A few weeks ago, I was walking in Central Park on the Upper West Side. As I strolled past some benches near the Diana Ross Playground, I saw a young man, likely in his late twenties, with his face buried in a huge, white-covered book. When I got closer, I noticed he was reading a brand-new copy of Robert Caro’s 1974, 1,300-page biography, The Power Broker: Robert Moses and the Fall of New York.
It struck me that I was witnessing a quintessentially New York act—to buy the Power Broker and read it in the park. In such an act, we glory in our ability to enjoy ourselves in the vast urban wonderland that is Central Park while reading a book about a man who built more parks in New York than anyone and yet who today is vilified as a power-hungry titan who initiated the fall of Gotham.
The Caro Narrative
It also occurred to me that Robert Caro’s legacy is not just that he provided a chronicle of 20th-century New York’s most important public figure but has also affected the course of public policy.
Caro’s story is about the abuse of power—how Moses transmogrified into a Kurtz-like figure in The Heart of Darkness. Moses began his career as an ambitious idealist Progressive. His genius and endless drive to create parks and parkways pushed him forward and showed New Yorkers how government can improve people’s lives. Yet, with each success, he became increasingly power-hungry and gamed the system to feed his bottomless appetite.
Because of the arrogance that was so basic to his nature…Moses’ susceptibility to the addiction of power was unusually strong….Once Robert Moses had sought power only for the sake of his dreams, only as a means to an end; even then, however, there were signs that he was beginning to seek it for its own sake, as an end in itself. And the avidity with which he sought power—and the lengths to which he went to get it—revealed the depth of his need for it.
After World War II, as Caro’s portrait goes, Moses became deeply entrenched in his “Fortress of Solitude” on Randall’s Island as head of the Triborough Bridge Authority. With a wave of his hand, he clear-cut the “slums” that resulted in massive residential displacements; he ramrodded expressways through vibrant working-class neighborhoods; and his highway construction program drove New Yorkers to become automobile junkies while generating rampant white flight and the collapse of the subways.
Caro provides a gripping tale. We all love a Greek tragedy—the king who becomes so blinded by his power and is convinced of his own perfection that he is unable to see the damage he causes.
Robert Moses in 1939 viewing a model for a Battery Bridge (a tunnel was built instead). Source: Wikipedia.
The Caro Effect
Yet, whereas Moses, the man, was in power until the early 1960s, Caro’s portrait of Moses has been “in power” since 1974. He hovers as a living ghost that haunts New York and holds vast influence, perhaps more so than the flesh-and-blood version ever did.
This is not to say that Moses’s career was not problematic. His policies were not race- or class-neutral and often harmed people of color and the poor to benefit the white middle class. As a master bill writer, he crafted legislation that left him untouched by the democratic process to implement his programs as he saw fit. He swatted away community pushback with the epithet, “You can’t make an omelet without breaking some eggs.”
Bogeyman Moses
However, the overly simplistic residual of Caro’s book—the belief that people cling to—is that because Moses was a power-hungry bully after World War II and presumably harmed New York, we shouldn’t build important megaprojects that the city needs today (megaprojects that other cities worldwide are building easily).
Because Moses brooked no community input, the logic seemingly follows, we must allow full-on community input, and, by extension, local veto power that stops the city from addressing its problems head-on. The defining legacy of Caro’s book is that we have become paralyzed by the fear of Moses’s ghost which Caro conjured to life.
The Harm
New York faces 21st-century crises that need to be addressed directly and strongly. Most notably, the city must become resilient against climate change, dramatically expand its housing stock, and upgrade and produce other services, including mass transit, to improve quality of life and prevent the high cost of living from pushing people out.
Today, Gotham is tiptoeing its way to climate change resilience. It builds out the shoreline here, adds some bluebelts there, and buys out some households over there. But the truth is that a patchwork of programs only offers partial protection against increasingly damaging storms, flooding, and sea level rise.
New York is on the path toward building $52 billion worth of seawalls that will be used sporadically to stop storm surges. Politically, erecting seawalls away from any residential neighborhood is the easy path, but practically, its cost-benefit ratio is questionable. Billions more will be spent against sea level rise and coastal disappearance.
