Managing Australia’s Historic Heritage: Looking to the Future
	
Submission by the Chairs of the Heritage Councils of Australia and New Zealand 	
	
October 2005
Productivity Commission Inquiry Into the Conservation of Historic Heritage Places

Contents
Introduction	1
Chapter 1	
Who benefits from historic heritage?	2
Chapter 2	
Why should governments intervene to conserve historic heritage places?	4
2.1	Public goods	4
2.2	Information asymmetries	5
2.3	Externalities	6
2.4	Summary	7
Chapter 3	
What policy instruments are available to governments?	9
Chapter 4	
What framework is necessary for managing government intervention to conserve historic heritage?	13
09the simple existence of the place in that they would feel a quantifiable loss if it were destroyed;
–	the option to visit a heritage place, although they may not have immediate plans to visit it; and
–	the chance to bequeath a heritage place to future generations, as part of a shared cultural legacy (i.e. intergenerational value);
•	future generations — the conservation of a heritage place for future generations means that they will also have the opportunity to benefit from its use and may also capture non-use benefits of the type described above.
These various categories of value can be organised as shown in figure 1.1 (next page).
Figure 1.1	
HISTORIC HERITAGE: CATEGORIES OF VALUE
Note: While some may view the bequest value as being quite tangible, it is shown as being relatively more intangible because the value of the historic legacy cannot accurately be determined today (i.e. the value of existing conservation activities will only be accurately determined by future generations). 
Source: I. Serageldin 1999, Very Special Places: The Architecture and Economics of Intervening in Historic Cities, The World Bank, Washington.
The consumption of heritage is often a ‘shared experience’ so that, as more individuals ‘use’ heritage places the greater is the collective benefit of these places and their contribution to the common heritage value in a community. As a result, the proliferation of heritage knowledge and experience leads to common heritage value, social identity and cultural continuity.
Chapter 2	
	Why should governments intervene to conserve historic heritage places?
For the most part, the community voluntarily supports the conservation and maintenance of heritage places because they receive a range of benefits/value (see figure 1.1) from such places. For example, many property owners see it as being in their financial interest to conserve their property’s heritage characteristics.
However, the nature of some of these benefits mean that sometimes the market will not provide a socially optimal level of protection for historic heritage places. Such a ‘market failure’ exists when there is a divergence between the marginal social costs and benefits and the marginal private costs and benefits of investing in conservation. In the presence of this divergence, there is a prima facie case for government intervention (i.e. to correct the market failure).
Relevant market failures associated with heritage include:
•	heritage values are public goods;
•	information asymmetries; and
•	positive externalities.
These are discussed in turn.
2.1	Public goods 
A public good is a good that exhibits two particular features: 
•	‘non-excludability’ — this means that people cannot be excluded from deriving a benefit from the good (or that the costs of doing so are prohibitive); and
•	‘non-rivalry in consumption’ — this means that the consumption of the good by one individual does not limit consumption by others (i.e. there is no scarcity).
These properties significantly limit the incentive for private providers to supply a public good, resulting in an undersupply, or possibly no supply at all.
The degree to which heritage displays public good characteristics tends to depend upon whether the heritage-related benefits are:
•	‘use benefits’ (see chapter 1) — benefits that arise where physical access (or at least proximity) is required to enjoy a heritage place may or may not have public good characteristics:
–	consumers can be excluded by restricting access to a heritage place (e.g. historic places with a gate entry fee, or privately occupied historic homes). In addition, these places will also likely exhibit rivalrous consumption (at least once congestion limits are reached); but
–	it is sometimes very difficult for private owners to exclude consumption. For instance, it is difficult to prevent neighbours from enjoying the visual amenity provided by a historic home.
•	‘non-use benefits’ (see chapter 1) — in the case of non-use benefits, the loss of one particular place would lower the overall value of the heritage or cultural identity of an area. That is, there is no feasible way of preventing people from benefiting from the knowledge that a heritage place is conserved, while at time such benefits are non-rivalrous.
