investment occurring in neighbourhoods and housing production (market-rate and low-income). The Technical Preservation Services division of the NPS provided data on projects initiated between 1997 and 2010. We limited the research to completed projects, or those with an approved Part 3 application between 2000 and 2010 to exclude in-progress or stalled projects.⁹ The data set includes addresses, application approval dates, investment amount and building use, including market-rate and low-income housing units.¹⁰ There are limitations to the data and the comparative case study approach that preclude generalisability of our findings. First, applicants self-report the information, creating a potential internal validity threat. Second, it is not possible to use a random sample of legacy cities because the data are not available.¹¹ However, this is a unique data set that facilitates exploration of RTCs’ role in shaping legacy city neighbourhoods with transferable findings for other cities (Stake, 2003; Yin, 2014).

We use the Hirschman-Herfindahl Index (HHI), a statistical measure of concentration, to answer the second research question. The HHI typically calculates the level of competition among firms, stemming from the idea that market concentration ‘is an important element of market structure and a determinant of competition’ (Rhoades, 1993: 188). The simplicity of the HHI calculation has led to its use as a measure of concentration in a variety of contexts, including ethnic diversity, neighbourhood attachment and social trust (Górny and Toruńczyk-Ruiz, 2014), the geography of neighbourhood satisfaction (Hipp, 2010), development pace and community ties (King, 2013), employment decentralisation (Gilli, 2009) and the role of tolerance, openness and diversity in urban development (Qian, 2013). In this study, the HHI calculates concentration based on the RTC investment share per square mile of each Census tract, thus offering some standardisation for the varying sizes of tracts across the case study cities. We chose the HHI because it offers descriptive threshold levels of concentration and we are interested in the level of dispersion/concentration throughout each city’s neighbourhoods.¹² We sum the final project cost (adjusted to 2010 dollars) for each tract. Using project cost, rather than the number of buildings, more precisely captures where investment dollars flow.¹³ An HHI between 0.01 and 0.15 indicates low concentration; between 0.15 and 0.25 indicates moderate concentration; between 0.25 and 1.00 indicates high concentration; and an HHI of 1.00 indicates that all RTC activity occurred in one tract (US DOJ (Department of Justice) and FTC, 2010).¹⁴ We calculate the aggregate and yearly HHI from 2000 to 2010 to explore changes in concentration over time. There are three possible scenarios wherein RTC investments occur: (1) multiple neighbourhoods every year (low yearly and aggregate concentration), (2) the same neighbourhood every year (high yearly and aggregate concentration), or (3) different neighbourhoods every year (high yearly and low aggregate concentration).

To answer the third research question, we characterise the neighbourhoods where developers undertook RTC projects using income data from the 2000 US Census. The use of Census 2000 data facilitates an analysis of neighbourhood conditions prior to RTC investment.¹⁵ We use the ratio of Census tract median household income (MHI), a proxy for neighbourhood economic conditions, to the metropolitan statistical area MHI to classify each city’s neighbourhood tracts into one of five categories: (1) very low-income, (2) low-income, (3) moderate-income, (4) middle-income or (5) upper-income (Ellen and O’Regan, 2008).¹⁶ The very low-income quintile for each city is less than: US$26,650 (Baltimore), US$19,530 (Cleveland), US$25,670 (Philadelphia), US$31,390 (Providence), US$28,025 (Richmond) and US$22,875 (St. Louis). The upper-income quintile for each city is greater than: US$50,391 (Baltimore), US$41,351 (Cleveland), US$53,991 (Philadelphia), US$65,671 (Providence), US$52,676 (Richmond) and US$43,101 (St. Louis). Finding RTC activity in very low- or low-income tracts indicates that developers use the incentive in distressed communities, while RTC projects in moderate-, middle- and upper-income neighbourhoods suggests that the incentive encourages investment in more stable and/or prosperous areas.

