Building the Skyline

The Birth & Growth of Manhattan's Skyscrapers

by Jason Barr 1 Comment

Busting Skyscraper Myths

Jason M. Barr       May 21, 2024

Note: On May 14, my book Cities in the Sky: The Quest for the World’s Tallest Skyscrapers was published by Scribner Books. This post summarizes some of the myths and misconceptions described in the book. For more information, to buy a copy, or to sign up for my email list, please click here.

Because skyscrapers are so big—and tall—they are shrouded in myth, mystery, and controversy. It’s easy to make up stories about them because there’s often little direct information. Developers are naturally a secretive group, and it’s impossible to know how a building has been engineered since it’s covered in glass and stone. And when we look around, we see tall buildings sprouting up while urban life gets more expensive, so it feels correct to conclude that tall buildings are causing the problem.

However, for nearly twenty years, I have been researching the history and economics of tall buildings. Along the way, I’ve heard many of the stories and claims, and have investigated their veracity as much as possible.

Let’s turn to busting some of the myths, starting with the history first and then moving to the present day.

Myth #1: The Home Insurance Building was the first skyscraper, and William Le Baron Jenney was its inventor

Let’s begin with the concept of the “first skyscraper.” The truth is that it’s impossible to name such a thing. The array of elements required to erect tall buildings evolved in fits and starts over the 19th century. This evolutionary process began with structures with external, load-bearing masonry walls with wood or brick internal framing and “ended” with the fireproofed, wind-braced steel skeleton with an electric elevator. 

There was never any one technology in the building process that, when incorporated into a building, was so radical that building forms were inherently different after that.[1] It’s also important to note that nobody was trying to invent the skyscraper per se. Architects, engineers, developers, contractors, and suppliers were all trying to figure out how to improve building forms to make them more functional and profitable and to accommodate more people. The idea that someone should get credit for inventing the skyscraper emerged after 1890, when tall buildings rose high across American cities, and people were curious to know how these giants came about.

The Home Insurance Building

In 1883, the Home Insurance Company of New York hired the architect William Le Baron Jenney to design a Chicago headquarters. One of Jenney’s engineering strategies was to embed iron columns and beams into the exterior masonry walls to make them thinner to allow for larger windows. Like the countless buildings before him, the Home Insurance Building was an evolutionary step forward.

But a decade later, many architects and engineers claimed they had invented the skyscraper. One was a particularly litigious architect from Minneapolis named Leroy Buffington, who received a patent for iron framing for tall buildings. Starting in 1896, Jenney and his colleagues engaged in a concerted public relations campaign to convince the world that Jenney invented the skyscraper to quash Buffington’s claims. Because the Chicago School architects and engineers were so respected, the world came to believe them, and the notion stuck. Today it is the conventional wisdom that Jenney invented the steel-framed skyscraper. But this idea is a pure myth–a made-up story designed to make a mortal into skyscraper Prometheus. The truth is more mundane: he was clever but hardly radical.

Myth #2: The depth to the bedrock caused skyscrapers to be “missing” in parts of Manhattan

Ask any tour guide or New Yorker interested in Manhattan’s architectural history, and they will tell you that there are no skyscrapers between Downtown and Midtown because the bedrock there was too far down below the surface for developers to anchor their building foundations. Yes, the bedrock north of Downtown is indeed deep below the surface, but it’s wrong that the depths stopped skyscraper construction there. This idea of “missing” skyscrapers was promulgated by a geologist in 1968 because he confused correlation with causation. 

The actual reason was demand. At the turn of the 20th century, there was no demand for tall buildings in the tenement and factory districts north of City Hall, precisely where the bedrock was the deepest. If there were, the engineers of the day had the skills and knowledge to make foundations there, but developers didn’t require their services because they couldn’t make money from tall buildings in these neighborhoods. In fact, some of the tallest buildings in the city, like the Woolworth Tower, were built over some of the deepest bedrock spots on Manhattan, so developers and engineers knew what they were doing.

From Left: The Home Insurance Building–Not the First Skyscraper, the Empire State Building, and the Burj Khalifa–Not Boondoggles. Sources: Home, ESB, Burj.

Myth #3: The construction of a record-breaking skyscrapers signals economic doom

In 1999, an economist named Andrew Lawrence invented the phrase “the skyscraper curse,” which claims that the appearance of a record-breaking building heralds that an economic bubble is about to burst and lead to economic calamity. The idea is that record-breakers only get built during times of irrational exuberance, so we can use tall buildings as an exuberance indicator. Lawrence created the so-called Skyscraper Index which “pairs” tall buildings with crises to “prove” his point.

The only problem is that his logic has many problems. First, the “index” is silent on whether we should be looking at the announcement, groundbreaking, topping out, or official opening of a building. In other words, using tall buildings as an indicator of mania is about as fuzzy a measure as one gets, particularly given the long lags between conception and completion.

But just as important, no matter which version of the indicator you use, there is no way to predict when a crisis will emerge from the completion of a tall building. When one drills down into the data, one finds that there is actually no meaningful connection between the two.

Instead, the Skyscraper Curse is an example of what I call Rorschach Economics. Financial and economic crises have happened twice the frequency compared to the construction of a record-breaking building, so it’s easy to pair a building with a nearby crisis and falsely conclude there is a connection. (It also turns out there’s an “eerie” connection between record-breaking buildings and maritime disasters.)

Myth #4: Record-breakers don’t pay

When the Empire State Building was completed in 1931, its upper half went unrented because of the Great Depression. The building earned the moniker the “Empty State Building,” which led to the myth that record-breaking structures are simply monuments to the ego-driven developer who wants to claim the prize of the “tallest building,” and the economics be damned. 

However, to blame the developers for failing to see the arrival of the Great Depression is moving the goalpost. The Great Depression was utterly unforecastable, and its length and severity could never have been foreseen by any developer, no matter how rational. It’s akin to telling a developer in the fall of 2019 to hold off on a new project because a horrible pandemic is coming next spring. No one saw either one coming.

More broadly, the idea that record-breakers don’t pay is a myth. Part of it stems from the true notion that as buildings get taller, they get more expensive to build on a per-floor or per-square-foot basis. For example, more elevators and longer cables are needed, and more steel and concrete are required for wind bracing and foundations. So, people look at the additional costs and assume they are making these projects inefficient.

Costs and Benefits

But you can’t ignore the revenue side. To understand if a project is rational or profitable, you need to look at the net income of buildings over time relative to the cost of constructing them. And when you do this, you see that record breakers make much more economic sense than people think. Even the Empire State Building, which got off to a rocky start, has been consistently profitable for most of its 90-year history.

Today, record breakers are built with more than just economics in mind. They are built to boost tourism, increase property values in their neighborhoods, and put a city on the map. And they generally make money from rents. When we expand the definition of the benefits, we see they are rational projects indeed. 

Bedrock Depths in Manhattan Going from the Southern Tip to Midtown. Triangles are tall buildings, circles are low-rise buildings. Notice that some skyscrapers are built over very deep bedrock. Source: Barr, Tassier, and Trendafilov (2011).

