Profits and Perils of Historic Districts

One way to protect your investment in an old home is through a local historic district.

Typically, a preservation commission oversees the district, imposing guidelines - rules - on changes to home exteriors, ensuring a beautiful Victorian won't morph into a purple monstrosity.

Preservationists now have some evidence that such districts improve property values. In a study of five Indiana cities last year, economic consultant Donovan Rypkema found that property values in historic districts rose at least as fast as values in the rest of the city - including booming suburbs - and, in two cases, faster.

In Indianapolis and Elkhart, Ind., property values in the historic districts grew faster than those in similar historic neighborhoods outside the district boundaries. But historic districts can also mean overly restrictive rules. The preservation commission of Salem, Mass., came under fire a few years ago when the television show "This Old House" featured a family that wanted to add onto their 18th-century home. The city's historic commission deleted the addition.

Late last year, Alton, Ill., passed its own historic preservation ordinance over the spirited objections of some homeowners.

"It's just another layer of bureaucracy," says Karen Tolbert-Land, who owns a huge 110-year-old home in one of Alton's three designated historic districts. Since the local preservation commission is politically appointed, she worries politics will play a role in whose projects get approved. "The potential for abuse is there," she says.

"It may be a pain," says Mr. Rypkema of the historic commission. "But it's an economic positive."

And he adds this caution to those thinking about investing: "The earlier in an up-cycle of a [historic] neighborhood, the more modest your initial investment should be."