RTC activity in legacy city neighbourhoods

From 2000 to 2010, federal RTC projects resulted in more than US$3.25 billion invested in the six cities’ neighbourhoods (Table 2).¹⁷ St. Louis, Richmond and Baltimore had the most neighbourhood RTC activity, in terms of number of projects and investment. Over 40% of Richmond and St. Louis neighbourhoods had RTC investments, resulting in thousands of rehabilitated or new market-rate housing units. Since the RTC applies to historic buildings, we would expect more activity in neighbourhoods with older building stock. This is the case in two of the cities (Providence and Richmond), where tracts with RTC investment have substantially higher levels of pre-1960 housing than tracts without RTC projects. In the remaining four cities, though, tracts with RTC activity have similar if not lower levels of pre-1960 housing than the remainder of tracts in each city, with the exception of St. Louis (Table 2).

Table 2.

Neighbourhood RTC projects, 2000–2010.

		Baltimore	Cleveland	Philadelphia	Providence	Richmond	St. Louis
Approximate age of building stock^a	% of Housing built before 1960 (city-wide)	73%	81%	74%	76%	59%	79%
	% of Housing built before 1960 (neighbourhood tracts with no RTC)	72%	81%	74%	61%	48%	83%
	% of Housing built before 1960 (neighbourhood tracts with RTC)	74%	81%	78%	71%	72%	77%
Neighbourhood RTC activity	No. of neighbourhood RTC projects	209	52	131	53	341	499
	% of city’s total RTC projects occurring in neighbourhoods	81%	54%	59%	74%	72%	85%
	Total neighbourhood RTC investment (US$)	599.5M	235.8M	524.4M	218.3M	759.8M	915.9M
	% of city’s total RTC investment occurring in neighbourhoods	63%	29%	36%	51%	69%	48%
	RTC investment per square mile (US$)	34.5M	16.8M	54.1M	19M	45.9M	37.7M
Housing rehabilitation and production in neighbourhood RTC buildings	No. of market-rate units	1420	779	1507	597	3791	2667
	No. of net new market-rate units	1029	512	1239	487	2929	231
	No. of low-income units	505	469	1057	245	718	926
	No. of net new low-income units	136	−2	569	10	158	411

Source: American Community Survey, 2006–2010 (5-year estimates).

In each city, neighbourhoods capture a larger percent of RTC projects than investment. For instance, 81% of Baltimore’s RTC projects are in neighbourhoods, yet this accounts for only 63% of the city-wide investment. This disparity indicates that a large number of small rehabilitations occur throughout legacy city neighbourhoods. The government expenditure on RTC investments (roughly equal to 20% of the total investment) compared favourably with other programmes including Community Development Block Grants (CDBG) and Low-Income Housing Tax Credits (LIHTC) (Table 3).¹⁸

Table 3.

Comparison of federal expenditure on RTC, LIHTC and CDBG (in millions), in 2010 dollars.

	RTC (2000–2010)^a	LIHTC (2000–2010)^b	CDBG (2003–2013)^c
Baltimore	119.9	19.7	275.2
Cleveland	47.2	31.0	284.6
Philadelphia	104.9	57.9	609.2
Providence	43.7	14.9	67.3
Richmond	152.0	7.5	58.7
St. Louis	183.2	16.1	239.7

Notes: ^aThese figures reflect 20% of the total RTC investment listed in Table 2, as the RTC is a 20% income tax credit on total rehabilitation expenditures. Source: National Park Service, Technical Preservation Services.

LIHTC projects that do not have an allocation amount in the HUD LIHTC database are excluded from the totals listed here. These figures include LIHTC projects in each city’s downtown and its neighbourhoods. Source: http://lihtc.huduser.org.

Data on CDBG investments were only available from 2003. Thus, we use the ten-year period, 2003–2013, for comparison. CDBG funds are allocated to the city, thus these figures include CDBG money spent in each city’s downtown and its neighbourhoods. Source: https://www.hudexchange.info/grantees/cpd-allocations-awards/.

All case study cities benefited from a net increase in neighbourhood housing units via RTC investment, ranging from 497 units (487 market-rate and 10 low-income) in Providence to 3087 units (2929 market-rate and 158 low-income) in Richmond (Table 2). While a fraction of each city’s total housing stock, the rehabilitation of existing units, creation of new units (e.g. converting a warehouse into apartments) and revitalisation of formerly vacant structures are important means of maintaining, upgrading and creating housing opportunities for residents.¹⁹ Federal RTC investments also foster low-income housing development. Each city, except Cleveland, had a net increase in low-income housing, ranging from 569 units in Philadelphia to 10 units in Providence.