Myth #5: Developers are engaging in rampant “vanity height” competition

In 1998, when the Petronas Towers were completed and declared “the world’s tallest buildings,” people cried foul. The reason was that it would only be a record-breaker because of the 151-foot-tall (x m) spire. The top floor at 1,230 feet (375 m) was still 124 feet (38 m) below the tallest floor of the Sears (Willis) Tower, completed in 1974. 

Until 1998, there were no official measurements, and the Council on Tall Buildings and Urban Habitat (CTBUH) stepped into this role. As an organization comprised mainly of architects and engineers, they were well-equipped to measure building heights. They determined that if a building had a spire that is architecturally part of the structure, it counts toward the overall height of the building. 

Since then, extruding spires have become a way to raise a building’s “neck” even higher. The next record breaker after the Petronas Towers, Taipei 101, has a spire that is 230 feet (70 m), and the Burj Khalifa’s spire is a whopping 801 feet (244 m).

The Vanity Height Myth

The use of spires to help extrude record-breakers has led to what I call the Vanity Height Myth: that spires are getting taller and are the only way to break a record.  However, except for the spires on Petronas Towers, the floor heights of the record breakers are all taller than previous record holders. Just as importantly, spires are essential to the structure’s architecture. 

No one complains about the spires on the Empire State or Chrysler Buildings—we celebrate them. Yes, there are some examples of what seems like “let’s put a spire on our building to make it taller”—One World Trade Center comes to mind—but for the most part, spires either add to the elegance of the building or are not needed to be a record breaker. For that matter, the Twin Towers and Sears (Willis) had no spires.

More broadly, I investigated the differences between the architectural height and the top floor height for a sample of nearly 2,000 buildings of 100 meters or taller buildings completed worldwide. My finding is that, on average, the difference represents only 10% of the total structure’s height. For supertall skyscrapers of 300 meters (984 feet) or taller, that average is still relatively low at 12% (median of 9.7%). In short, across the spectrum, vanity height is actually a very small—or short—part of tall building design.

Myth #6: Tall buildings are only for the rich

In global cities like New York and London, the skyscrapers erected in central areas tend to be apartments for the rich or global headquarters for international firms. This phenomenon has led to the idea that tall buildings are only for the wealthy. Yes, tall buildings are more expensive than shorter ones, but nothing is inherent in the structure’s economics that makes them only for the wealthy.

Spend five minutes in any Chinese city to see this. Tall buildings are built for nearly everyone—the homes of the middle class in cities large, medium, and small. Unlike in America, where free-standing, single-family homes are the norm, high-rise apartments are typical in China. The country has been building them in spades, so much so that China is in the midst of a housing crisis, with nationwide vacancy at 15%. 

More broadly, when it comes to costs, there is a u-shaped relationship between height and per-square-foot or -meter costs, but the floor count where the lowest point is hit depends on many factors. One study of high-rise housing costs in Hong Kong found that the minimum per square meter cost was 100 meters (about 30 floors or 328 feet), on average. Overall, if planned properly on a large lot, built by an efficient construction sector, and with few stringent building regulations, tall buildings can be built as cost-effectively as low-rise ones. 

It’s also worth remembering that American high-rise public housing was a failed policy not because of construction costs. They were built quite cheaply. The problems, in brief, were public policies that hyper-concentrated poverty while housing authorities under-maintained the buildings. 

Middle-class High-rising Housing in China. Clockwise from top left: Shenzhen, Changchun, Shanghai, Hong Kong. Photos by Jason Barr.

Myth #7: Skyscrapers make cities more unaffordable

Global cities like New York and London are very expensive places in which to live. Most people blame the high-rises. The logic goes that high-rises are costly to build and only for the rich. So, the rich move in, displace the poor and make housing less affordable for everyone.

But this notion confuses causation with correlation. Simply put, big cities are not building enough housing for everyone. New York City has a citywide housing vacancy rate of 1.4%! In London, that vacancy rate is 1.7%. There is no extra housing for anyone. 

But it’s easy to focus on tall buildings because they are most likely to be noticed when we observe new construction in the city. In truth, more tall buildings are likely being built than new low-rise buildings because cities, by design, keep most of them closed for new construction and only allow tall buildings in the center, where it’s the least politically costly to do so. 

Positive Spillovers

However, tall buildings do have beneficial impacts on the prices of nearby buildings. Two studies, for example, one in America and one in Helsinki, followed people who moved into new centrally located high-rise buildings. They found that the majority originated from their respective metro regions. Then, they tracked those who moved into their “abandoned units” and found that they had, on average, lower incomes. So, in short, building high-rise housing in the center frees up lower-cost housing for those within lower income brackets. Another group of cutting-edge studies has shown that adding new housing supply lowers nearby housing prices. Additionally, a cluster of studies show that reducing zoning stringency leads to more construction and lower housing prices.

But why don’t we see it? The reason is that supply increases are swamped by rising demand and income. Believe me, if citywide housing vacancies—including in the lowest-income neighborhoods—were, say, between 7% and 10%, no one would blame high-rises; instead, they would be saying that they are solving the housing crisis.

Change in Housing Units in New York City by Block, 2003-2020. Note that the majority of blocks in New York saw virtually no growth their housing stock. Housing growth only appears in select neighborhoods. This is why housing is unaffordable in New York City. Source: NYC PLUTO file.

Myth #8: Five- to ten-story buildings are the ideal for cities

Tall buildings get a bad rap for all sorts of reasons. They tend to emit more greenhouse gases, and people feel they are alienating and inherently harmful for aesthetically pleasing cities while only being palaces for the rich. On the other hand, urban advocates look at the sprawling suburbs and see excessive car dependence and expensive single-family homes. 

Urbanists thus point to Greenwich Village with its five-story walk-ups and Second Empire Paris with its seven– to ten-story mansard-roofed buildings as ideal for creating the “human scale.”  These urban areas have given rise to the perception that they have the “perfect” density. They have lower carbon footprints, a high enough density to sustain mixed uses and promote pedestrian-friendly neighborhoods. 

It must, therefore follow, the logic goes, that to create the perfect Jane-Jacobs-approved city, we must require all cities to have five- to ten-story apartment buildings everywhere.  I love Paris and Greenwich Village as much as the next person, but the only problem with this logic is that imposing height caps or trying to mandate “Goldilocks Density” does more harm than good. By ignoring the economics of land use and people’s wishes, height caps and building type requirements generate a bevy of unintended consequences, including higher housing prices, more carbon emissions, sprawl, and lower employment growth.

In the Center

Skyscrapers rise in the center because more people want to be at these locations than can be accommodated by a low-rise building. In this case, the only way to accommodate this demand is to go up. Farther away, where commuting to the center takes longer, people should have access to low-rise neighborhoods with more space per household. The cost and benefits of being in different locations must drive the housing types. 