Public goods result in market failure because of the ‘free rider’ problem. This occurs where a consumer can enjoy goods or services to which they have not contributed (i.e. ‘free ride’ on the expenditure of others). In a heritage context, a market failure may arise where a person places a certain (use or non-use) value on a historic heritage place, but the owner has no way of capturing this value and so may under-protect the heritage values of the place.
2.2	Information asymmetries 
In order to achieve an efficient outcome, markets rely on all parties having sufficient (but not necessarily perfect) information to make decisions in their best interests. If the transactions costs of obtaining information for either buyer or sellers in the market are prohibitive, it is likely that no exchange will occur.
In other cases, information is not just imperfect, but is asymmetrical. Information asymmetries occur when one party in the market, usually the buyer, does not have sufficient information about the good they are considering purchasing, or the actions of the seller, to make a decision in their best interest. 
There are a number of characteristics of heritage goods that increase the risk of information-related market failure. In particular:
•	heritage is a difficult attribute to define in any absolute way (and is often related to tastes and values), and as such can also be difficult to identify and value within a good, such as a house. For instance, a purchaser of a house may be informed that the house does or does not have heritage value, but it may be relatively difficult to assess this claim; and
•	heritage places tend to be large, one-off or low frequency investments where the purchaser cannot necessarily rely on previous experience to determine the quality of the good.
Adverse selection appears to be most relevant to residential heritage places given that:
•	investors may wish to purchase a residence with a heritage component, but have difficulty in assessing and comparing the relative value of the different heritage attributes of the properties on the market;
•	it may also be difficult to determine, without incurring significant costs, the validity of heritage claims on properties;
•	the uncertainty of the quality and value of heritage properties potentially increases the risks of any investment in a heritage property, including the costs associated with conservation and maintenance. For instance, if an owner has an opportunity to invest in conserving or upgrading a heritage house, but has limited ability to signal the quality of this property over and above others in the market, the investment in the property’s conservation and restoration is less likely to take place.
2.3	Externalities 
Externalities are those benefits (or costs) that are consumed by (or incurred by) third parties to any transaction. As such, these benefits or costs are not accounted for in the market demand-supply decision, leading to a potential under-supply or over-supply in the market.
In the case of heritage, there are privately captured benefits of owning a heritage place, and investing in heritage conservation, such as the ability to charge the public for access to the place, or the increased value of the property that comes from emphasising its heritage qualities. Equally, there are benefits from heritage places which accrue more broadly, including the contribution to cultural identity and social capital (see box 2.1, next page), the benefit from the place for a region, and the benefits to consumers of knowing heritage places are being preserved. In cases where these externalities are not captured, private owners of heritage places will only invest in conservation of the place to the point where they can realise benefits from this investment.
In theory, externalities could be resolved privately between stakeholders for such private resolution of externalities to work, three conditions must exist:
•	property rights must be well-defined;
•	the number of stakeholders must be small; and
•	transaction (negotiation) costs must be small.
Unfortunately, the second and third conditions rarely hold where heritage is involved (even the first condition sometimes fails if ‘rights’ to heritage may not be clear). Externalities are diffuse, so the number of stakeholders is large and the transaction costs very high, in comparison to the efficiency loss due to externalities. Also, because of the public good nature of heritage, some of the stakeholders can free ride on the actions of others. As a result, situations in which private parties spontaneously resolve heritage externality issues are quite rare.
An important aspect of historic heritage (in common with other types of heritage) is that intergenerational externalities are present (i.e. the actions of current generations result in spillover impacts on future generations). While the degree to which future benefits and costs should be discounted is controversial, a fundamental premise of heritage conservation is that heritage should be preserved for future benefit. If we accept that this includes future generations, then intergenerational externalities must be considered in choosing appropriate policy action.
Box 2.1	
Heritage and Social capital as an externality
The Productivity Commission has previously noted that:
‘The social capital of a society includes the institutions, the relationships, the attitudes and values that govern interaction among people and contribute to economic and social development … it is the glue that holds [institutions] together. It includes the shared values and rules for social conduct … and a common sense of ‘civic’ responsibility that makes society more than just a collection of individuals.’