The Housing Affordability Crisis
Just as important is housing affordability. Over half the city’s renters are rent-burdened, paying more than 30% of their income for housing, and one in three low-income households is severely rent-burdened, paying more than 50% of their income for an apartment. There is hardly any rental housing to be found with the current vacancy rate at a mere 1.4%, the lowest in half a century.
To his credit, Mayor Adams’s City of Yes Housing Opportunity will attempt to add more housing in each neighborhood, but it’s unlikely to have a meaningful impact on affordability. He has to tread gingerly to avoid total rejection of his plan.
Additionally, climate change resilience and housing affordability are not independent. Housing will become scarcer and more expensive as more land is removed from use because of rising sea levels or to mitigate flooding.
The Interchanges to and from the Cross Bronx Expressway ca. 1973. Source: Wikipedia.
Moses: A 20th-Century Centurion
In the decades following the Power Broker’s publication, there have been more nuanced reevaluations of Moses’s career and impacts. The most forceful and comprehensive is the 2007 book, Robert Moses and the Modern City: The Transformation of New York, edited by Hillary Ballon and Kenneth Jackson (which contains a comprehensive list of Moses’s New York City projects). But the revisionists have been drowned out by the howling of the Caro’s spirit.
Lost in the collective memory is that Moses was a product of his time. He rose out of the Progressive Movement, frustrated with machine politics’ failure to eradicate urban ills like overcrowding and lack of fresh air and sunlight. His genius was in figuring out (for good and for bad) how to overcome nimbyism and status quo politics. He had the support of leaders and the people because he delivered the results that they wanted.
Moses existed within the political spectrum of reformers. On the far left were the socialists who sought to abolish private property. Just to their right were those who wanted to master plan the metropolis, deconcentrate it, and create a network of garden cities. Moses pushed back against those that he saw as being too extreme. He decided that a project-by-project strategy was to be preferred to grand schemes. The populace agreed with him, being suspicious of grand plans that would disrupt the culture of laissez-faire New York.[1]
Slum Clearance
Moses did not invent slum clearance.[2] It had been the dream of reformers since after the Civil War with the rise of hyperdense slums in Five Points. In the 1890s, Jacob Riis’s expose, How the Other Half Lives, provided more fuel to the slum clearance movement.
One of the earliest examples of slum clearance was that of Mulberry Bend, a dense cluster of tenements in the Lower East Side that was notorious for its poverty, crime, and vice. It was cleared in 1904 and the land was converted into a park (today Columbus Park).
When Moses was in his heyday, slum clearance advocates were in positions of power through the New Deal programs. After World War II, Title I and public housing funds were made available on a level never seen before in human history.[3] Moses was able to grab the lion’s share for New York. He was largely supported in his endeavor because he was carrying out the work that previous reformers had been unable to accomplish. Moses was their Trojan Horse.
The Automobile
Moses did not invent America’s love of the automobile, and we can’t blame New Yorker’s car addiction on him (and which is certainly no worse as compared to the rest of the country). It’s good that he didn’t get his way in various projects, such as building elevated highways across Greenwich Village and SoHo, and it’s bad that he did not consider neighborhood impacts when helping to build America’s highway system within Gotham’s borders.
But America’s automobile dependence is based on a much larger institutional and cultural framework—subsidies for cheap oil, various Federal Highway Acts (the National Highway Act of 1956 had the Federal Government covering 90% of localities’ highway construction expenses), and the fact that people highly value the personal freedom that comes with cars.
Moses’s radial highway system for New York City was not his invention. As historian Leonard Wallock states:
Far from being novel, [Moses’s] ideas for a circumferential system of roadways were nearly identical to the ones proposed by the Regional Plan Association in 1929, which in turn were based on Edward H. Bennett’s Brooklyn City Plan (1914) and Daniel Burnham’s Plan of Chicago (1909).
Parts of New York that Will Be Underwater if Sea Levels Rises by Six Feet (a likely projection by 2100). The green areas are those likely to be prone to flooding. Map Source: NOAA.
Moses and “The Fall”
The most influential element of Caro’s book has been its subtitle, “Robert Moses and the Fall of New York,” as if Moses destroyed New York. Yes, Moses did some bad things, and blaming him for Gotham’s post-industrial woes makes for good copy, but it’s just plain wrong.