Policies need to consider this fundamental trade-off: smaller housing units and taller buildings in valuable locations and larger units in low-rise buildings further away. If a city perverts this trade-off, it makes people worse off. A one-size-fits-all policy harms cities and their ability to successfully attract people and provide employment opportunities.  The natural way to densify neighborhoods is to provide efficient public transportation, parks, access to retail, and good schools and let the supply match the demand.

Truth #1:  We need to think more deeply about cities

The conclusions about tall buildings that people make often arise from the confusion of correlation with causation or by generalizing based on one or a handful of observations. We need to discover the truth by looking deeply at the data, inquiring into how people respond to incentives, and uncovering the logic of social systems. Please join me in this endeavor!

 

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[1] If one technology made the biggest difference, it was the elevator, which radically changed the economics of going tall since now occupants would rent the higher floors for more money than the lower ones.

by Jason Barr 4 Comments

The Plot Thickens (Part II): Sticky Gotham

Jason M. Barr              January 29, 2024

[Coming May 14, 2024: Cities in the Sky: The Quest for the the World’s Tallest Skyscrapers (Scribner Books)]

What’s driving the affordability problem in New York City? If you ask a random person on the street, they’ll blame developers, who seemingly only build luxury towers for the well-to-do. But the developer might say that the land values are to blame—to recoup the high cost of the land and expensive construction costs, the only profitable new development is on the high end.

As discussed in the previous post, expensive land values are a symptom—not the cause—of a larger problem—the lack of land being offered up for redevelopment. The high land values signal New York’s “scarce land policy.” The lack of in-fill and densification is due to a series of government-made and natural frictions. Here we dive into more details about the nature of these frictions and the policies needed to “loosen” things up.

Gummed-up Gotham

First, let’s review the facts on the ground. If we look at block-level changes in the number of housing units in the last two decades, we see a very sticky Gotham. Nearly one out of three (31%) blocks with at least one housing unit in 2004 had no change in the number of units since then. 57% of blocks had zero, plus or minus one unit. More broadly, nearly half (48%) of the city’s blocks had no change or lost units. No matter how you slice and dice it, about half of the city’s residential blocks remained frozen in the last two decades.[1]

Taking a helicopter view of New York’s 59 community districts, nearly two-thirds grew their housing by less than 10%, while only four had a two-decade growth rate of 30% or more (see figure below). In short, only four community districts did any real heavy lifting, and one was lower Manhattan, where Art Deco office towers were converted to apartments.

Block-level Changes in Housing Units. The majority of New York City Blocks either lost or had no change in units between 2004 and 2022. Note blocks shown are ones that had at least one unit of housing in 2004. Source NYC PLUTO file.

Should I Stay or Should I Grow?

New York City has about 859,000 land parcels (and the number has been steady over the last few years). One metric of what’s offered for development is to count the number of new building permits for housing.

In the last five years, the average number of permits issued is about 1,500 per year, and the city has completed, on average, about 25,000 per year or about 250,000 gross new housing units per decade—without accounting for teardowns, unit mergers, or conversions to other uses. 2023 was a terrible year, with less than 10,000 units permitted. A back-of-the-envelope calculation suggests that the probability that any lot “gives itself up” for redevelopment is about 1,500/859,000 = 0.17%.

One year ago, Mayor Adams proposed adding 500,000 units in the next decade which would represent a nearly 250% increase in the number of units built each year and more than double the number of permits issued. But we can’t get to abundant housing if the land is iced.

Give Yourself Up

The aim of this post is to estimate the probability or likelihood that a block generated at least one new unit of housing over the five years from 2018 to 2022 based on the block-level characteristics that existed as of 2016.[2] In short, the exercises aim to look at what features of New York’s lots and blocks are incentivizing or disincentivizing new construction. (The data sources and processing are here.)

This statistical exercise does not consider things like tax abatement generosity or broader macroeconomic issues like rent values. Rather, the analysis considers what is about the lots and blocks themselves and the buildings on the lots that would suggest why a lot is given up. If we genuinely want to make housing more affordable, we need to know what’s going on and focus on “loosening” the lots.

Probably?

The data reveal that the probability of a city block producing at least one unit of new housing (given it had at least one unit previously) during the period was about 13% or about 2.6% per year. These blocks produced about 48,000 new units or about 9,600 per year (which also suggests that about half of all new housing built today is on formerly commercial, industrial, or vacant land).

So, let’s say, for example, to get to more abundant housing, we want to double the probability that a block produces at least one unit of new housing. What would it take? In other words, how do we go from a five-year probability of 13% to, say, 25%?

Drivers of the Gap

As discussed in the prior post, the underlying economics of cities and land use suggest several factors that drive the likelihood that a lot will have redevelopment. I defined the “Development Gap” as the potential profits obtained from densifying a lot versus the profits from keeping the lot as it is. The higher the Gap, the more likely a lot will gain more units. What are those elements?

Centrality

The first is centrality. Since housing prices are higher in the center because of the greater demand to reside there, the Gap will be higher in more central locations (here, I define the city center as the Empire State Building).

Zoning

Next is zoning regulations—the more stringent the regulations, the lower the Gap because the redevelopment floor area is capped to something that would not produce an income above the cost. In New York, building density is regulated by caps on the Floor Area Ratio (FAR), which limits total floor space per square foot of lot area. In many instances, a current building’s floor area is greater than the allowable maximum for a new structure, making redevelopment virtually impossible.

Current Building Density

The greater an existing building’s density and height, the less likely the lot will be redeveloped because of the difficulties associated with emptying and tearing it down.

Rent Stabilization

Rent stabilization is a mixed bag in terms of incentivizing redevelopment. On the one hand, it lowers the actual income relative to the market-rate potential. On the other hand, it’s hard to redevelop when it’s difficult to get tenants to move. So, the net effect is unclear a priori.

Ownership Status

Turning to owner-occupied units, we expect those to be much less likely to be redeveloped. In the case of condos or coops, all the tenants would have to agree to such an idea—nearly an impossibility.  In the one- or two-family-home case, homeowners are less likely to move, given the costs of selling their house and buying a new one. Additionally, homeownership is highly subsidized to encourage long-term tenancy. So, homeowners, by their very nature, are households that are less likely to move.

Landmarking and Historical Districts

Landmarking and historical districts reduce redevelopment because they make it illegal to make large-scale changes to the affected properties.[3]

Call Me Maybe: The Evidence

Policy Created Frictions

Turning to the statistical (regression) results (here), I find that the “Development Gap Theory” is strongly supported. Scarce housing in New York is not a mystery: Economics matters and the way to get more supply is to understand the factors that disincentivize new housing—across the entire city.

Regarding policy decisions, zoning strong impacts redevelopment. For example, the analysis reveals that doubling the allowable FAR on a block (e.g., from 1 to 2 or 2 to 4) increases the probability of redevelopment in five years by about ten percentage points. Relatedly, the more lots on a block above the allowable FAR, the lower the probability of redevelopment, as expected. Each additional ten buildings over the allowable limit reduced the likelihood of redevelopment by about 1.5 percentage points.