Cleveland, which lost two low-income units, had a total of 23 RTC projects with low-income housing either before or after rehabilitation. In seven instances, developers rehabilitated existing low-income housing with either no change or a small loss of units. In 14 projects, developers created new low-income units by adaptively reusing buildings or converting market-rate housing. Finally, developers converted two low-income buildings into market-rate housing, a potential warning sign of gentrification. These two buildings, though, represent less than 4% of Cleveland’s total neighbourhood RTC projects.

Distribution of neighbourhood RTCs

Each year, RTC investment was highly (HHI above 0.25) or moderately (HHI above 0.15) concentrated in all six cities. The cumulative HHIs, though, showed low concentration across the cities’ neighbourhoods (Table 4). Essentially, a few tracts captured RTC investment each year, but the locus of investment changed over time (Figure 1). There are multiple factors behind the shifting of RTC investment among neighbourhoods. Securing an RTC requires working with state and federal preservation officials and having knowledge of the process and preservation standards. The costs associated with the RTC often mean that developers only pursue the credit for large projects where the benefit outweighs added costs. Developers may seek projects in new locations after saturating the market in one neighbourhood or after overcoming the learning curve associated with the RTC. Additionally, RTC projects are often complex and take years to complete: in Baltimore, the time between a Part 2 and Part 3 approval ranges from a few months to over seven years (the average for all Baltimore projects is about two years). A developer may only have the capacity to do one project at a time, skewing the concentration towards that neighbourhood when a major project is completed. This is the case in Cleveland, where one or two large RTC investments have occurred each year in different neighbourhoods.

Table 4.

Yearly and cumulative HHI for the six case study cities (grey shading indicates years where RTC investments are not concentrated).

City	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	Average	Cumulative
Baltimore	0.32	0.35	0.35	0.38	0.17	0.35	0.14	0.52	0.20	0.29	0.58	0.33	0.07
Cleveland	1.00	0.39	0.72	0.23	0.65	0.59	0.28	1.00	0.46	0.82	0.59	0.61	0.11
Philadelphia	0.32	1.00	1.00	0.28	0.27	0.25	0.73	0.56	1.00	0.86	0.59	0.62	0.09
Providence	1.00	0.96	0.50	1.00	0.27	0.95	0.45	0.72	0.62	0.58	0.72	0.71	0.17
Richmond	0.58	0.32	0.26	0.49	0.54	0.36	0.37	0.19	0.22	0.26	0.34	0.36	0.14
St. Louis	0.41	0.25	0.76	0.32	0.44	0.21	0.14	0.16	0.13	0.18	0.26	0.30	0.10

Figure 1.

Shifting geography of Baltimore’s neighbourhood RTC projects.

Characterising neighbourhoods with RTC investment

Developers used the RTC across neighbourhood conditions, making it a versatile financing source and a key driver of building rehabilitation in depressed legacy cities. Based on quintiles derived from 2000 US Census data, very low-income and low-income neighbourhoods captured 57% of RTC investment in the six cities (Table 5). In every city except Baltimore, the largest share of investment occurred in very low- and low-income areas, demonstrating that the RTC encourages preservation in neighbourhoods developers might otherwise avoid. These findings counter dominant narratives that suggest there is no, or very little, market potential in very low- and low-income neighbourhoods within legacy cities. While the RTC subsidises 20% of rehabilitation expenses, developers must demonstrate project viability to secure the remaining 80% and the full cost of all non-rehabilitation expenses (e.g. parking improvements, landscaping). The existence of RTC projects in very low- and low-income areas thus indicates that rehabilitation and investment is possible in these locations, with the right mix of financing. At the same time, a large share of RTC investment occurred in the two highest income quintiles in Baltimore, Cleveland and St. Louis. Given the history of decline and disinvestment in legacy cities, it is highly likely that even high-income neighbourhoods have some stock of vacant or underutilised buildings that suffer from deferred maintenance. In these locations, the RTC supports rehabilitation that, in turn, can stabilise the overall property market in higher-income locations.