As noted by Cox and Caldwell, there has been significant debate about whether social capital can be considered a public good. The problem with such a definitional approach is that there is the potential for exclusion from the benefits of social capital.
Rather than a public good perspective, as noted in the Saguaro Seminar outcomes, social capital fits neatly within the externality framework:
‘social capital has what economists call ‘positive externalities’. That is, networks of trust and reciprocity not only benefit those within them, but also those outside them. Consequently, when social capital is depleted, people suffer in clear and measurable ways, and there is a ripple effect beyond a scattering of lonely individuals. Shoring up our stocks of social capital, therefore, represents one of the most promising approaches for remedying all sorts of social ills.’ 
Commentators such as Fukuyama, however, see limits in the ability of governments to develop social capital: ‘States do not have many obvious levers for creating many forms of social capital. Social capital is frequently a by-product of religion, tradition, shared historical experience, and other factors that lie outside the control of any government.’ 
As heritage is tangible evidence of this shared experience, governments can foster knowledge of a shared historical (i.e. heritage) experience and justify the support of heritage to further the development of social capital.	
Source: Productivity Commission 2003, Social Capital: Reviewing the Concept and Policy Implications, Research Paper, AusInfo, Canberra, p. ix; E. Cox and P. Caldwell 2000, ‘Making social policy’, in Social Capital and Public Policy in Australia, ed I. Winter, Australian Institute of Family Studies, Melbourne, pp. 43-73, pp. 50-56; Saguaro Seminar 2001, bettertogether: Saguaro Seminar on Civic Engagement in America, 2nd edn, Cambridge MA, p. 8; F. Fukuyama 1999, ‘Social capital and civil society’, Paper presented at IMF Conference on Second Generation Reforms, Washington, 8-9 November.
2.4	Summary
The economic case for government involvement to conserve heritage places is clear; without intervention the level of heritage protected by the community will be less than optimal. Such an outcome arises because of the presence of a number of ‘market failures’:
•	public goods — it is the non-use benefits of heritage that exhibit public good characteristics; people may not be excluded from enjoying the intangible benefits of heritage, and the enjoyment of heritage by one person does not stop enjoyment by another person; 
•	information asymmetries — if people are incorrectly under the impression that the market does not value heritage then they will maintain less heritage than would be optimal; and
•	externalities — there are a number of benefits derived from heritage places which accrue to people other than the owner of the heritage place. In particular:
–	positive externalities contribute to the development of cultural identity of the nation and its people. That is, the stories associated with historic heritage places provide a mechanism by which people can forge a sense of common understanding and national spirit. Thus, the provision of a common cultural identity is an important foundation upon which the nation’s social capital is constructed;
–	intergenerational externalities are present. That is, the actions of current generations result in positive spillovers for future generations (i.e. where heritage places are adequately conserved) as well as negative spillovers (i.e. where heritage places are not adequately conserved).
While these market failures justify government intervention, it is important to look at the individual circumstances for which a failure is claimed to determine if the failure does in fact mean that the market is noticeably ‘broken’ (i.e. are the market failures material?). 
Chapter 3	
	What policy instruments are available to governments?
As the discussion in chapter 2 highlighted, markets in which heritage is a component share certain characteristics that may justify government intervention. Where a case for action is identified, the question then arises: what action should be taken? 