In fact, after the massive wave of deindustrialization that hit manufacturing cities in the 1960s, New York fared better than most. It lost population from 1970 to 1980 but rebounded after that, and today, the city holds its highest population ever. Detroit and St. Louis, on the other hand, are still losing people. Chicago, Boston, and Newark, for example, have rebounded, but their populations remain far lower than their peak in the 1950s.[4]
More broadly, while Moses is seen as godlike in his impact on New York, the truth is that there was nothing wholly unique about his building spree. As Wallock writes:
In The Power Broker…Moses is not merely the lawgiver but the creator, for he transcends the role of his Biblical progenitor and usurps the place of God. By making Moses the prime mover responsible for the city’s genesis, [Caro’s] interpretations disregard a crucial fact: from the 1920s through the 1960s, New York’s physical and spatial development was markedly similar to that of other large American cities….The Power Broker fail[s] to explain why other cities, not blessed with a Moses figure, assumed the same physical and spatial configuration as New York.
But Caro was writing in the late 1960s and early 1970s when New York was seemingly coming apart at the seams. To many, including Caro, the “fall” was brought about by Moses’s opening the barn doors. In hindsight, this seems to be a confusion of correlation with causation.
Ironically, in his Introduction, Caro hedges on Moses’s net impact, which is quite rich, given how powerful his book has become. He concludes:
Would New York have been a better place to live if Robert Moses had never built anything? Would it have been a better city if the man who shaped it had never lived? ….
Moses himself, who feels his works will make him immortal, believes he will be justified by history, that his works will endure and be blessed by generations not yet born. Perhaps he is right. It is impossible to say that New York would have been a better city if Robert Moses had never lived.
Time to Move On
It’s time to move on. Let’s put Moses in the past where he belongs. We need to learn the true lessons of Moses and use them as a guide to improve New York’s future, rather than clinging to outdated myths that keep the city nearly paralyzed. The true lessons of Moses are that big projects that will benefit New York can and should be built, but they also need to minimize the negative spillovers and unintended consequences and be done in a way that engenders trust and confidence in the government. Getting community input is vital, but community input should not mean complete veto power.
How to Vanquish Moses’s Ghost
However, once lodged in the public consciousness, myths are hard to kill.[5] We long for simple explanations for complex phenomena, and when the “truthiness” of the simple explanations is strong, we cling to them. Blaming Moses for the planning mistakes of the 20th century is easy because he stood in the center of these changes and was seemingly waving his magic wand like Lord Voldemort.
So, how do we remove the Moses Myth from blocking policies needed to keep New York safe, affordable, and viable in the 21st century? I believe the answer is twofold. One approach must come from the top down and the other from the bottom up.
Trust Building
First is that our leaders need to engender trust. Nimbyism is, in large part, motivated by a failure of confidence that the government will do what’s good for individual residents and that large-scale building projects will do more harm than good. The legacy of Moses and Caro was to remove this trust.
Enabling communities to have strong veto power over large projects forces policymakers to employ half-hearted measures instead. When these measures fail to achieve their purpose, residents blame the government for its inability to solve problems, thereby reinforcing their mistrust.
Leaders need to say, “Yes, people like Moses were heavy-handed and their decisions led to projects that today we feel were poorly implemented, but we must move forward. Some large problems require big solutions, and we can’t tiptoe our way to the future. The cost of inaction is much greater than the cost of action and we have learned from the mistakes of the past and will not repeat them. Here are the ways that we have your back….”
Just as importantly, leaders need to create the institutional mechanisms that will bring residents and communities on board. Community input is vital and should be part of the bargaining process. However, all large-scale policies need to lay out the costs, benefits, and the likely negative spillovers, and directly address how these spillovers will be mitigated to reduce the fear of change. (I have spelled out examples here). One mechanism is that a large project also comes with a compensation fund to which people can apply if directly harmed and which is objectively administered by an impartial board.
Rebranding Moses
While leaders work on the issue of trust and compensation, we, the people, need to rebrand Moses and reframe how he is seen in the public eye.[6] Yes, Moses did many things that, in hindsight, were regretful. But he also did many wonderful things. What’s wrong with a story about a complicated man who was a product of his time?
We need to change the narrative. We need to get the word out that Old Man Moses died in the 20th century and we refuse to be afraid of the Spooky Ghost Moses. Let’s put him in the history books along with other 20th-century figures like Al Smith, Franklin Roosevelt, and Fiorello La Guardia. It’s time to create a future with new leaders who help build New York by incorporating the lessons from the best version of Moses while leaving behind those from his worst side.
