The Impact of Heritage to the Property Market and the Property development in New South Wales Australia

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The Impact of Heritage to the Property Market and the Property development in New South Wales Australia

 

 

 

 

 

 

 

 

 

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Introduction

Heritage buildings form an integral part of the Australian culture and history; many of these buildings have a great cultural value. The concepts of the benefit of heritage properties will be reviewed from stakeholders view perspective to produce recommendations to enable the preparation and assessment of the economic and investor information for the development of applications involving heritage properties as well as heritage conservation areas (HCA's) in a standardized, akin and simply explicable manner. So as to maintain a wide scope of research; the study will discus both commercial and residential buildings in New South Wales, Australia.

Research Objective

The objective of this research is to analyze the impact of heritage to the property market and the property development in New South Wales Australia. The paper will begin by looking at the economic and social benefits of heritage properties.

Research thesis and hypothesis

The thesis of this research is that, the cost of restoring heritage is not necessarily greater than the cost of renovation. The paper hypothesizes that, heritage listings positively impact property market and the property development in New South Wales Australia. The emerging role of public/private partnerships in conserving heritage property is a positive trend that may possibly increase the value of heritage in the future. In order to achieve the research objectives, the study will try to explore literature in an attempt to separate the facts from the myths that surround the true economic impacts of heritage listings on commercial properties, as they exist in New South Wales Australia.

Research Methodology

The study employs a literature review approach with a relative use of a few case studies. The concepts and cases are selected with an aim of providing a general view of the commercial property circumstances, including those that had been the subject of current main redevelopment schemes, as well as other non-major or standing investments examples. It was assumed that the selected properties would, by their natural history, be adequately comparable and similar in thematic terms in serving the purpose of yielding readily usable applications for stakeholders including heritage managers, property development firms, and property investors among others who operate in the Australian urban heritage and economic environments within the boundaries of New South Wales.

The restrictions and mitigating factors on development under the Heritage Act 1977

Heritage as defined in terms of natural, cultural and built is protected in NSW by the Heritage Act 1977 (Heritage Act 1977 139(1)). Under the Act, heritage items and places are subject to listing in the State Heritage Register. In addition, interim heritage orders are to be made, as deemed necessary, to protect heritage items or places. This means that before any work can be done to modify or demolish heritage items or places, approval must be obtained from the Heritage Council or local council.

Under the Heritage Act 1977, specifically protected:

  • Environmental heritage in NSW;

  • Listing of heritage items or places on the State Heritage Register;

  • Issuing of Interim heritage orders; and Emergency orders;

  • Archaeological excavations also require a permit, specifically when they are meant to discover, expose, damage, destroy or move a relic; and

  • Historic shipwrecks.

Development consent

Under the Act, local councils have adopted a Standard LEP, with full consideration of the provisions in their existing LEPs, which is used when deciding whether to consent to a development application involving a heritage item or place. If a development is perceived to result in the demolition, damaging or altering of any item or place which is listed in the State Heritage Register or is covered by an interim heritage order, then the developer is required to get approval from the local council or Heritage Council before commencing on any development project. In addition, development applications must also get an approval under the Heritage Act 1977 if they fall within the grouping of integrated development. This implies that the consent authority is required to refer the application to the Heritage Council. The latter issues its general terms of approval, before referring it back to the Local council for consent (86). Thus, if the Heritage Council denies the application, then the consent authority is obligated to turn down the development application. However, if the approval under the Heritage Act 1977 is granted by the local council (this occurs when the local council was responsible for issuing the interim heritage order), then the development is not classified as an integrated development (Environmental Planning and Assessment Act 1979, s. 75U(c)).

Exemption of Major projects

Major government projects, such as infrastructure development, may be approved by the Ministry in charge under a special assessment and approval process as set out under the Environmental Planning and Assessment Act 1979. Thus, local councils and other consent authorities cannot issue an order if that order affects a heritage item or place to which a State Heritage Register listing or an interim order is applicable to unless the Heritage Council has had had its say on the matter (Environmental Planning and Assessment Act 1979  s. 121B, 121S).