As expected, the statistical analysis shows that the more buildings that are landmarked or fall within historic districts, the less likely a block will have new residential buildings five years later, similarly for blocks with many owner-occupied units.

Interestingly, a block with more rent-stabilized buildings does not affect the probability that a block will create at least one unit. This likely reflects how rent stabilization impacts the Gap, as discussed above.[4]

Natural or Structural Frictions

But policy decisions about land use are not the only game in town. As cities age, they create their own “natural” or “structural” frictions. In principle, the city’s grid can determine the shape of the blocks and the number of parcels on each one. Over time, ownership can become more dispersed, making combining lots harder. Before zoning, many blocks had buildings with much greater densities. Plus, location matters—places where prices are lower are less likely to redevelop simply because of the economics.

The statistical results here strongly suggest that these historical factors matter. Buildings further away from the center, on average, are less likely to add new housing simply because of the lower revenues these properties will generate. If two blocks are similar, but one has twice the building floor area, its redevelopment probably drops by four percentage points.

Interestingly, larger blocks are less likely to have redevelopment activity, while blocks with more lots will likely see more redevelopment. The reason for these findings needs to be explored further, but having more lots on a given block means more decision-makers, and thus, it is more likely that some of them will redevelop their properties. Lot size matters, too. If a block has too many very small lots, it’s less likely to see redevelopment.

Housing Stock Growth By Community Districts (2004-2022). About two-thirds of Community Districts added less than 10% to their housing stock in two decades. Source NYC PLUTO file

Playing the Odds: Getting to Abundant Housing

Given the findings, what might the City do to double the probability of getting double the housing?

Upzoning

Let’s start with zoning. The evidence worldwide shows that upzoning works, and the data analysis here also supports that. I found that stringent zoning strongly reduces the probability that a block will build new housing.

Say the city doubles the allowable floor area ratio (FAR) on each block and that none of the buildings are above the allowable floor area. This change would increase the five-year citywide probability of redevelopment by an additional ten percentage points. So, doubling zoning gets you about three-quarters the way there.

Taxing and Subsidies

Construction subsidies or tax abatements can help loosen up the lots, but they need to be more targeted to “stickier” areas. They should be based on the distance from the center or the neighborhood’s income level. Lower-income neighborhoods should get more generous subsidies, as should those further away from the center. For single-family districts, the city should give tax abatements for ADUs or converting single-family housing into two-family housing.

New York City has over 565,000 one- and two-family homes. As a thought experiment, if each added one more unit—an Accessory Dwelling Unit (ADU) or new internal unit via subdivision—the city could get to Mayor Adam’s target of 500,000 new units without a single teardown.

More broadly, a land value tax that taxes land values higher than the value of the building is a good way to disincentivize the holding of under-developed plots.

Land Banking

The City can’t do much about block sizes and current building densities. However, it can impact zoning regulations and encourage land assembly or land banking. The City would buy up underutilized lots and then sell them to other property holders on the block creating larger lots that would be more profitable to redevelop.

A City of Yes?

Mayor Adams likes to use the phrase “City of Yes” to pitch his plans for new housing, but today Gotham remains the “City of No.” The road to abundant housing is clear:

  • Relax stringent zoning rules (especially near transit lines),
  • Subsidize housing construction costs in lower-income housing neighborhoods and those in “low Gap” neighborhoods.
  • Allow one- and two-family homes to add one or two more units.
  • Create a land value tax.
  • Establish a City authority that buys land to encourage land assembly or sells ground leases for affordable development.

Despite widespread supply skepticism, the results in this post show that the problem of affordable housing is not one of economics—it’s one of politics. Releasing the land will get us there if the political will emerges to allow it. It’s time to unstuck Gotham.

 

Continue reading Part I of the series here.

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[1] These statistics are based on lots that had some housing units in 2004. Thus, we are not talking about the conversion of industrial or commercial land to residential.

[2] I repeated the exercise to see what prompts a block to build ten or more units of new housing. Results are broadly similar. See here for the results.

[3] I want to be clear, I’m not opposed to landmarking and the creation of historic districts. However, it’s important to recognize that they reduce a city’s ability to provide more housing supply.

[4] However, the more rent-stabilized buildings on a lot, the more likely it will be redeveloped for ten units or more. So, it suggests that rent stabilization is promoting redevelopment in denser, more central places where the Gap is stronger.

by Jason Barr 1 Comment

The Plot Thickens (Part I): Do High Land Values Reduce Housing Affordability?

Jason M. Barr               January 10, 2024

The billion-dollar question: What’s driving the housing affordability problem in large cities like New York? When looking to cast blame, people naturally pick developers. Clearly, the conventional wisdom goes, they are making the problem worse because all they do is build unaffordable luxury high-rises.

Developers will argue, however, that given the high cost of land, the only way to make their investments work is to create a building that will produce enough revenue to pay for itself and the cost of land. Thus, high land values drive the affordability problem.

The “blaming the land” idea was recently stated in a blog post on New York’s housing affordability crisis by Sam Stein in The Architect’s Newspaper, which cites my work and motivates me to write this blog post. Regarding the housing affordability problem, he states,

It’s not just the price of housing, it’s the price of land.

The price of housing is what we all see, but the price of land is a big part of what’s hidden behind it. A 2018 study by Barr, Smith and Kulkarni in the journal Regional Science and Urban Economics found that since 1993, Manhattan’s land values have increased at a compounding annual rate of 15.8 percent, far faster than the rate of job or population growth. By 2014, Manhattan’s land value—separate from the value of anything on top of it—was estimated at $1.74 trillion.

Land Values

But are high land values, in fact, causing the housing affordability problem? The answer is not as straightforward as it might seem. Land is a different type of product—it’s immobile, and its value is determined as much by what’s around it as by anything else.

The substance below the ground provides no actual benefit. Manhattan’s bedrock schist, for example, is nearly valueless. You can’t use it to make countertops or jewelry, and there are no veins of gold. Very rarely, it’s used for building facades—but they are the exception that proves the rule. The soil is not worth much more, either. Brooklyn’s farms no longer produce the cabbages that were made into soups and sour kraut in the Lower East Side.

So, today, the land has only two features of value in the space-time continuum: gravity—you can stand on it—and geography—it has coordinates. Before we blame land for the affordability crisis, we need to understand what drives land values in the first place.

Let’s say a large, choice lot in an urban neighborhood is put up for sale for redevelopment. What would a developer be willing to pay it? Or more broadly, what is the market value of that sliver of the city?

Show Me the Money

Like any asset, the market value of land is determined by the potential net income that it can generate. Would-be developers first perform a series of cost-benefit estimates from erecting various types of buildings at different heights or densities.

A taller building will generate more revenue than a shorter one. But a shorter building is cheaper to build. Even though a taller building might produce more income, the extra cost might reduce the profits. Wealthier people will generate more revenue than those with less income. But they might not be willing to pay to live in a neighborhood far from the center. So, the maximum income might come from those in the middle-income range.

Billionaires’ Row in New York City. Photo by Jason Barr.

