ECONOMICS UNIQUENESS

38 ■ THE ECONOMICS OF UNIQUENESS
agree on the preservation of the property. Under a preservation easement, this
agreement takes the form of a legally binding set of constraints on the allowed
modifi cations to the property, by either its current or its future owners.
0 H Providing fi nancial incentives R to off set P − Pi may be questionable, how-
i i
ever, as the relinquished profi ts from preservation are smaller than owners anticipate.
In terms of fi gure 2.3, once the impact of preservation on the heritage value
H of the area is taken into account, the foregone profi t from renovation is P*− P . i i
0 H Th is is not only less than P − Pi but it could actually be a negative amount
i
(meaning that renovation is actually more profi table than demolition). From this
point of view, using economic incentives to support preservation would result
in a windfall for the owners of buildings with architectural value. An alternative
H might be to set the incentive at its long-term equilibrium level P*− P , but few
i i
owners would voluntarily agree to participate in a preservation easement in that
case, and regulation would be needed to enforce preservation.
The Need for Architectural Standards
Sound architectural standards are also needed to maximize the value of properties
in the area of intervention, regardless of whether incentives are suffi cient
for the owners of buildings with architectural value to voluntarily participate in
the renovation eff ort. Th ose owners may not fully recognize which features of
their buildings need to be protected to preserve their character and enhance the
heritage value of the area. Even with the best intentions, their spending on preservation
could do more harm than good. If renovation is conducted in a decentralized
way, strict standards are needed regarding which features of the buildings
with architectural value can be altered and which ones have to be kept. Th ose
participating in the preservation easement should be required to strictly adhere
to those regulations and face penalties if they do not abide.
In practice, fi nancial incentives and construction standards may also be
needed for the properties surrounding buildings with architectural value. For
instance, creating or retaining a plaza around a set of buildings with architectural
value—providing pleasant views from surrounding terraces, retail shops,
and offi ce building—may do more to maximize economic returns than allowing
a crowded layout, in which the renovated building ends up choked by new
construction. Th e decision to preserve a given number of buildings with architectural
value should therefore be accompanied by land-use decisions and construction
regulations to make the most out of these assets. Th e maximization
of economic returns may require a combination of fi nancial incentives R i and
architectural standards not just on buildings with architectural or historic value
but also on surrounding properties. Such a combination should be an integral
part of project design.