While there are a range of policy instruments available to governments, these generally relate to a government’s ability to do at least one of four things:
•	inform — governments use the provision of information as a policy tool when the presence of new or more accurate information will encourage individuals to change their behaviour in a way that provides a better outcome (perhaps to minimise risks to themselves, or reduce the cost of their own actions on others in society). Information instruments are primarily useful in situations where there is an information asymmetry in a market, where one party (usually the consumer) does not have sufficient information to make an informed decision of the relative quality of the products on the market;
•	spend — fiscal measures are typically used to:
–	change incentives so as to alter the cost/benefit equation for investment in heritage. Typically administered through the taxation system, such an intervention may seek to address: inadequate incentives for investment, due to the inability of parties to capture externalities flowing from any investment; and inadequate incentive for parties to refrain from certain actions which would otherwise impose negative externalities on others;
–	overcome particular stakeholders’ limited access to financial capital for investment, for reasons of information asymmetries, valuation risk and shallow markets. This requires government to play the role of financier (or augment private finance), providing grants, loans and loan subsidies, or establishing pools of reusable financial capital;
•	provide services — direct service provision (including government ownership) is the traditional model of delivering government policy. While less popular in recent times, it may still be appropriate where:
–	there are political or cultural sensitivities which mean that society would not accept private ownership of assets;
–	private markets would not develop for certain services; or 
–	direct provision is more cost-effective than other mechanisms;
•	regulate — regulatory policy instruments use laws or other government ‘rules’ to influence the way that people behave. Regulation essentially involves ‘control of behaviour by directive means, imposed by an authority asserting the state’s role to act when private behaviour may not be in the public interest’. Regulatory instruments differ in their approach to other instruments in setting a requirement of action, and establishing negative consequences to not complying with this requirements (i.e. rather than purely setting an incentive for action, as with spending instruments).
It is possible to matching these four possible forms of intervention with the market failures identified in chapter 2:
•	The public good aspects of heritage (due to difficulties in excluding use and benefits derived from heritage buildings or places), are most commonly addressed through:
–	spending instruments which induce further private investment, or private ownership in a heritage building which would not have otherwise been a viable investment for the private sector; and
–	services instruments, such as ownership of buildings and places, which move the ownership, and therefore the responsibility for investment in conservation, to government.
•	Information asymmetries in heritage markets are most clearly addressed through information instruments that provide appropriate quality signals in the relevant markets (i.e. markets for heritage places, services used to support the conservation of heritage places, etc). In some cases (e.g. listing), regulation may also be used as a signalling device. 
•	Externalities in heritage are primarily addressed through:
–	regulation instruments which are used to ensure that the positive externalities of heritage buildings are taken into account by private owners. Regulation also addresses the risks of negative externalities in regions with particular heritage characteristics, through zoning;
–	spending instruments which address the presence of externalities by providing incentives for private owners to increase their investment in heritage conservation to a level which takes into account the positive externalities of heritage which accrue to society (over and above the private benefits on which the private investment decisions is based).
The focus by Australian governments has been the:
•	regulation (principally listing and zoning/planning requirements) by local and State/Territory governments; and
•	funding by the Commonwealth, as it has had little direct control over heritage assets and, until recently, has had little regulatory power over heritage places.
The reliance on heritage listing as a tool to protect heritage places, without sufficient support from complementary policy instruments, has been problematic in a number of ways:
•	the lists are not comprehensive — as a result there may be some uncertainty for property owners and potential purchasers who would prefer certainty as to the heritage status of the place;
•	the public is not sufficiently aware of what listing entails — the distinction between different heritage lists, and between different classifications within lists, is a subtlety too often lost on the community, with the result that people have little perception of the actual restrictions that listing entails; and
•	sections of the public have negative perceptions of the impact of listing — while listing may reduce the value of properties in some cases, the weight of evidence suggests otherwise. In some cases these perceptions have created perverse incentives to hide or destroy heritage values so as not to attract listing. 
Failure to adequately support listing with a comprehensive (or at least improved) stocktake of Australia’s heritage places, improved funding support mechanisms/incentives, and effective public education programs has undermined the effectiveness of listing. Indeed, it is reasonable to suggest that the insufficient support provided to heritage listing has actually exacerbated existing information asymmetries. 
There is nothing wrong with listing serving as the centrepiece of heritage protection, and in fact it is important to get to the point where the lists are relatively comprehensive, but it must be adequately supported with a broader range of policy instruments. Consistent with this view, the Environment Protection Heritage Council has suggested that the ‘principal elements of best practice in incentives and other innovative policy instruments for historic heritage conservation’ are a suite of policy instruments rather than any single approach:
i.	Measures which provide effective support for owners of heritage places, provided either by the Commonwealth or States independently, or in partnership with Local Government, including:
• Tax deductions for donations to approved funds;
• Tax concessions for owners that enter into Heritage Agreements or other conservation covenants;
• Tax rebates for qualifying private expenditure;
• Land Tax remissions;
• Local government rate rebates;
• Grants;
• Loan subsidies; and
• Revaluation provisions for heritage listed places, based on the NSW and Victorian model.
