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Pros And Cons Of Heritage Property Designations (in Canada)

It’s a truism that heritage preservation increases the value of a property and those around it, says a new report, but “this is an odd assertion, in the sense that heritage designation imposes restrictions on use, which would….appear to lower the value of property.”

The report, by Calgary-based Frank Atkins, chair of finance and capital markets for Frontier Centre for Public Policy, says, “The designation of buildings as historical may have positive social benefits, but these are notoriously hard to quantify.”

Atkins says, “Heritage buildings must be renovated under strict architectural specifications, and this raises issues on the supply side. In a normal market, capital and labour would be used to erect structures, and a rate of return on the project could be calculated. It is not exactly clear how to calculate the rate of return on investment in a heritage property, leading to a great deal of uncertainty in the investment decision.”

Heritage BC, which says it is a “charitable not-for-profit supporting heritage conservation across British Columbia,” says that “opponents to heritage regulation may say that any restrictions on future use or alterations will make a property less attractive in the market place. In fact, there is no solid evidence to support such a generalization. Alternatively, some studies have shown that residential heritage properties actually increase in value faster than other properties and holds its value better during market slumps.”

But it depends on the specific properties, says Heritage BC, citing an example of a fine heritage home in a neighborhood of prestigious, historic homes. It would likely improve in value, versus the same house but in poor condition in a neighborhood of low-rent homes zoned for commercial development. That house would “clearly not benefit, in any monetary sense, from legal heritage protection… Protecting this building with a heritage bylaw would contradict municipal policy and lower the value of the property by removing the options for potentially lucrative development.”

Heritage BC says, “Heritage status is rarely imposed against the owner’s wishes in B.C.” and that “the law provides for compensation if there is a reduction of market value.”

But that’s not the case everywhere in Canada. In Ontario, a 2003 Ontario Divisional Court decision determined that municipal councils should consider requests for designation of a property regardless of whether the owner wants it.

Although the federal government is responsible for the “overall direction of heritage organizations in Canada,” Atkins says “there are many vague overlapping jurisdictions both within the federal government and between the federal government and the provinces” as well as individual municipalities.

“We appear to be moving into an era where governments are showing an increased interest in heritage preservation. We do not currently have a good understanding of the effects that heritage designation has on property values.”

Atkins says that “there is a trade-off between the perceived needs of society in terms of heritage preservation and individual property rights. This is a particularly important problem in Canada, as property rights are not well defined.”

The fact that property rights are not guaranteed under the Canadian Constitution “leaves individuals vulnerable to potential decreases in property value without compensation from the government,” he says.

The issue of whether heritage designation is a positive or negative for the owner, and who has jurisdiction over the decision, came to a head in a 2012 case in Toronto, as outlined in a Toronto Sun story.

A property owner bought a home for $1.87 million, after his lawyer checked to make sure it wasn’t on any heritage preservation lists. The owner said the house was a 1930s-era home that had been extensively renovated at some point, including an addition, but was now in “decrepit” condition. He shared his plans to tear down the house and build a new one with neighbors.

But after a demolition permit was issued by the city, one day later the permit was revoked because a man filed a heritage property nomination form, stating the house was a “fine example of an early 20th-century residence in the Tudor Revival style”. At a community council meeting, a 60-day hold was placed on the demolition permit so the city’s Heritage Preservation department could file a report. It did, supporting the idea of designating the home as a heritage property, which would require saving at least half of the façade.

But before the report went the council, the owner appealed to the Ontario Municipal Board, which gave him approval to demolish the house. He did, the next day.

The homeowner said he felt that being saddled with a designation would have reduced the value of his property by 30 per cent and cost much more to renovate than to build a new home. The city councillor disagreed, stating the home would have increased in value by 10 per cent.

Toronto and several other municipalities across the country offer heritage property owners a partial rebate on municipal and educational property taxes, up to a maximum of 40 per cent.

“Theoretically, an individual should be no worse off when historical preservation may have lowered the value of their property,” says Atkins. “However this leads to the second issue, which is the lack of constitutionally entrenched property rights in Canada. This leads to a potential problem in the sense that if an individual is subject to regulatory takings, compensation may have to be decided by the courts.”

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