20 March 2013 // Thoughts

The Business of Culture: The Impact of Museums on Property Values

Per last week’s post, over the next several weeks we’ll be examining the impact of museums on economic development: from tourism to urban planning, employment to entrepreneurship.  In this segment, we’ll assess the the relationship between cultural assets and real estate valuation.

According to the Americans for the Arts’ report The Arts and Economic Prosperity IV, “nonprofit arts and culture organizations pay their employees, purchase supplies, contract for services and acquire assets from within their communities.” But do they also affect residential and commercial property values by attracting re-investment in neighborhoods?

The impact of museums on housing prices in particular is a subject that has been sparsely studied. In fact, after four days of research, I finally came upon a paper by Dr. Stephen Sheppard of the Center for Creative Community Development (C3D), stating “EconLit identifies only 550 references to research on museums, and only 11 of these have to do with housing. The number of research papers that address museums and house prices: zero.” Imagine my reaction: “yay, I’m not crazy!” combined with “well there goes that blog.” Luckily, in the rest of his paper, entitled “Museums in the Neighborhood: The Local Economic Impact of Museums,”as well as in his subsequent research, he actually draws a strong correlation between the introduction or renovation of a museum in a community and an increase in home values.

Dr. Stephen Sheppard of C3D.  Photo credit: IAAPA

Sheppard runs C3D at Williams College in Massachusetts. In a 2006 paper entitled, “Culture and Revitalization: The Economic Effects of MASS MoCA in its Community,” Sheppard, along with colleague Kay Oechler and students Blair Benjamin and Ari Kessler, examined the effects of the opening of Massachusetts Museum of Contemporary Art (MASS MoCA) in North Adams. The visual and performing arts center moved into a brownfield site formerly occupied by the Sprague Electrical Factory in 1999.

Photo by Kevin Kennefick for MASS MoCA

Sheppard et al compared the change in house prices from before the opening of MASS MoCA(May 1999) with post-opening figures to identify the impact on property values directly attributable to the museum. They performed a hedonic analysis to account for the other factors that affect housing prices, such as property age and size. Because this brownfield site had been left relatively untouched since the Sprague’s departure in 1986 and offered few (if any) community conveniences, pre-1999 housing prices were generally higher the farther one moved from the site. After 1999, however, structurally similar houses held the same value regardless of their proximity to MASS MoCA, meaning those areas closest to the museum saw an increase in value per property of $11,000 (2004 dollars). The positive impact radius was about 1.7 kilometers from the site, encompassing most of the homes in North Adams.

Photo credit: MASS MoCA

If the properties within the affected 1.7 km radius are aggregated, this total increase in property values was nearly $14 million at 2004 price levels, generating a potential annual property tax increase to the community of $195,491. In addition to the residential property increase, the introduction of MASS MoCA subsequently led to $11 million in extraordinary investments in the form of a Holiday Inn hotel and the renovation of several nearby houses into a small luxury inn. This growth happened without a corresponding increase in gentrification, as the composition of the community remained generally stable during the study period. Sheppard et al have performed subsequent studies in other communities across the country, and while the degree of the impact has varied (due to factors such as the size of the study community), the positive relationship between the infusion of an artistic amenity into the community and property values has remained clear.

Inspired by C3D’s research, I decided to perform my own highly un-statistical analysis of the effect of cultural amenities on rental rates. I performed a Google search on “museum apartments” and came up with a host of results. In Philadelphia, the average one-bedroom within ten miles of the city center costs $1,045 per month. But its Museum Towers, which make “discovering the joys of the Museum District a daily ritual,” offered rents of $1,445. Museum Place, “located in the heart of the iconic Cultural Arts District of Downtown Portland [OR]” offered rents of $1,815 for a one-bedroom apartment, versus $910 on average. Even in my own community of Cincinnati there seems to be a correlation. I moved into my current downtown apartment in 2005. Shortly thereafter, a major renovation of the historic Fountain Square, located four blocks from my house, took place via a public-private partnership. The Square is now a haven for visual artists, performance groups and musicians, with programming seemingly 24/7. Since then, rents on an identical apartment in my building have increased a total of 41%, or 5.1% annually, compared to an average annual inflation rate of 2.5%. Now there are most certainly additional motivators at play here, including economic incentives and the introduction of other neighborhood amenities, but it’s hard to deny that proximity to cultural institutions is a strong selling point for rental properties and houses alike.

Fountain Square, Cincinnati.  Photo credit: UrbanCincy.com

By increasing attractiveness, offering recreational opportunities and providing a place for community interaction, museums are creating a positive shift in both home and rental prices, providing additional property tax revenue for their localities and bringing residents into previously vacant neighborhoods.

In our next post, we’ll visit a renovated local hotel that’s distinguishing itself by employing a museum as the core of its business strategy.