ii.	Improved town planning practices at the state and local levels that promote historic heritage conservation by:
• reducing disincentives to conservation in the form of incompatible zonings; and
• making imaginative use of planning incentives wherever possible in sympathy with other planning objectives.
iii.	Inclusion of historic heritage conservation as an integral element of Commonwealth, State or Local sustainability policies or strategies.
iv.	Provision of an effective network of specialist heritage advisory services.
v.	Ensuring information, promotion and awareness activities are given a high priority, with cooperation between States wherever possible.
vi.	Establishment of special funding sources for heritage programs to supplement consolidated revenue appropriations (such as a share of lotteries or gaming revenue; or a share of Land Tax or another suitable tax).
vii.	Establishment of Revolving Funds for the acquisition, restoration and disposal-undercovenant of historic heritage places.
viii. Mechanisms for measuring the effectiveness of financial incentive schemes for historic heritage in Australia.
Given that most of these recommendations relate to the provision of increased incentives it is important that they are complemented by the full spectrum of potential government interventions (i.e. with governments acting to inform; spend; provide services; and regulate). Unless a balanced approach is adopted there is the real risk that certain market failures will not be adequately addressed; just as the market failures are multifaceted, so too must be the solutions.
In thinking about the broader range of policy instruments to employ there is a temptation to embrace more market focused policy instruments, as has happened in the field of natural heritage protection. While less coercive, and hence likely to engender greater community support (an important goal given the public perceptions associated with listing), the scope for such a shift is more limited than in the natural heritage context. This is because:
•	the level of homogeneity associated with heritage assets is often considerably lower than the homogeneity associated with natural environment assets, and so there is not sufficient commonality to create a market of like assets; and
•	it is often difficult to specify the heritage outputs. For example, while the concepts of ‘condition’ and ‘integrity’ are used to classify heritage outcomes, there appears to be considerable potential for variation in interpretation.
As a result of the limitations, market-based policy instruments should not be seen as a default solution to the market failures associated with heritage places. Rather, market-based instruments should be seen as complementary tools in a broader suite of policy instruments.

Chapter 4	
	What framework is necessary for managing government intervention to conserve historic heritage?
A consistent theme emerging from the submissions made to the Productivity Commission inquiry is criticism about inconsistency in the listing and management of historic heritage between the three levels government. 
The key to the success of the three tiered system of heritage management in Australia is a clear and consistent:
•	understanding about what heritage values make a place worthy of listing and the threshold for listing by each jurisdiction; and
•	articulation of what is appropriate change to heritage places is fundamental to the communities understanding about the implications of listing and their experience in dealing with the system within the general planning framework.
The issue then becomes how the various jurisdictions administer their legislation (i.e. how they work together) to provide such consistency and clarity. 
The initial policy driver in determining the interaction of levels of government is the ‘principle of subsidiarity’. This principle suggests that a function should be carried out by the lowest level of government able to exercise it effectively, and thus as close as possible to the ultimate consumers to allow them choice in how they receive services.
This general principle has a series of explicit and implicit qualifications:
•	as noted in the description of the principle above, the government needs to be able to effectively exercise the relevant function. Effectiveness may be limited by a range of factors such as inadequate access to revenues and skills; and
•	in some cases national or regional considerations will point to the higher level of government carrying a function, even though it is within the administrative capacity of the lower level.
Functions should generally rest with the lowest level of government with the appropriate capability, provided that the totality of the responsibilities of each level of government is broadly aligned with its effective command over revenues and other resources.