Do You HABU?

After weighing the trade-offs from various hypothetical structures, the developer will determine what’s called the “highest and best use” (HABU)—the height, quality, and expected occupants that will maximize the return from the project. Generally speaking, taller buildings will be erected in the center for higher-income residents and lower-rise buildings will be most profitable as one moves further from the center.

But where do land values fit in? The market price of land—what emerges in the competitive bidding process to take title to the property—is determined after the highest and best use is calculated. In other words, a developer will pay a price for the land such that, once redeveloped, the new building will cover the land and construction costs and provide extra for a satisfactory return on investment.

Society Determines Land Values

So yes, to the developer land is an expense, but one that is essentially determined based on what the developer “should” construct. The marketplace—and, more broadly, society—determines the value of the land.  So, fundamentally, high land values are not the driver of housing affordability. Rather, the value of land tells the developer what “should” be done with the lot. And if the land values are high—it suggests that its most profitable use is not affordable housing. Of course, this is galling to many, especially when they see older, charming, or historic buildings being torn down by high-rise condos for the ultra-rich.[1]

Digging Deeper into the Land

However, despite the market determining land values, there is no perfectly free market in land. Instead, land is a highly regulated commodity, limiting what it can be used for. We need to dig a little deeper.

First is zoning. A large body of research shows that overly stringent zoning or land-use regulations will reduce building heights below what the HABU determines. For example, if the most profitable use of a lot is a 20-story tower, the zoning rules require it to rise no more than ten floors, thus lowering the profit from development. If zoning reduces a building to less than its HABU, land values will fall.

Another element is construction costs. The higher they are, the smaller the profit from erecting buildings and thus the lower land values. Big cities like New York and San Francisco are among those with the highest construction costs in the world.

Land valuation methods thus produce a paradox: zoning and higher construction costs, all else equal, reduce land values—and in big cities, which have some of the most stringent and highest costs, we would expect the land value to be lower, not higher. So, what gives?

The Plot Thickens

So far, we’ve been discussing the market for an individual parcel that’s put up for sale. But the solution to the paradox exists by moving up to the wider land market and looking at the total number of lots offered up for redevelopment each year. Here’s where the real problem lies.

The big takeaway is that government rules, NIMBYism, and other historical barriers to redevelopment create land scarcities, and this land scarcity creates unnaturally high land values, which, in turn, incentives the construction of mostly luxury housing. The demand to live in big cities is so strong, but the number of lots available for redevelopment to accommodate this demand is highly limited. The high land values problem is thus due to the bottleneck in land provided for new housing.

Not the Scarcity You Think

However, I want to be clear about what I mean by land scarcity. New York and other cities are not running out of land—there will always be the land needed to accommodate nearly any population. New York City, however, is placed under an “artificial dome” because its zoning limits its population growth—particularly in the suburban areas. The issue is thus not the total amount of physical land per se but rather the amount made available to accommodate a growing population.

Technological improvements in construction and design mean there’s always the possibility of making more land—in the sky. It’s worth noting that in 1900, a tall building was twenty stories. Today, “tall” is generally considered above 50 stories. And since 2001, nearly 100 residential buildings of 70 stories or taller have been constructed around the world. Brooklyn, for example, just welcomed a new 93-story tower.

Stay or Go?

The way to understand the supply of developable lots that come on the market is to look at the net value of these lots relative to the value of remaining as it is. In other words, we can imagine that every lot in the city has two values—one based on its current use and the other based on its HABU if redeveloped.

We can call the difference between the profits from HABU and its current use the Development Gap. The larger the gap, the more likely a lot will be offered up for redevelopment with more housing units. The point is that the supply of lots is based on the difference in profits from the current use versus the HABU, and as this difference rises, so does the likelihood of redevelopment. In a given year, if many redevelopment lots are offered for sale throughout the city, then in five years, the housing market will be flooded with new units. So, what determines the size of the Development Gap? Let’s review the key elements.

Allowable Floor Area versus Current Floor Area

The larger the difference between the building’s current density and allowable density from the zoning rules, the greater the gap and the more likely it will be redeveloped. Conversely, the greater the existing building height or density, the less likely it will be put for redevelopment.

In New York City, for example, 36% of residential lots have their current floor areas at or more than the rules allow. They are essentially undevelopable since building a new structure would have to be smaller than the current one. Nearly 60% of residential lots have floor areas that are either above the allowable amount or within 25%—making redevelopment unlikely.

More broadly, the greater the density of the building, the less likely it will be redeveloped, independent of the zoning rules, due to the high costs of emptying the building, tearing it down, and erecting something more profitable in place. This is a kind of “natural friction” that all cities have to deal with, and it suggests that a critical role of housing policy is to “grease the wheels” to undo the stickiness preventing the construction of more housing. Nimbyists, of course, do not approve of these policies because they reject whole-scale changes to their neighborhoods.[2]

Domed Gotham. Nearly 605 of parcels in New York are at or near their maximum development density, rendering densification unlikely or impossible. Source: NYC PLUTO.

Amount of Land

Even though a well-built city will never run out of land, the total land area does matter. Cities that have more water bodies, more rugged terrain, or steeper hills will be more expensive than those whose surfaces are large, featureless plains. It’s simply a matter of access to more developable lots. These barriers can be overcome with investments in high-speed transport, which can extend the urban area and provide more land for the city.

However, government-created policies can act as a barrier to urban expansion. Some cities create vast greenbelts that reduce developable land. Other metropolitan areas, like New York, create de facto greenbelts because local town zoning ordinances frequently have minimum lot sizes and rules on maximum lot coverage. And they permit apartment buildings in all but a few tiny zones. In essence, suburban communities erect invisible walls that prevent a city from building more housing.

I also want to be clear. I’m not opposed to the region creating large natural woodlands or parks—urban nature is vital. But greenbelts remove land for housing. For example, the Metropolitan Green Belt around London was created to check population density. In 1940, chief New York City planner Rexford Tugwell proposed a greenbelt for New York for a similar reason. However, using greenbelts and other anti-densification measures to stop population growth is antiquated, outdated, and harmful to urban growth and well-being.

Current Income versus Future Income

All else being equal, if redevelopment generates a much higher revenue stream than a building’s current use, it will encourage the parcel to be offered up (assuming the zoning allows it). So much high-rise development takes place in central areas because the income from new construction is so much higher than the income from current buildings, and central-city zoning tends to be much more generous than out in the suburbs. Given the national and international demand for a place in the center, it naturally means a higher gap and, thus, more new construction.

However, there is a large unmet demand for less fancy housing along mass transit lines in the suburbs. Just look at Yonkers, north of the Bronx border, which has big swaths of vacant, formerly industrial land along the Hudson River. It is finally being converted to housing for the “missing middle.”

Rent Controls

Many large cities have some form of rental price controls, which limit rent increases and give tenants the right to stay in their units if they remain in good standing.  However, rent stabilization is a double-edged sword, when it comes to redevelopment. When a building is filled with rent-controlled tenants, it reduces the income relative to HABU income and thus incentivizes redevelopment, which are usually market-rate units.

