Perverse Incentives and Historic Preservation:

The perverse incentives created by uncompensated environmental land-use controls are well documented. The Endangered Species Act (ESA), in particular, is notorious for encouraging the destruction of species habitat on private land. By restricting the use of land with ecologically desirable characteristics, the ESA effectively punishes private landowners for maintaining habitat on their land. As a consequence, landowners often engage in preemptive habitat destruction to avoid the Act's proscriptions. I've written on this subject at length (see here and here).

The ESA is hardly the only law creating such perverse incentives, and not the only law that encourages the destruction of resources it is supposed to protect. Today's NYT reports on the "preemptive demolition" of historic buildings in New York City before they can be classified as landmarks. Basically, when developers learn that a building may be designated as a landmark -- a status that will restrict their ability to modify or renovate the building -- they rush to destroy the historic aspects of the building, if not the building itself.

The strategy has become wearyingly familiar to preservationists. A property owner — in this case Sylgar Properties, which was under contract to sell the site to Related — is notified by the landmarks commission that its building or the neighborhood is being considered for landmark status. The owner then rushes to obtain a demolition or stripping permit from the city's Department of Buildings so that notable qualities can be removed, rendering the structure unworthy of protection. . . .

The number of pre-emptive demolitions across the city may be relatively small, but preservationists say the phenomenon is only one sign of problems with the city's mechanism for protecting historic buildings. . . .

In an interview Robert B. Tierney, chairman of the Landmarks Preservation Commission, called end-run alterations and demolitions "a terrible situation and a complete misuse of the process."

He added that the commission was trying to address the issue. Before putting a property on the calendar for landmark consideration, for example, Mr. Tierney or the commission's staff members meet with owners to explain the potential benefits of landmark designation —a federal tax credit for repairs or improvements, for example — in the hope of enlisting cooperation or even support.

"Owner consent is not required, but I strongly try to obtain it whenever possible," Mr. Tierney said. "It helps the process going forward. It's not a continually contentious relationship."

To address this problem, some members of city council want to tighten restrictions on landowners and make it more difficult to preempt regulation through renovation and demolition. One bill would "require the buildings department not only to withhold demolition permits but also to suspend existing ones and issue a stop-work order when the commission schedules a hearing to consider landmark status for a structure." This won't solve the inventive problem. Indeed, it's likely to make it worse by increasing the negative consequences of maintaining a building's historic characteristics and encouraging even early preemptive action.