Table 5.

RTC investment and housing unit production (2000–2010) by US Census 2000 tract 1uintiles.

		Very low-income	Low-income	Moderate-income	Middle-income	Upper-income
All cities	RTC investment ($)	1.23B	718M	245M	866M	352M
	% of RTC investment	36	21	7	25	10
	Net market-rate units	2071	2248	694	1100	314
	Net low-income units	424	591	144	19	104
Baltimore	RTC investment ($)	124M	26M	55M	261M	134M
	% of RTC investment	21	4	9	43	22
	Net market-rate units	262	26	232	262	247
	Net low-income units	30	16	30	0	60
Cleveland	RTC investment ($)	74M	23M	56M	65M	18M
	% of RTC investment	31	10	24	28	7
	Net market-rate units	75	67	154	114	102
	Net low-income units	−129	22	49	56	0
Philadelphia	RTC investment ($)	282M	141M	53M	27M	21M
	% of RTC investment	54	27	10	5	4
	Net market-rate units	811	−22	265	105	80
	Net low-income units	27	456	45	0	41
Providence	RTC investment ($)	154M	64M	0.6M	0	0
	% of RTC investment	71	29	0.3	0	0
	Net market-rate units	251	236	0	0	0
	Net low-income units	42	−32	0	0	0
Richmond	RTC investment ($)	220M	388M	28M	62M	3M
	% of RTC investment	31	55	4	9	1
	Net market-rate units	850	1910	0	171	−2
	Net low-income units	21	132	6	−1	0
St. Louis	RTC investment ($)	378M	76M	52M	232M	177M
	% of RTC investment	41	8	6	25	19
	Net market-rate units	−178	31	43	448	−113
	Net low-income units	433	−3	14	−36	3

Note: The Census tract quintiles are based on US Census 2000 data as this serves as the best proxy for neighbourhood conditions when a developer decided to undertake an RTC investment.

Analysing housing production by quintiles reveals that the RTC encouraged the private sector to create new market-rate and affordable housing units across a spectrum of neighbourhoods, including distressed locations (Table 5). In every city except St. Louis, RTC investments produced new market-rate units in very low-income tracts and in every city except Philadelphia, RTC projects produced market-rate housing in low-income tracts. Thus, in some very low- and low-income areas within legacy cities there is demand for market-rate housing. While this finding might typically raise concerns about gentrification, in the case of legacy cities this is an important step in alleviating concentrations of poverty, building mixed-income communities and stabilising the built environment. There is also a high likelihood that these RTC investments are rehabilitating vacant buildings as market-rate housing, as there is little to no loss of affordable units in these areas. In other words, it does not appear that the RTC is subsidising the widespread conversion of affordable units to market-rate housing in legacy city neighbourhoods.

RTC projects created affordable housing across a spectrum of neighbourhoods, including a net increase in very low-income (except Cleveland) and low-income tracts (except Providence and St. Louis) (Table 5). In very low- and low-income neighbourhoods, affordable housing is abundant because of depressed values. But, these units are often low-quality and in disrepair because of deferred maintenance and absentee landlords. Federal preservation standards ensure that affordable units in RTC buildings provide high-quality housing for low-income households. Developers also produced new affordable units in moderate-income areas (except Providence), in Cleveland’s middle-income neighbourhoods, and in upper-income areas in Baltimore, Philadelphia and St. Louis. The creation of affordable housing in moderate-, middle- and upper-income areas provides low-income residents with housing options in a variety of neighbourhoods. Creating affordable units in wealthier areas may also hinder future displacement, should gentrification escalate in more popular legacy city neighbourhoods.

Conclusions

In the USA, the RTC encourages developers to invest in neighbourhoods, including very low- and low-income communities. Incentives are especially important in weak market locations where the private sector may otherwise be reluctant to invest. Rehabilitating historic buildings furthers neighbourhood revitalisation and stabilisation goals by reducing vacancy and improving the quality of the built environment. Our findings suggest that the federal RTC is a policy lever that supports reinvestment in legacy cities, including distressed neighbourhoods, with investment comparing favourably to more well-known US urban revitalisation programmes such as Community Development Block Grants and Low-Income Housing Tax Credits.

