Neglecting architectural heritage could be a bad economic decision for Vietnam

As Vietnam develops, there is a growing debate on whether buildings with architectural or historical value in the core of major cities should be preserved. For some, those buildings are esthetically pleasant and are part of the collective memory; demolishing them would amount to losing part of the cities’ souls. For others, economic development is the key priority, and the land these buildings occupy is just too valuable to be sacrificed to emotional considerations.

The ongoing discussion on whether to demolish Thuong Thu Palace in Ho Chi Minh City illustrates this clash of views.

As a professional economist, I could be expected to have more sympathy for the second view. After all, economics is a “cold” science, with no inclination for sentimentality. However, modern urban economics suggests that the “either-or” approach underlying the current debate in Vietnam is wrong. Architectural preservation may not be the enemy of economic development, but rather a strong contributor to it. I believe that this is especially so in the case of Hanoi and HCMC.

Please allow me to explain why.

About two decades ago, Edward Glaeser, a professor at Harvard University and one of the leading thinkers in urban economics, articulated the idea of the “consumer city.” Together with two co-authors, he conjectured that the value of urban land increased with the productivity of the city, but also with its “amenities.” The character of the city, including the sense of place that its architecture conveys, is an important part of those amenities. The more character a city has, the more valuable its land and therefore the richer its inhabitants.

For quite some time, this was just conjecture. There was only partial evidence to support it. For instance, we knew that cities with great “amenities,” like London or Paris, had grown faster than other cities. But the increasing availability of urban data has allowed us to estimate the “amenity premium” with some precision.  For example, a recent study used data from real estate transactions in Hong Kong. It found that land for retail shops near three architectural renovation sites was 15 percent more expensive than land for similar shops elsewhere. The amenity premium was significantly positive up to 350 meters away from the renovation sites. Similar studies have been conducted for European cities, and the findings confirm that urban land is more valuable in cities with architectural character.

There are fewer studies of this sort for developing countries, and I am not aware of any for Vietnam. But it is possible to speculate about the amenity premium for land value in cities like Hanoi and HCMC. Economic analysis suggests that the premium may not be too high yet, but will increase over time.

Cities are the true engine of economic growth. By bringing large numbers of people within a close distance, cities support more efficient markets, provide a diversified supply of services to firms, and facilitate the exchange of ideas. All of this is much more difficult in small towns, not to mention the countryside. But what makes cities productive varies with the level of economic development.

In low-income countries, cities are mainly production centers. They host factories, warehouses, transport companies, shops… The mid-level managers who run production lines, and the relatively unskilled personnel who work in them, may not care much about architectural heritage, or the sense of place the city conveys.  They just want to find affordable housing and avoid long commutes. In cities at that development level, demolishing low-rise historical buildings to erect massive apartment buildings and offices seems to make sense. The amenity premium on land is low, and from an economic point of view architectural preservation looks too expensive.

In high-income countries, however, cities are creativity hubs. The key activities are not manufacturing, storage, transport or distribution anymore. The businesses that make the cities rich are software companies, universities, advertising agencies, hospitals, entertainment… The business people, the academics, the artists, the communicators that make cities thrive care a lot about the character of the cities they live in. These sophisticated people are in high demand, and they can choose where to live.  And because they care about culture, architecture and the sense of place, the amenity premium is high in high-income cities. Earnings are astronomic, housing rental is expensive, and the city is rich.

Global cities compete for talent of this sort. About a year ago, I visited the Urban Planning Commission of Beijing Municipality. I was impressed to learn that China has assembled a list of top global talent. It includes the tens of thousands of great entrepreneurs, best academics and amazing artists that any global city would want to attract. By the count of this institute, in 2017 Beijing was home to 108 of them, and the ambition was to host a total of 200 by 2030. But these people want to live in extraordinary cities, not just in functional cities full of massive apartment buildings and offices.

The question for Hanoi and HCMC is whether they want to remain production centers or do they aspire to become creative hubs. In a way, urban authorities are the CEOs of cities competing in the global market place. One of the great assets Hanoi and HCMC have in this competition is their European heritage. The only other big city in Asia with comparable architectural assets in Shanghai. The harmonious blending of Eastern and Western influences is arguably one of the best “brandings” the two main Vietnamese cities have in the global competition for talent.

However, these very valuable “amenity” assets are limited: perhaps one thousand French public buildings and villas in Hanoi? Maybe three dozen buildings and churches with the stature of Thuong Thu Palace in HCMC? If these assets are sacrificed now, just to have more space for offices and apartments, the loss will irreversible. Urban character can be easily destroyed, but not easily restored. No sensible CEO would want to lose these valuable assets.

From this perspective, failing to protect the architectural and historic heritage of Hanoi and HCMC could be a bad economic decision.

*Martin Rama is Chief Economist for South Asia at the World Bank and Project Director at the Center for Sustainable Urban Development, under the Vietnamese Academy of Social Sciences. The views expressed in this article are his own.