“Burn it down, start again.” Why a big fire might actually be good urban policy.

“The Fire itself is not a policy proposal,” the researchers write. But that little caveat only comes after they list all the virtues of conflagration, and you get the feeling they threw it in as an afterthought.

This weird and wonderful paper tries to explain an economic puzzle that followed a fire that consumed nearly 800 buildings in the downtown of one of America’s most important cities. The Great Boston Fire of 1872.

“The striking initial result is that land values increased immediately in the burned area, relative to the unburned area.”

Not just building values, but land values. In addition, building values rose as owners replaced the old buildings with better ones.

“Building values increased substantially in the burned area, following reconstruction, and converged over time..”

They confirmed their data by comparing to other smaller fires.

“The great extent of the Fire appears central to its impacts, … Building values increased following single building fires, but building values increased by more following the Great Fire. Further, while land values increased following the Great Fire, burned plots’ land values were unchanged following an individual building fire.”

The theory is that the structure of the city changed in some important way. That each individual building had spill-over effects, or externalities, that were turned from a mix of positive and negative, to mainly positive.

“The Fire’s impacts are indicative of substantial inefficiencies in even wealthy urban areas. Indeed, the implied magnitude of inefficiencies is even larger because even widespread reconstruction after the Fire is not predicted to obtain first-best land-use in the presence of neighborhood externalities.”

The theory that new buildings have positive spill-over effects looks good, because land values also increased in area adjacent to the fire, that were not actually burned.

Land values by distance from fire

They rule out a couple of other explanations:

  • Increased agglomeration. It seems industries didn’t move.
  • Improved infrastructure. The pipes weren’t damaged and didn’t get replaced and plans to improve and change the road network (other than some widening) met with opposition

So what’s the point of this research? I don’t know of too many cities where the advice to knock it down and start again might really take root. (Perhaps Sydney?)

The list of cities that have been knocked over and started again is a list of powerful cities. London had its great fire in 1666. San Francisco had its big earthquake in 1906, which destroyed 80 per cent of the city.  Napier had a big quake in 1931 and turned its bad luck into an art deco renaissance.

The research is relevant to the residents of Christchuch, still in recovery mode after their 2010 quake. The message might be: don’t move away just yet, this all could work out, economically speaking.

It also suggests good results well for urban infill in less-favoured parts of the city. Buying the lots next door to a big new development could be a smart investment.

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Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

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