The core goal of the federal RTC is to engage the private sector in preserving historic buildings. Our findings demonstrate that the RTC is achieving this goal, at least to some degree, although our study does not explore the extent to which the policy fails. Future research could examine demolition rates for RTC-eligible buildings to fully evaluate the policy and to understand if and when the incentive is not strong enough to overcome weak market conditions. The RTC is a US-specific programme and, while we cannot definitively speak to incentives that occur in other contexts, this research suggests that within the context of decline incentives do have the power to overcome conditions of distress. Future comparative research could follow our approach to explore the use and effects of incentives and regulations across the world.

RTC projects create high-quality low-income housing, as they must conform to federal preservation standards. By producing market-rate and affordable units across declining cities, the RTC furthers the goal of creating mixed-income neighbourhoods (Cohen, 1998). This finding suggests a need for more direct research on the intersection of preservation and affordable housing across a range of contexts, particularly given the popular and scholarly connections made between preservation and gentrification.

The results provide evidence of where the private sector is willing to invest with favourable financing. Again, while the RTC is a specific US policy, understanding private-sector decisions about where to invest helps planners and policymakers devise programmes that account for neighbourhood assets and available funding tools in any particular context. This analysis shows that historic preservation is possible across a wide range of communities, including very low- and low-income areas, indicating the potential for more balance between demolition and preservation in declining cities (Mallach, 2011, 2012a). There is also a need for critical research that untangles planning and policy decisions regarding demolition and neighbourhood preservation within the context of decline.

Although we find RTC activity across legacy city neighbourhoods, we caution that this (or any other incentive) is not a silver bullet for reversing decades of decline and disinvestment. Rather, the RTC is an example of one tool, among many, that can help stabilise communities. Ideally, any incentive for rehabilitation should benefit a range of historic buildings, particularly in distressed communities where market values demand subsidies, but there are key limitations that should be taken into account in future revisions to the RTC policy or in developing a similar strategy in another context. High overhead costs including legal, accounting and preservation services limit the RTC’s usefulness for smaller projects, including neighbourhood-scale commercial buildings or small apartments. The credit does not apply to owner-occupied housing, which can result in select preserved buildings amid swaths of deteriorating single-family housing. Local regulations, including zoning that prohibits multi-family housing or commercial uses, also limit RTC activity.²⁰ Although local planners play little to no role in RTC projects, they can remove regulatory barriers to building rehabilitation and adaptive reuse by modifying zoning codes and supporting new historic districts.

Declining, legacy cities have severely depressed real estate markets alongside large collections of historic buildings with the potential for more rehabilitation that preserves neighbourhood character, heritage and sense of place. Policymakers could encourage reinvestment in the most depressed areas by offering higher level incentives in severely distressed areas, such as Qualified Census Tracts in the USA.²¹ Rehabilitating the built environment of legacy cities is a long-term commitment with countless RTC-eligible buildings suffering from deferred maintenance and vacancy. Policymakers, planners and funders should set reasonable expectations and plan for long-term change by crafting mechanisms for mothballing buildings or other interim stabilisation measures so as to not preclude the possibility of future rehabilitation as market conditions evolve.

The NPS should support future research on RTC investments by making disaggregated data widely available.²² In-depth, mixed-methods research on specific cities should untangle RTC processes and impacts on quality of life, economic and community stability, and racial and ethnic diversity. Research should decipher the complex partnerships behind RTC investments. Understanding if and how private-sector developers, neighbourhood-based organisations, non-profit housing developers, or other entities use the RTC would illustrate how this incentive supports neighbourhood stabilisation. Additionally, future research could closely compare if and how the RTC furthers targeted reinvestment strategies, which are increasingly popular in legacy cities.²³ Future research should also compare the role that RTCs play across a variety of cities, including growing cities. Finally, developers often pair the RTC with other funding and research should explore the mechanisms of various funding packages that involve RTCs and how the combination of funding sources drives developers’ location decisions.