But tenants’ rights to stay also mean that the structure will remain occupied as long as tenants want to stay. Developers can buy out (or, unfortunately, engage in “slumlord” practices) to get tenants to leave, but this will increase the costs and reduce the gap, lowering the likelihood of redevelopment.

Red Tape and Construction Lags

Red tape is one of the most significant problems that reduce the Development Gap. Big cities often place before the developer a big list of boxes they must check and long waiting times before all the permits are given. The delays are even longer when dealing with housing subsidies, novel building designs, or projects requiring a zoning change.

One recent study for Los Angeles looks at permitting times within LA’s Transit-Oriented-Communities (TOC) program, which encourages redevelopment of multifamily housing around transit lines. The authors found that the median time to permit an as-of-right project was 1.18 years and 1.35 years for those requiring additional permissions.

This was just the median time, which means that 50% of the respective projects required longer waiting times for approval—and in a program designed to speed up housing construction. Then consider that at least two to three more years are needed to build out and fill up the building. Before the project begins, at least one year is required to raise funds, design the building, and perform market studies. So, roughly speaking, the project from planning competition for multifamily can take at least four years if things go smoothly—hardly a way to deliver needed housing now.

Property Taxes

If a property’s real estate taxes rise with new construction, the higher costs can provide a redevelopment disincentive. Many cities offer real estate tax abatements to promote new construction. Sam Stein blames residential tax abatements for, ironically enough, harming affordability. He argues that available tax breaks wind up raising the cost of land—because they make redevelopment more profitable—eroding the very benefit they were designed to provide.

But this is not quite true. In a direct sense, the higher price of land is a higher cost, and tax abatements are capitalized into land values. But at the same time, they reduce operating costs for new construction and thereby generate more supply, which can help keep prices in check.

But let’s be clear: Abatements are not causing the affordability problem—higher land values incentivize taller buildings and provide more units. To the extent that abatements also requires set-asides for affordable units, then some go directly to those who need them the most.[3] But if you permanently eliminate tax abatements, you will not solve the housing affordability problem. Yes, land values would decrease, but new construction would not go up unless you released the other frictions preventing redevelopment.

The “Astor Index.” This index shows the relative price of vacant land to land with buildings on it for Manhattan. In the 21st century, vacant land has sold at greater and greater premium because so few lots are offered up each year for redevelopment. Source: here.

How to Make Housing More Affordable

The simple means to improving affordability is that more lots need to be offered up for redevelopment for buildings with more units, particularly outside the city center where housing demand is local and with more moderate incomes.

Transit-oriented Development

As discussed in other posts, the lowest-hanging fruit is to rezone neighborhoods near transit spots to create transit-oriented development. It seems a no-brainer, yet NIMBYism is preventing planning officials from upzoning these places. A year ago, Mayor Kathy Hochul submitted a plan to upzone neighborhoods near transit stops. It was quickly rejected by the state legislature—particularly those representing suburban neighborhoods. In 2024, she’s going to try again, but let’s see….

Vacancy Targeting

A useful strategy for cities to employ is what I call vacancy targeting. That is, when housing vacancy falls below a low number, say 5%, in a particular neighborhood, the city should—automatically—enact policies that incentivize more construction. This can include targeted construction subsidies and even the building of new public housing (which would be open to a wide range of income groups).

The point is ensure that housing gets built where needed and wanted the most. To make such a strategy work would also require cities to have ready-to-go plans for increasing their local service provisions, such as increasing school capacity and upgrading local parks. If central neighborhoods had higher vacancy rate, voucher programs for the those with low-income would worker better, given the lower competition among renters.

Land Taxes

Today, real estate taxes are based on the value of the structure and the land. If a new building goes up, taxes rise because of the higher value of the structure. However, since land values are the real driver of HABU, and the nature of the neighborhood determines HABU, a more efficient strategy is to tax the land values much higher than the structure value.

A land tax would affect the Development Gap calculus since those with large, underutilized lots would be paying a high tax but with little income to pay for it. They will, therefore, seek to build on the land to create more revenue to pay for the taxes. But land taxes only work if densification is allowed. You can’t turn up the heat by taxing land and then not allow new construction because of stringent zoning.

Furthermore, real estate taxes on the structures should focus on curbing the negative spillovers, or externalities, they create—that is, based on the harm they produce to society. For example, if a new building puts others in a shadow, then the owner should be pay a “shadow tax.” And to the extent that a denser structure will add burdens to the local infrastructure, the developer should pay a development impact fee.

Affordability is Political, Not Economic

At the end of the day, there is no such thing as a city running out of land. Land can be used intensely or sparsely used based on the demand for each location. The supply of lots determines land values across the city—the more supply, the lower the land values, all else equal. Today’s astronomical price of land is due to the fact that too many barriers exist to bring the land up for sale. As a result, current landowners enjoy a “scarcity premium.” When a valuable lot comes up, naturally, the HABU is a luxury condo. So, the high land values are not the cause of the housing affordability problem—they are a symptom that cities are not releasing enough land for needed housing.

What stops officials from allowing the densification is push-back by those who fear new development will harm them in some way. Thus, change requires carrots and sticks to bring people on board. Abundant housing policies would relieve pressure on land prices.

In the next blog post, I will discuss New York City in detail, investigating what is gumming up its ability to provide more parcels for new housing.

 

—

[1] Now, you might say that developers are strategic—only they know what something is worth because they spend years plotting (no pun intended) and scheming to change the zoning or slowly and quietly assembling small lots. This is true, but the land is not presented to them as a blank slate. The developer can see that certain frictions are holding up a more profitable use and work toward unleashing the value. This developer is engaging in a form of arbitrage, as it were. Additionally, since neighborhood diversity is a key desideratum, housing policies, discussed above, can work to maintain neighborhood diversity–but they can only do so within a context of abundant housing at all locations.

[2] It’s important to recognize that Nimbyism is a form of Prisoner’s Dilemma. From the individual household perspective, to be a Nimbyist is perfectly reasonable and rational. Everyone naturally wants to protect what they have. However, from the point of view of society, preventing neighborhood densification is inefficient and leads to all sorts of social problems, including housing unaffordability, greater wealth inequality, more segregation, and lower economic growth.

[3] For that matter, when the abatements are withdrawn, owners strategically hold onto their lots in anticipation of new abatement being offered. Subsequently selling them without the abatements likely means taking a loss on the investment. Thus, the expiration of the abatements means fewer lots will be offered up until new abatements are enacted.

by Jason Barr 2 Comments

Long Live the Skyscraper

Jason M. Barr             June 12, 2023

A few weeks ago, I received an email from an acquaintance with a link to an article about my research. I was naturally intrigued, but when I started reading it, I realized that the author was using my research against me, rotating the findings to suggest they meant the opposite of what they actually meant.

The article is “Death to the Skyscraper,” and the author paints a very dark—dystopian even—picture of the skyscraper. She is not alone, to be sure. Her article is part of a long-running genre of skyscraper-as-destroyer-of-cities.