Where more than one level of government needs to be involved in a policy area like heritage policy:
•	all levels of government need to work collaboratively to resolve national aspects of issues, in the interests of Australia as a whole, but with leadership and support provided by the Australian Government;
•	the Australian Government should have responsibility for supporting the conservation of places of national and international heritage significance;
•	the States and Territories should have primary responsibility for planning and funding allocation with respect to heritage places within their jurisdiction, even though many of the responsibilities for implementation exist with local government. The States should provide a leadership and support role to local government; and
charrsid4025042 Indeed, if implemented in a coordinated manner (i.e. rather than in an ad hoc manner), heritage listing tends to enhance a heritage place’s value. For example, a recent study assessed the market price differential between heritage-listed and unlisted houses in Sydney’s upper north shore area. After controlling for other property attributes, the 64 heritage-listed houses commanded a premium of 12 per cent on average. This premium is a measure of the combined value that the market places on their heritage character, their architectural style elements, and their statutory listing status. The study also examined the relationship between varying levels of heritage significance by conferring a higher premium to houses with a higher level of significance to the society. The level of heritage significance was also found to have a positive impact on the prices of heritage listed houses over time;
•	commercial buildings — most studies have sought to address whether the use values of heritage exceed any additional heritage-related costs. For example, looking at property development from an investment perspective by weighing up the comparative returns for owners of heritage buildings versus modern buildings, Thomas concluded:
Market evidence and cost analysis suggest that there is a marginal advantage in building a modern office block compared to recycling a heritage building in the short term, but as a long term investment, recycling heritage buildings can be advantageous. Heritage buildings tend not to age as quickly and require ongoing general maintenance compared to their modern counterpart, that requires expensive upfront refurbishment every fifteen years or so to compete in a competitive modern accommodation market. Cosmetic refurbishment of buildings compounds problems in the future in regard to structural fabric and diminishing returns... [Conversely] Most quality refurbishment in heritage buildings will not date as quickly as their modern counterpart, which is susceptible to market fads.
More recently in the context of the Sydney central business district, where heritage properties have undergone development involving adaptive re-use:
The combination of financial incentive and the commercially-oriented nature of the adaptive reuse schemes in each of the Sydney CBD case studies outweighed any extra heritage-related costs and project risks which arose, thereby resulting in positive economic outcomes each of our CBD examples.
Of course, such comparisons need to compare like with like. For example, a 5 level heritage office building will probably compare well with a modern 5 level office building with a similar floor space ratio on the same site. However, if a planning scheme allows construction of a 40 level modern building on the site of the same heritage office building then there will be a distinct one-off financial benefit for the owner in building a new building in place of the heritage building. It is in these circumstances that incentives are necessary to swing to cost-benefit assessment back in favour of the conservation of the heritage building; and
•	tourist places — both domestic and international tourists are major visitors to historic heritage places (table 5.1). Indeed, some heritage places are tourist destinations in and of themselves (see table 5.2) and so capture revenues and economic activity associated with their use (table 5.3). For example, in 2004 domestic and international tourists who visited a heritage place spent an estimated $7.8 billion on trips in which they visited at least one historic heritage place (see table 5.4).
Table 5.1	
number of visitors visiting historic or heritage buildings, sites and monuments (’000)
	Domestic tourists 	Overseas tourists	
	Number of visitors on overnight trips	Number of visitors on daytrips	Number of visitors	
1998	4216	3476	NA	
1999	3670	3297	1272	
2000	3014	2543	1449	
2001	2880	1974	1366	
2002	2398	2121	1207	
2003	3227	2698	1197	
2004	3308	1993	1305	
Note: Many visitors visited more than one historic or heritage site.
Source: Bureau of Tourism Research, International Visitors Survey and National Visitors Survey, unpublished data. 
Table 5.2	
ten most visited attractions for international visitors (1999)
Attraction	Total visitors to attraction	Is it a historic heritage place?	
Sydney shopping	1 642 000	Parts	
Darling Harbour	1 576 000	Parts	
Sydney Opera House	1 427 000	Yes	
The Rocks	1 180 000	Yes	
Sydney Harbour cruise	867 000	Parts	
Bondi Beach	780 000	Yes	
Blue Mountains	754 000	Parts	
Centrepoint Tower	685 000	Yes	
Great Barrier Reef and islands	658 000	No	
Theme parks on the Gold Coast	658 000	No	
Note: The Blue Mountains and the Great Barrier Reef are World Heritage places.