Footnotes

Acknowledgements

The authors thank the National Park Service, Technical Preservation Services (US Department of the Interior) for supplying the RTC data for this research.

Funding

The research was carried out with support from a Faculty Scholarship Initiative Award from Cleveland State University.

Notes

References

Accordino

Fasulo

(2013) Fusing technical and political rationality in community development: A prescriptive model of efficiency-based strategic geographic targeting. Housing Policy Debate 23(4): 615–642.

Advisory Council on Historic Preservation (ACHP) (2014) Task Force on Rightsizing and Historic Preservation. Available at: http://www.achp.gov/achpTaskForceRightsizing.html.

Allison

(2005) Gentrification and historic districts: Public policy considerations in the designation of historic districts in New York City. Doctoral dissertation, Columbia University.

American Assembly (2011) Reinventing America’s Legacy Cities: Strategies for Cities Losing Population. New York: American Assembly.

Birch

(2002) Having a longer view on downtown living. Journal of the American Planning Association 68(1): 5–21.

Birch

(2005) Who Lives Downtown. Washington, DC: Brookings Institution.

Birch

(2009) Downtown in the ‘new American city’. The annals of the American academy of political and social science 626(1): 134–153.

Birch

Roby

(1984) The planner and the preservationist. Journal of the American Planning Association 50(2): 194–207.

Blakely

(2001) Competitive advantage for the 21st-century city: Can a place-based approach to economic development survive in a cyberspace age? Journal of the American Planning Association 67(2): 133–141.

10.

Brophy

Burnett

Richardson

(2003) Building a New Framework for Community Development in Weak Market Cities. Denver, CO: Community Development Partnership Network

11.

Carr

Servon

(2009) Vernacular culture and urban economic development. Journal of the American Planning Association 75(1): 28–40.

12.

Center for Urban Policy Research (CUPR) (2014) Annual Report on the Economic Impact of the Federal Historic Tax Credit for FY 2013. Rutgers Edward J. Bloustein School of Planning and Public Policy, National Parks Service Technical Preservation Division.

13.

Clark

Lloyd

Wong

. (2002) Amenities drive urban growth. Journal of Urban Affairs 24(5): 493–515.

14.

Cohen

(1998) Combining historic preservation and income class integration: A case study of the Butchers Hill neighborhood of Baltimore. Housing Policy Debate 9(3): 663–697.

15.

Coulson

Leichenko

(2001) The internal and external impact of historical designation on property values. The Journal of Real Estate Finance and Economics 23(1): 113–124.

16.

Cronyn

Paull

(2009) Heritage tax credits: Maryland’s own stimulus to renovate buildings for productive use and create jobs. The Abell Report 22(1): 1–8.

17.

Curran

Wolman

Hill

. (2006) Economic wellbeing and where we live: Accounting for geographical cost-of-living differences in the US. Urban Studies 43(13): 2443–2466.

18.

Dewar

Thomas

(eds) (2012) The City After Abandonment. Philadelphia, PA: University of Pennsylvania Press.

19.

Domer

(2009) Old but not good old: History, prospects and problems of freezing time in old buildings. Journal of Architectural and Planning Research 26(2): 95–110.

20.

Ellen

O’Regan

(2008) Reversal of fortunes? Lower-income urban neighbourhoods in the US in the 1990s. Urban Studies 45(4): 845–869.

21.

Filion

Hoernig

Bunting

. (2004) The successful few: Healthy downtowns of small metropolitan regions. Journal of the American Planning Association 70(3): 328–343.

22.

Galster

Tatian

Accordino

(2006) Targeting investments for neighborhood revitalization. Journal of the American Planning Association 72(4): 457–474.

23.

Gilli

(2009) Sprawl or reagglomeration? The dynamics of employment deconcentration and industrial transformation in Greater Paris. Urban Studies 46(7): 1385–1420.

24.

Górny

Toruńczyk-Ruiz

(2014) Neighbourhood attachment in ethnically diverse areas: The role of interethnic ties. Urban Studies 51(5): 1000–1018.

25.

Heintzelman

Altieri

(2013) Historic preservation: Preserving value? The Journal of Real Estate Finance and Economics 46(3): 543–563.