Approvals to damage or demolish

A person or entity that wishes to demolish, move, or develop a place, building or land that is covered by the covered by a State Heritage Register listing or an interim heritage order as issued by a local council is required to first obtain approval from that council. The council issues a public notice of applications for approvals if the council opines that the consent, if granted, will result in material damage or effect on the significance of the heritage item or land. In such cases, the council is required to publicly publish the notice of the rejected application in a State-wide daily newspaper. On the other hand, if the application for approval is made, the council is also required to make the application available for public inspection for a minimum of 21 days. During this period any person is free to make a written submission, which the council is required to consider (Heritage Act 1977, s. 61(2)).

 

Heritage Council decision on approval

The heritage council must refuse approval if it is of the opinion that the development application will result negative material effects on the whole of a work or building that is to be demolished. However, this is subject to exceptions, for instance where the building is perceived to pose a danger to the public, or it can effectively be relocated another land (Heritage Act 1977 s. 63(3)).  

The value of the heritage property to the owner

In a market economy, it is rational to expect property developers to be interested in making profits, relative to the associated risks (Dominy 10). The owner of a heritage property considers it as part of their business and the economic viability is taken into consideration from day one.  The property must perform well to maximise revenues and the economic efficiency of the property is the main concern. Thus, the developers and owners of heritage properties may not be willing to wait for the long-term benefits; profits are the main motivators of their enterprise. This profit mentality of the owners may have nothing or very little direct relationship with the humanist concepts underpinning the ‘public good’ nature of the value of heritage properties. On the other hand, people who purchase heritage property such as private houses may be willing to invest in the conservation of such properties. They make such decisions with the expectation that they can have a capital gain from the property in the short, medium or long-term. That means, they are prepared to invest a significant part of their money, time and effort in restoring the heritage quality of their home, which may be heritage listed. These individuals realise that in most cases, the benefits may not only be financial but also the pleasure of living in a property that has heritage significance. However, measuring such benefits is almost impossible (Peter 32).

 

The impact of Heritage to surrounding development

When the heritage Act 1977 was enacted to conserve heritage property, it had the aimed at ensuring that public goods are protected against individual interests and to some extent to represent societal views of the community. The property market has always been quick to recognise areas that are gentrified. A good example is where a terrace in Paddington is regarded to have heritage value while a terrace at Smithfield in western Sydney may be an impediment to development. Other valuable properties include the 1930s Paddington, where a good number of many professional people are paying a premium to live there.

The Heritage1977 Act allows dissatisfied applicant (with a council decision) to submit their appeal regarding an application for approval to the Land and Environment Court within one year of receiving notice of the refusal to develop a work or building.

Case study-1: Unsuccessful appeal by developer against an interim heritage order

Byron Ventilink Pty Ltd v Byron Shire Council (2005) NSWLEC 395

Byron Ventilink Pty Ltd owned a number of buildings in Byron Bay, part of these buildings were formerly the Byron Shire administrative offices and Council Chambers and administrative offices, which dated back to 1929. Byron Ventilink Pty Ltd had purchased the buildings in 1996, a time when the council offices were being relocated.

In November 2004, Byron Ventilink Pty Ltd submitted a development application under which it proposed to demolish all of the buildings save for the shell of a few shops. In December 2004, the council, under the authority of the ministry of planning imposed an interim heritage order that barred the demolition of the buildings. Byron Ventilink Pty Ltd logged an appeal in the Land and Environment Court that challenged the interim heritage order. The Company's appeal was dismissed by the Court the interim heritage order was still in force. The Court held that the Council was justified to rely on existing heritage reports to in issuing the interim heritage order and there was no need for carrying out a new heritage assessment, as the order had been issued under the specified guidelines by the ministry and the council.

A cost / benefit analysis of Heritage

Placing value on heritage properties is a difficult because “profit” is not maximised. Instead, the benefits are accrued to many consumers- a community.  Mostly, the effect on the use of heritage items or places may be minimal on the users but the effects are noteworthy to the owners of these items or places. It is important to note that these effects can be negative or positive in nature. Abelson argued that these benefits are ultimately private because they accrue to individuals (Abelson 145). He further points out, that in economics, these impacts are categorised as internal and external impacts. For instance when looking at heritage buildings, the internal impacts are those that involve the owners and users of a building. Such impacts are referred to as private benefits or costs. Practically, private benefits and costs of a heritage property accrue to the owner who respectively charges occupiers or visitors of the property. As (Hall 180) notes, the choice for heritage conservation comes with cots and benefits. An extensive body of literature written on the value of heritage but little attention has been accorded to the cost. In practice, there is a financial cost associated in pursuing heritage conservation, someone somewhere has to open their wallet. The general community exercises choices vis-à-vis the quality and natural history of heritage conservation. These decisions come with a cost (Pickard 19).

