Productivity Commission Inquiry: Policy framework & incentives for the Conservation of Australia’s Historic Built Heritage Places
- Submission -

1. Introduction
This submission provides empirical evidence from recent research in Sydney on measuring the community benefits of preserving suburban built heritage. The research investigated if non-market economic valuation techniques were suitable for measuring such community benefits. The Ku-ring-gai Local Government Area of Sydney was used as a case study. The focus was on privately owned residential heritage with local significance.  
Two economic valuation techniques, hedonic analysis, and contingent valuation, were used in this research. For each of these techniques, the findings are organised as follows in this submission:
•	Empirical estimates for Ku-ring-gai (KRG): Benefit estimates and community preferences for the management of their local heritage are summarised for the KRG local government area. 
•	Insights on methodology and application: These insights relate to how well the two economic valuation techniques performed and their strengths and limitations in the context of suburban heritage.  While based on the KRG market and community, they are generic in nature and have implications for use of these techniques at a wider scale.
•	Data issues: Some data quality constraints emerged during the research that impacted on how estimation was conducted. Addressing these constraints can facilitate cost-benefit analysis of local heritage policy.

This submission presupposes familiarity with non-market valuation techniques.

2. Hedonic Analysis
The study used a sample of 64 heritage-listed and 76 unlisted houses sold in 1999-2000 to estimate average net benefits to owners of owning heritage-listed properties. The relationship between heritage/cultural value of listed properties and their market price was also tested.

2.1 Empirical Estimates for KRG
On average, listed houses were found to have a 12% premium over unlisted houses after controlling for variations in property and location attributes. A statistically significant positive relationship was also found to exist between heritage/cultural values and sale prices. Details of this study and statistical calculations are provided in a research paper “Does the housing Market value Heritage? Some Empirical Evidence”, available on the Macquarie University website http://www.econ.mq.edu.au/research/rdp2004.htm

2.2	Insights on methodology and application
A prerequisite for the application of hedonics is the existence of equilibrium in the market under study. Introduction of heritage-listing or major changes to development controls can disturb this equilibrium; so the use of hedonics may not be possible in local government areas (LGAs) where such changes have just been introduced. (KRG performed favourably in this respect – the properties included in the study had been listed for many years and no major changes to development controls were introduced in 1999-2000, the period for which sales data were used.)
Another precondition for successful use of this technique is adequate sample sizes. Preliminary review of sales data showed Hornsby Shire and KRG council areas (known to have some of the highest numbers of heritage-listed houses in NSW) had sales of 30 to 35 heritage-listed houses per year. So sales data for multiple years or multiple LGAs have to be combined for hedonic analysis; and stability of buyer preferences – over time or across LGAs - must be considered before amalgamating data. 
Hedonic analysis allows computation of implicit prices of housing attributes. Since ‘heritage’ is the attribute of interest here an objective measure must be selected for input into hedonic analysis. Four different measures were considered. Heritage values are related to architectural qualities; so architectural style classifications of houses (eg. ‘Victorian Filigree’, Federation Queen Anne’, ‘Californian Bungalow’) could be used provided there is adequate sample in each style category used. The property age or period of construction also captures the heritage character. Thirdly, classification of houses or conservation areas by the National Trust can be used as an indication of heritage character. Nonetheless qualitative research with property agents and buyers showed that there was low awareness of such classification in the market limiting its use in hedonics. Finally, the statutory listing status of houses or conservation areas (in LEPs) provides a definitive indication of the heritage character. When the listing status is used, the price difference between listed and unlisted houses will represent the combined influence of the heritage value of a property, and its listing status; the direction and strength of their separate influences cannot be partitioned out.  
2.3	Data Quality Issues
Land and house attributes are an essential input to hedonic analysis. While data on sale price and land area are readily available (from councils), it is difficult to get information on year of construction, built-up area, number of rooms, or street frontage. Commercial databases do not have all relevant data either.  If councils’ sales registers were to