Source: B. Henrick and L. Johnson 2000, ‘Visiting Australia’s popular attractions — Measuring international day and overnight visitor activities’, Tourism Research Report, vol. 2, no. 2, pp. 7-12, p. 9.
Table 5.3	
entry fees paid by tourists at heritage places ($million, 2004 prices)
	1998	1999	2000	2001	2002	2003	a
Note: Values are for entry fees while ‘visiting historic or heritage buildings, sites or monuments’
Source: Bureau of Tourism Research, International Visitors Survey and National Visitors Survey, unpublished data.
Table 5.4	
TOTAL Expenditure by tourists who visited historic heritage places ($million, 2004 prices)
	1998	1999	2000	2001	2002	2003	2004	
Domestic day	$298	$308	$261	$184	$210	$293	$169	
Domestic overnight	$4,443	$4,044	$3,594	$3,187	$2,759	$3,498	$3,439	
International	NA	$3,869	$4,615	$5,064	$4,610	$4,446	$4,199	
TOTAL		$8,221	$8,470	$8,435	$7,579	$8,237	$7,807	
Note: Values rounded to the nearest $1 million and so may not sum; excludes expenditure on motor vehicles (domestic tourists) and prepaid airfares and international packages (international tourists).
Source: Bureau of Tourism Research, International Visitors Survey and National Visitors Survey, unpublished data.
While heritage tourism is clearly an important driver of the use benefits associated with historic heritage places, two qualifiers need to be made:
•	It is difficult to apportion the degree to which heritage places specifically drive tourism attraction and expenditure. For example, Foo and Rossetto note that:
It is apparent that while approximately one in three cultural visitors went to an historic or heritage site while they were in Australia, they did so with a general level of interest (42 per cent very interested, 43 per cent fairly interested and 14 per cent somewhat interested). This finding supports the previous proposition that although visitor numbers to these sites exceed those to other sites, it is not necessarily the case that inbound visitors seek these experiences more than other experiences. Rather it is likely, at least to some extent, to be the availability of these attractions that makes them popular to inbound visitors.
However, attempts have been made to determine the degree of expenditure at particular places that can be attributed to historic heritage. For example:
–	Cegielski, Janeczko, Mules and Wells estimated that between 20 to 30 per cent of tourist expenditure in Maldon (Victoria), Burra (South Australia) and Charters Towers (Queensland) is related to visitors wanting to see heritage places; and
–	Hughes, Carlsen and Wood estimate that historic heritage is the driver behind 63 per cent of tourist expenditure in Albany, 73 per cent in Freemantle and 75 per cent in New Norica.
•	While tourists are clearly major users of heritage places, and heritage places have a central role in the tourist experience (see tables 5.1 and 5.2), only 57 per cent of the community recognises the economic importance of historic heritage (see figure 5.1). This is a perception that needs to be addressed by heritage officials and the tourism industry itself.
Figure 5.1	
Community response to ‘Looking after our heritage is important in creating jobs and boosting the economy’

Source: The Allen Consulting Group 2005b, Valuing the Priceless: The Value of Historic Heritage in Australia, Research Report 2, Heritage Chairs and Officials of Australia and New Zealand, Sydney. 
These two qualifiers reinforce the view that the historic heritage driven tourism is a relatively untapped market from both a tourist and community-wide perspective. That is, there is scope for additional marketing of Australia, and places within Australia, on the basis of built heritage, and a need to better explain the importance of heritage place tourism to operators and the community more generally. There is also scope for heritage agencies to create mechanisms to provide information about heritage places directly into the marker place and create new synergies between their work and that of the tourism industry.
5.3	Evidence from a survey of community attitudes to historic heritage
In order to gain a better understanding of the value provided by historic heritage the Heritage Chairs and Officials of Australia and New Zealand commissioned The Allen Consulting Group, with the assistance of AC Nielsen, to undertake an online survey of 2024 adult Australians. The survey sought to:
•	identify people’s views on a number of matters, which would in turn point to some elements of social capital affected by historic heritage place protection; and
•	quantify the values that people attach to a number of attributes of protection afforded to historic heritage places (this was done using a technique called ‘choice modelling’ — see box 5.1, next page).