Her focus is on the environmental impacts of tall buildings, particularly their greenhouse gas emissions. It’s true that tall buildings tend to produce more through operational and embodied carbon than their diminutive counterparts. And this observation is, correctly, worrisome.

For those who see these “towers of power” simply as carbon-spewing Godzillas, the natural conclusion is that they should be banned from existence. But as I teach my students in Economics 101, you can’t draw conclusions without evaluating the costs relative to the benefits. Unfortunately, the whole article reads as an exercise in bad economics.

The Enduring Skyscraper

The author’s key thesis is that the skyscraper requires more of society than it gives in return. This claim puts her within a century’s-long tradition of those who have shared that view. In fact, her words (which are factually dubious at best) that “Even at the city level, the huge carbon cost of skyscrapers fails to outweigh any potential benefits that they might achieve from restraining urban sprawl” echoes one of New York’s key reformers, Edward Bassett. He sought to eliminate the skyscrapers in Manhattan by focusing only on their construction costs while ignoring their benefits. In a 1913 report that led to New York’s 1916 zoning resolution, he wrote:

Few skyscrapers pay large net returns. Most of them pay only moderate returns….However, the very tall buildings demand many things out of proportion to their increased bulk. All piping has to be made disproportionately heavier; special pumps and relays of tanks have to be provided, foundations often call for special construction, wind-bracing assumes an important place, long-run elevators are more costly than short-run elevators, the extra space taken up by the express run of the elevators is an additional cost. Thus in the aggregate the total cost per cubic foot of a very tall building may be 60 to 75 cents per cubic foot where a low building of the same class would cost only 40 to 50 cents per cubic foot.

But just because something has higher costs (either to the builder or society at large) does not logically lead to the result that it should be eliminated. To evaluate the claims more fully about tall buildings, we need to take a step back—or up—and put them in context to view the skyscraper trees within their economic forest. One should not make pronouncements about urban real estate without more widely considering how cities function.

The Manhattan Skyline from Central Park.

Why Do Cities Exist?

Since the skyscraper is one species within the urban environment, we need to begin with the question: Why do cities exist? Or flipping the coin, why does the majority—and growing—of the world’s population live in cities? The fundamental answer is “markets.”

Cities are, first and foremost, labor markets. They are where people find jobs, and, in this sense, cities are the engines that power our economic lives. To take a simple case in point, the three most productive counties in the U.S.: Manhattan (New York County), Los Angeles County, and Cook County (Chicago), together generate 9% of the United States Gross Domestic Product (GDP), yet they use 0.18% of its land mass.

People come for the jobs but stay for the opportunity to experience all that a city has to offer, like restaurants, museums, or large urban parks. Even working from home will not drive us out of the city. It might cause some relocations and adjustments, but in the end, the city will maintain its roles.

Hivetropolis

And, as Jane Jacobs has argued, cities are inherently problem-solving machines that draw their power from density itself. Ideas and hive intelligence are in the urban ether, and if we allow cities to function as they should—if we allow people to live and work where they see fit—then cities can continue to provide both the income from our labor and the goods and services that we want as consumers and citizens.

Now, if you concede that the purpose of the metropolis is to be the center of what is necessary, right, and good, then we must ask, how is the city to organize itself to function for maximum efficiency and gain? The answer is through the land market.

Allocating Geography

As nicely summarized by urban planner and author Alain Bertaud, the land market

sends strong signals though prices when land is underused or the use is unsuitable for its location;…provides a strong incentive to users to use as little land as possible in areas where there is a strong demand, in particular in areas well served by transport networks; and…stimulates innovation in construction.

This means that to understand what “should” go where, land prices are the most valuable signal. But high land values are really a signal of the value of geography—that more people and businesses want to be in the same place at the same time. Thus, the skyscraper is a geography-shrinking machine. It pinches the land to squeeze out new land—land in the sky—which allows hundreds, if not thousands, of people to be in the same place at the same time.

Good Communities

But what are we to make of the author’s conclusion that:

High land prices, of course, are not good for ordinary people and communities: they segregate societies along socioeconomic lines, with high costs of homes and rent pushing people into low standards of living, and risking their health, development and life chances. A city birthing new skyscrapers is likely to be unaffordable for many of its residents.

I have a few responses. First, a trip to Hong Kong, Singapore, or any mainland Chinese city, for example, would reveal that high-rises are not just the province of the rich—rather, high-rise after high-rise is home to Asia’s burgeoning middle class. So, there’s nothing inherent in the economics of tall buildings that precludes their use by many across the income spectrum.

Second, the segregation of uses is only partly the result of land markets. Tall buildings in the center are economically rational because they satisfy the need for people to be closer to each other. They make businesses more productive and allow more residents to enjoy the fruits of the city by saving on commuting and travel times. And the empirical evidence strongly supports this conclusion.

But even in the most central locations, there’s ample opportunity for a mix of building types and income levels. A quick stroll down Wall Street—the center of global finance—will reveal short buildings next to tall ones and old buildings next to new ones.

Zoning

The more important issues, however, are planning and zoning. While Jacobs argued in the 1960s that planners ought to get out of the way and let cities be, the opposite has occurred. Bassett and those who followed him could not stomach population density and mixed uses. They created zoning arrangements that made mixed uses illegal. Even today, it’s impossible to have a tall building in New York that contains one-third for shopping and restaurants, one-third for offices, and one-third for apartments, despite that office buildings remain largely underused.

Regarding hyper-segregation, the evidence strongly suggests it is due, in large part, to the historical planners’ fear of mixed uses and their desire to surgically separate all land use types regardless if people wanted them or not. They aimed to keep factories away from residences and single-family homes away from apartment buildings. Zoning was meant as a backdoor to means to create the ideal cities according to planners’ view that workers should all live in Garden Cities, and the center should be designed according to the highest City Beautiful ideal.

Once zoning took root in the first half of the 20th century, wealthier residents used these restrictions to limit housing, which made access to these places nearly impossible for a vast swath of society. The concomitant redlining of neighborhoods was a product of racism and the Federal government’s desire to protect white people’s home values.

Nimby Nation

Because of the tight restrictions in suburban areas, nearly the only place in the city today where builders can provide needed housing is in the center, where the land values are the greatest and zoning tends to be less restrictive. The irony is that renters have made common cause with single-family Nimbyists because they see the “greedy developer” and the “greedy landlord” as “ruining their neighborhoods” and driving up housing prices, even though renters stand to gain the most from new construction, which will lower rents.

And the Nimbyists preaching the “Gospels of Saint Jane” to limit building heights in the name of the “human scale” are, in fact, making it harder to build new housing and causing land values and rents to rise. So, the very people who rail against tall buildings are incentivizing them by their very actions.

But taking a broader perspective, tall buildings are not causing the affordability problem. Using New York as an example, the city has 3.6 million housing units, and 77% are in buildings that are ten stories or less, and 2.7% of units are in buildings 40 stories or taller. Taking a global view, in the developed world, 86% of its structures are 25 meters (8 floors) or less, 94% are less than 15 stories, and 99% are less than 100 meters (25 stories). The supertall part of the spectrum represents only a tiny fraction of the world’s buildings.