26.

Hill

Wolman

Kowalczyk

. (2012) Forces affecting city population growth or decline: The effects of inter-regional and inter-municipal competition. In: Mallach

(ed.) Defining a Future for American Cities Experiencing Severe Population Loss. New York: American Assembly, pp. 33–85.

27.

Hipp

(2010) What is the ‘neighbourhood’ in neighbourhood satisfaction? Comparing the effects of structural characteristics measured at the micro-neighbourhood and tract levels. Urban Studies 47(12): 2517–2536.

28.

Ijla

Ryberg

Rosentraub

. (2011) Historic designation and the rebuilding of neighborhoods: New evidence of the value of an old policy tool. Journal of Urbanism: International Research on Placemaking and Urban Sustainability 4(3): 263–284.

29.

Katz

(2006) Revitalizing weak market cities in the U.S. Presentation to the Council on Foundations. Washington, DC: Brookings Institution, Metropolitan Policy Program.

30.

King

(2013) Jane Jacobs and ‘The Need for Aged Buildings’: Neighbourhood Historical Development Pace and Community Social Relations. Urban Studies 50(12): 2407–2424.

31.

Legacy City Design (LCD) (2015) Where are legacy cities? Available at: http://www.legacycitydesign.org/cities.

32.

Legacy City Partnership (LCP) (2015) What are legacy cities? The facts. Available at: http://www.legacycities.org/.

33.

Listokin

Lahr

(1998) The contributions of historic preservation to housing and economic development. Housing Policy Debate 9(3): 431–478.

34.

Logan

(2012) Beyond a boundary: Washington’s historic districts and their racial contents. Urban History Review/Revue d’histoire urbaine 41(1): 57–68.

35.

McGahey

Vey

(eds) (2008) Retooling for Growth: Building a 21st Century Economy in America’s Older Industrial Areas. Washington, DC: Brookings Institution Press.

36.

Mallach

(2011) Demolition and preservation in shrinking US industrial cities. Building Research & Information 39(4): 380–394.

37.

Mallach

(2012a) Depopulation, market collapse and property abandonment: Surplus land and buildings in legacy cities. In: Mallach

(ed.) Rebuilding America’s Legacy Cities: New Directions for the Industrial Heartland. New York: The American Assembly, pp. 85–110.

38.

Mallach

(ed.) (2012b) Defining a Future for American Cities Experiencing Severe Population Loss. New York: American Assembly.

39.

Mallach

(2015) The uncoupling of the economic city: Increasing spatial and economic polarization in American older industrial cities. Urban Affairs Review 51(4): 443–473.

40.

Mallach

Brachman

(2013) Regenerating America’s Legacy Cities. Cambridge, MA: Lincoln Institute of Land Policy.

41.

National Park Service (NPS) (2015) Federal Tax Incentives for Rehabilitating Historic Buildings: Statistical Report and Analysis for Fiscal Year 2014.Washington, DC: US Department of the Interior, National Park Service, Technical Preservation Services.

42.

Noonan

Krupka

(2011) Making – or picking – winners: Evidence of internal and external price effects in historic preservation policies. Real Estate Economics 39(2): 379–407.

43.

Page

Mason

(2004) Giving Preservation a History: Histories of Historic Preservation in the United States. New York: Routledge.

44.

Pastor

Benner

(2008) Been down so long: Weak market cities and regional equity. In: McGahey

Vey

(eds) Retooling for Growth: Building a 21st Century Economy in America’s Older Industrial Areas. Washington, DC: Brookings Institution Press, pp. 89–118.

45.

Pistor

NJC

(2014) City to rip down 26 buildings in north St. Louis. St. Louis Post-Dispatch, 9 June. Available at: http://www.stltoday.com/news/local/govt-and-politics/nick-pistor/city-to-rip-down-buildings-in-north-st-louis/article_2ab0165d-1290–56a1–86dc-8462d063ea0d.html.

46.

Qian

(2013) Diversity versus tolerance: The social drivers of innovation and entrepreneurship in US cities. Urban Studies 50(13): 2718–2735.

47.

Rhoades

(1993) The Herfindahl-Hirschman Index. Fed Res Bull 79: 188.