These two outcomes are discussed in turn.
Indications of heritage-related social capital
As noted earlier, the Productivity Commission has previously stated that:
The social capital of a society includes the institutions, the relationships, the attitudes and values that govern interaction among people and contribute to economic and social development … it is the glue that holds [institutions] together. It includes the shared values and rules for social conduct … and a common sense of ‘civic’ responsibility that makes society more than just a collection of individuals.
The culture of a society is one of the underlying conditions upon which social capital sits. In this respect, it is understandable that 93 per cent of the community see heritage as forming part of Australia’s identity (figure 5.2).
Box 5.1	
‘choice modelling’ and The Allen Consulting Group survey of historic heritage values
Choice modelling involves eliciting a respondent’s stated preference in a hypothetical setting. Used commonly in the natural resources field, and by consumer product companies when developing new goods and services, survey respondents are presented with several different sets of two or more resource use options and asked to indicate which option they prefer in each of these ‘choice sets’. One of the resource use options usually corresponds to the do-nothing option and is held constant over all sets of choices. The levels of the attributes characterising the different options varies according to an ‘experimental design’. In many valuation applications, one attribute always involves a monetary payment and there would typically be two or more attributes. By observing and modelling how people change their preferred option in response to the changes in the levels of the attributes, it is possible to determine how they trade-off between the attributes. In other words, it is possible to infer people’s willingness to pay some amount of an attribute in order to achieve more of another. 
The Allen Consulting Group survey presented respondents with a series of choice sets in which they were asked to indicate their preferred option. The attributes related to:
•	the number of heritage places protected from loss (Places Protected)— one aspect of managing our heritage is to protect important places from being lost. Listing places on an official heritage register is one way of helping this to happen. But it does not guarantee against loss;
•	condition and integrity of places (Condition) — this refers to the: structural and physical soundness of a place; and whether the place has been preserved in a way that is faithful to the original features of the place. Places in poor condition may become an ‘eyesore’ and a public safety hazard. Similarly, places that have been poorly restored and managed may not maintain their heritage character;
•	the age mix of places (Age Mix) — this attribute is a measure of the proportion of listed places that come from different historical periods;
•	public accessibility (Accessibility) — this refers to whether or not the public is able to visit a historic place and get a hands-on experience at the place (e.g. photography, guided tours, workshops, open days, etc). Accessibility is more than just being able to view a place. It includes the opportunity to get a deeper appreciation of the place’s value and meaning;
•	development controls (Development Control) — this attribute refers to the level of controls on development in and around heritage places (including buildings, gardens, monuments, etc). Some form of control is necessary to protect heritage places, but the level of control could vary depending on the heritage outcomes being sought; and
•	the respondent’s additional levy payment each year (Cost) — the amount of money that the respondent would be required to contribute each year via a levy to achieve the outcomes specified by a particular option.
By specifying different values for each of the attributes, different policy alternatives were constructed for managing the national system of heritage protection, and alternative 20 year outcomes for heritage conservation were specified. In this case, each choice set had three options, including a ‘no-change’ option and two alternatives. The no-change option referred to the outcomes that would eventuate if the current system of heritage protection remained intact, with no additional funding made available. It was included in the choice experiment as a benchmark against which to measure respondents’ willingness to pay for changes in attribute provision.  
The attributes and their values were developed by The Allen Consulting Group, in conjunction with representatives of the Heritage Chairs and Officials of Australia and New Zealand, following focus group meetings in Perth, Sydney and Dubbo.	
Note: For a general explanation of choice modelling see M. Morrison, R. Blamey, J. Bennett and J. Louviere 1996, A Comparison of Stated Preference Techniques for Estimating Environmental Values, Choice Modelling Research Report No. 1, University College, University of New South Wales, Canberra.
Source: The Allen Consulting Group 2005b, Valuing the Priceless: The Value of Historic Heritage in Australia, Research Report 2, Heritage Chairs and Officials of Australia and New Zealand, Sydney.
Figure 5.2	
Community (Adult) response to ‘Heritage is a part of Australia's identity’