The cost of maintaining some of the heritage buildings are prohibitive in nature. Thus, there is a clear distinction between redevelopment and conservation. However, it is not clear whether the rate payers should be fully responsible for the increased financial burden of maintaining heritage items and places or whether the costs should be spread to the general community (state or federal). It could be observed that rate payers, directly or indirectly pay for the conservation of heritage properties in the local community, as in terms of user pays or rate subsides. The later statement assumes that there is a public willingness so as to conserve heritage. The benefits of heritage accrue to owners of residential and commercial properties in the precincts. These benefits are reflected in the capital or rental value of local residential and commercial properties. Tourists’ visits are also benefits accrued from a heritage building or precinct. The argument is that tourists gain pleasure from visiting heritage places and they expend funds in key areas such as food, accommodation, souvenirs, and museum entrances among others.  To the general public, measuring of the benefits is almost impossible. An example of a heritage listing that is difficult to value is the Elizabeth Farm Cottage at Parramatta. On the other hand, the benefits of an area like the Rocks in Sydney are obvious. The area attracts tourists bring benefits to nearly all stakeholders as reflected in terms of higher rents and property prices (Dominy 13).  

Well, the benefits definitely exist but how to quantify or even assess the general publics’ benefits is subject to debate. It is also important to remember that the general public is inclusive of the locals, must be remembered that the general public includes locals, states and even the international people. In general, methods such as the Hedonic Pricing Method, the Travel Cost Method and the Contingent Valuation Method can be used to measure the benefits of heritage items or places (Abelson145).

Conclusions and issues for research

The conclusions of this research will at large remain general due to the dynamic nature of the external and internal factors that affect heritage property and the overall market. Heritage conservation or redevelopments are imprecise terms, used and interpreted by differently by stakeholders for various reasons (most of the time subjectively rather than objectively). The benefits of heritage to the community of investing in property conservation are well established, but the economic benefits to the other major stakeholders such as owners and property developers among others is subject to quantitative research. Thus, the risks to these other stakeholders are potentially high, yet the returns may also be high (Chin 373). Given the opportunity, developers in the market, may prefer investing in a non-heritage listed property because they wrongly perceive that heritage listed properties have intrinsic economic and restrictive exertions, that may negatively impact on their future potential returns.

 

 

 

 

 

 

 

 

 

Works Cited

Abelson, P. Valuing the public benefits of heritage listing of commercial building. Heritage Conference Proceedings, heritage economics: challenges for heritage conservation and sustainable development in the 21st Century, 2000:145-158.

Byron Ventilink Pty Ltd v Byron Shire Council (2005) NSWLEC 395

Chin, L.S. Managing urban conservation: maximising returns (Singapore). Australian Property Journal, 2003: 372-375.

Dominy, C, The impacts of heritage Requirements on the financial Viability of individual Development proposals, Web http://www.heritage.nsw.gov.au/docs/economics_partb1.pdf

Dominy, C.  Economic impact of heritage listings. Unpublished research document, 2004: 7-26.

Hall, C. M. Integrated heritage management: dealing with principles, conflict, trust and reconciling stakeholder differences. Heritage Conference Proceedings, heritage economics: challenges for heritage conservation and sustainable development in the 21st century, 2000:171-192.

Heritage Act 1977, Heritage Act 1977 No 136, 2011, Web. http://www.legislation.nsw.gov.au/maintop/view/inforce/act+136+1977+cd+0+N

Peter Wills and Chris Eves, Heritage Australia: A review of Australian material Regarding the economic and Social benefits of heritage Property, (n.d), Web <http://www.heritage.nsw.gov.au/docs/benefits_heritage05.pdf>

Pickard, R. and Pickerill, T. Investing in historic property. Findings in Built and Rural Environment. RICS, May, 2003.