Are There Too Many Skyscrapers?

So, with this in mind, we turn to the question of what’s to be done. There’s a valid argument that cities are getting too many skyscrapers because of restrictive building regulations in the suburbs and GHG emissions.

Skyscrapers produce a lot of CO2. No one disputes that. But this fact does not mean they should be banned from existence. Banning something that makes cities function properly is a bad idea. Density is what powers cities, and density should be encouraged rather than discouraged.

More broadly, there’s an extensive literature in economics demonstrating one simple fact: If you put draconian restrictions on what a city can build, the outcome is more sprawl and traffic congestion, and higher housing prices. Similarly for GHG emissions, Manhattan has far lower carbon footprints per household than its suburbs.

Using a data set with estimated average household carbon footprints for every zip code in the United States, we can conduct a thought experiment. Imagine we “Manhattanized” the two suburban counties adjacent to New York City—Nassau and Westchester—by having all their residents live at the same density. Those two counties would see a reduction in their residential carbon footprints by 41%.

Do We Really Need More Paris’s?

And yes, 5-story buildings are the best in terms of minimizing carbon emissions, but again it does not logically follow that we should require by fiat that every city be built like Paris. It is worth noting a few facts about the place. First, officials created a skyscraper district in La Défense because they knew they needed tall buildings for the economic health of the city. Second, if you look at Paris’s global ranking, in terms of its importance in the world economy, as measured by the size and number of international firms, it’s falling. Paris in 2000 was ranked 4th, and by 2020, it was bumped down to 8th, losing out to skyscraper cities. Is it because of Paris’ lack of tall buildings? The data are strongly suggestive, though more research is needed.

In the last decade, Paris has shrunk by 122,000 residents. As reported in Forbes.com, “Many of those leaving are choosing either the suburbs or countryside around Paris, or they are relocating to France’s smaller cities such as Bordeaux, Lyon, and Toulouse.” By limiting its building stock, Paris is driving up housing prices, pushing out residents, and causing suburban sprawl—hardly something worthy of emulation.

Average Household GHG Emissions by Zip Code for New York City. Note how the outer fringes of the city with free-standing suburban homes have much higher carbon footprints than dense Manhattan. Source: Map based on data from Jones and Kammen (2014).

Think Externalities

Critics love to blame tall buildings for destroying the environment, but they (like us all) think little of turning on the air conditioning when they are hot, charging their laptops when they want to check Twitter, or hopping on a jet to go on vacation. But we would hardly say these should be eliminated from our lives.

To offer another illustration, where I teach, most students commute to class. Every semester, I informally poll them by asking them to raise their hands if they decided not to drive to class that day and took mass transit instead because they knew their car would emit some carbon during their commutes. I don’t think I’ve ever had a student raise their hand in the affirmative. They decide to drive or not based on whether they have access to a car and on the availability of parking.

The point is that CO2 is what economists call an externality, an unintended by-product of our actions that generates a negative effect on society. Greenhouse gas emissions are the mother of all externalities and should be treated as such. Since no one is willing to give up their comfortable lifestyles, that means we must rely on carrots and sticks to generate technological improvements that replace our current products and energy production with carbon neutral alternatives.

Tax Carbon

As I teach my students in Economics 101, the key to solving the externalities problem is for producers to “internalize” them so they pay for the costs that they would otherwise impose on others. The most effective ways to do this are to tax carbon emissions or create a cap-and-trade scheme. Cities around the world, like New York with its Local Law 97 and London with its carbon taxes, are generating penalties for GHG-heavy building owners. This is good.

I would argue, however, that New York’s law, for example, does not go far enough. All households—not just those in large buildings—should face a carbon tax. If cities charged all household “over producers” and gave credits to “under producers” based on their emissions, it would not only be fair—the rich would pay more in taxes—but would also benefit those living in efficient buildings. A household carbon tax and a gasoline carbon tax, would also encourage denser, less-car-based lifestyles, which would lower GHG footprints that much more.

Federal Policies

Help must also come from the Federal Government, which should penalize CO2 creation and reward alternatives that use less or no CO2. For example, steel and cement producers need to pay for the carbon they generate, while R&D credits should be given to businesses that develop low-carbon products or production methods. Electricity providers need subsidies and incentives to switch to wind, solar, and other clean energy forms, as well as to upgrade the electricity grid.

And globally, the developed nations must help the developing countries to produce their skylines with low-carbon methods. They want American lifestyles and feel that they should not make the sacrifices that the West never made. At the end of the day, solving the global climate crisis must be an international effort.

Towers of Power?

Towers of Power—the supertall buildings for billionaires—are a result of booming cities, but they are not the cause of gentrification. Gentrification is due to the gummed-up nature of cities. It is largely driven by overly restrictive zoning and price controls enacted to save the city from itself but has served chiefly to inflict more harm than good.

Since the restrictive zoning is driving up land value in the city centers, we should eliminate the outdated zoning rules and replace them with a rational plan that more carefully weighs the costs and benefits to neighborhoods. By allowing more moderately taller, mixed-use buildings throughout the city, we would decrease the bottlenecks that make land prices skyrocket in the center, thus reducing the incentive for developers to build supertalls.

Affordability

It’s important to reiterate that if you ban tall buildings, it does not logically follow that you would get affordable housing for lower- and middle-income households. Banning skyscrapers will make the affordability problem that much worse because tall buildings, in fact, are helping the affordability problem by providing more housing on less land. However, it does so in a rather indirect way–by “greasing” the moving chains from the top to the bottom of the housing spectrum.

Money seeks its highest return. So, the question is, why doesn’t more real estate money flow to lower-income housing? Despite what many people think, the real estate market does not operate according to some made-up rule that either we get skyscrapers or we get affordable housing. Money is not flowing into middle-income housing because it is illegal to build it in most parts of big cities, thanks in large part to stringent planning and zoning regulations, and other frictions that need to be addressed by policymakers.

If people were really concerned about gentrification, they would demand their leaders enable builders to flood the market with middle-income housing in the suburbs. This would cool land values in the center and provide units for those who need them the most.

Skyscrapers and Cities

Skyscrapers don’t belong everywhere and are not for everyone. But policy discussions are severely harmed when people use loaded rhetoric, poorly-defined concepts, and buzz phrases to make grand pronouncements based on little more than casual observations. Skyscrapers have spread like a wave over the planet in the 21st century because they help cities grow and succeed.

But yes, we need to carefully consider their costs and benefits to evaluate where policy changes can offer improvements. And there’s room for disagreement, but we can all agree that cities should be open and accommodating to all who want to call them home.

 

Thanks to Troy Tassier for his editorial comments on an early draft of this post.

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Credits

The New Amsterdam map on this page was sourced here, and the atlas image is from the 1891 Atlas of City of New York by GW Bromley & Co.

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