48.

Robinson

(2015) Tear down Baltimore’s abandoned buildings to help rebuild the city. The Washington Post, 30 April. Available at: http://www.washingtonpost.com/opinions/tear-down-baltimores-abandoned-buildings-to-help-rebuild-the-city/2015/04/30/225b87f0-ef5c-11e4-a55f-38924fca94f9_story.html.

49.

Ryan

Campo

(2013) Autopia’s end: The decline and fall of Detroit’s automotive manufacturing landscape. Journal of Planning History 12(2): 95–132.

50.

Ryberg

(2011) Preservation at the grassroots: Pittsburgh’s Manchester and Cincinnati’s Mt. Auburn Neighborhoods. Journal of Planning History 10(2): 139–163.

51.

Ryberg-Webster

(2013) Preserving downtown America: Federal rehabilitation tax credits and the transformation of US cities. Journal of the American Planning Association 79(4): 266–279.

52.

Ryberg-Webster

(2015a) The landscape of urban preservation: A spatial analysis of federal rehabilitation tax incentives in Richmond, Virginia. Journal of Urban Affairs 37(4): 410–435.

53.

Ryberg-Webster

(2015b) Urban policy in disguise: A history of the federal historic rehabilitation tax credit. Journal of Planning History 14(3): 204–223.

54.

Ryberg-Webster

Kinahan

(2014) Historic preservation and urban revitalization in the twenty-first century. Journal of Planning Literature 29(2): 119–139.

55.

Rypkema

(1991) The Economics of Rehabilitation. Washington, DC: National Trust for Historic Preservation.

56.

Saito

(2009) From ‘blighted’ to ‘historic’ race, economic development, and historic preservation in San Diego, California. Urban Affairs Review 45(2): 166–187.

57.

Silver

Crowley

(1991) Revitalizing the urban south: Neighborhood preservation and planning since the 1920s. Journal of the American Planning Association 57(1): 69–84.

58.

Sohmer

Lang

(1998) Beyond This Old House: Historic preservation in community development. Housing Policy Debate 9(3): 425–430.

59.

Stake

(2003) Case studies. In: Denzin

Lincoln

(eds) Strategies of Qualitative Inquiry. Thousand Oaks, CA: SAGE, pp. 86–109.

60.

Thomson

(2012) Targeting neighborhoods, stimulating markets: The role of political, institutional, and technical factors in three cities. In: Dewar

Thomas

(eds) The City After Abandonment. Philadelphia, PA: University of Pennsylvania Press, pp. 104–132.

61.

Thomson

(2008) Strategic, geographic targeting of housing and community development resources: A conceptual framework and critical review. Urban Affairs Review 43(5): 629–662.

62.

Thompson

Rosenbaum

Schmitz

(2011) Property values on the plains: The impact of historic preservation. The Annals of Regional Science 47(2): 477–491.

63.

Tobias

(2014). Cuyahoga County Council approves tweaks to $50 million demolition plan. Cleveland.com, 14 October. Available at: http://www.cleveland.com/cuyahoga-county/index.ssf/2014/10/cuyahoga_county_council_approves_tweaks_to_50_million_demolition_plan_final_passage_likely_coming_so.html.

64.

US Department of Justice (DOJ) and Federal Trade Commission (FTC) (2010) Horizontal merger guidelines. Available at: http://www.justice.gov/atr/public/guidelines/hmg-2010.html.

65.

Verderber

(2009) The unbuilding of historic neighbourhoods in post-Katrina New Orleans. Journal of Urban Design 14(3): 257–277.

66.

Wojno

(1991) Historic preservation and economic development. Journal of Planning Literature 5(3): 296–306.

67.

Yin

(2014) Case Study Research: Design and Methods. 5th edition. Thousand Oaks, CA: SAGE.

68.

Zahirovic-Herbert

Chatterjee

(2012) Historic preservation and residential property values: Evidence from quantile regression. Urban Studies 49(2): 369–382.

69.

Zhang

(2011) Boundaries of power: Politics of urban preservation in two Chicago neighborhoods. Urban Affairs Review 47(4): 511–540.