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Notes
[1] When Jane Jacobs emerged on the scene in the early 1960s, her antidote to planning was to eliminate it altogether. Death and Life directly response to the wide-eyed planners who wanted to remake the city from scratch or to build towers in the park. Her “cure” for neighborhoods was to leave them alone (or allow residents to veto any new construction) and permit mixed uses. In terms of city planning, her recipe for utopia was to build more playgrounds and cut long blocks in half to create more sidewalks and street frontages.
[2] Moses did not invent the tower-in-park style of housing either. It was an invention of reformers and visionaries, such as Le Corbusier, starting in the 1920s. The planning consensus during the Great Depression and beyond was that building towers surrounded by green space would cure urban ills.
[3] Arguably federal mortgage programs that created redlining and with which Moses was not involved had a greater effect on cities like New York than Moses’s housing and slum clearance projects.
[4] Ironically, public housing—something in which Moses had a more behind-scenes role in developing—today is a success story in New York. Given the massive affordability problem, NYCHA housing provides a huge benefit for those with low incomes. See Nicholas Dagen Bloom’s book, Public Housing that Worked: New York in the 20th Century. More broadly, given recent economics research on the impacts of highways (such a Brinkman and Lin, 2024) and slum clearance on cities (such as Collins and Shester, 2013), measuring the net impact of Robert Moses on New York relative to what happened in other cities, would not be too difficult. To my knowledge, no one has specifically measured whether Moses’s projects were a net plus or negative for the city’s economic growth.
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.
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[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.
Many cities around the world have severe housing affordability problems. One reason is overly restrictive zoning regulations. Zoning—the rules that dictate what can be built on each lot—was initially designed to control urban problems, including congestion, pollution, and shadows.
Over time, however, planners made common cause with property owners to tighten the rules. Planners did not like urban density and were all too happy to reduce it. Property owners realized that stricter codes could preserve their property values and exclude the poor and minorities from their neighborhoods.
By the middle of the 20th century, the most popular zoning rule was limits on the so-called Floor Area Ratio (FAR)—the permitted maximum floor area stated as a ratio to the lot size. For example, a maximum FAR of 1 means a one-story structure can cover the entire lot or a two-story structure can be built on half the lot. FAR caps and plot coverage maximums guarantee much lower population densities.
A Bridge too FAR?
The decades of downzonings—reductions in allowable FARs—after World War II, however, did not affect housing prices all that much since large industrial centers were emptying out, and the suburbs still had plenty of land on which to build. But then, in the 1990s, these places began to rebound. A recent wave of research, particularly in economics, has documented the unintended consequences of stringent zoning regulations, including higher housing prices, increased segregation, urban sprawl, and greater greenhouse gas emissions.
If the 20th century was the Age of Downzoning, then the 21st century is gearing up to be the Era of Upzoning. Cities worldwide have initiated loosening building regulations. Logically speaking, if downzoning has reduced construction, then upzoning should produce more housing. Or does it? Does simply turning on the spigot cause the water to flow?
Let there be Housing?
To answer this question is not so simple, however. One must be able to see clearly through the fog of urban change. Expensive cities are dynamic places: people constantly move in and out, and businesses grow and shrink. Housing affordability seems to worsen no matter what new policy or subsidy the government adds.
The typical observer sees the tall cranes erecting luxury condos while urban life gets more expensive. It must logically follow that those cranes are “causing” higher prices. However, demand and supply are in a constant wrestling match. When the demand side wins, prices rise, no matter how much new construction there might be.
The Scientific Method
To separate supply from demand and cause from effect requires some effort. Researchers must create a scientific setup—a treatment and control framework—especially concerning changes to the zoning rules. If particularly hot neighborhoods are targeted for upzonings, there needs to be a way to identify the demand (the hotness) from the upzoning impacts (more supply).
For example, when testing a new pill that aims to lower cholesterol, it’s best to compare a group of people with similar characteristics. The ideal experiment is to enroll in a study, say 100 men, who are very similar—in their 50s, overweight, and don’t regularly exercise. Half are randomly assigned the pill, while the rest are given a placebo. If the men who took the pill have lower cholesterol, on average, it strongly suggests that the pill works.
Zoning as Treatment
Recent studies on upzoning, discussed below, use this logic, although, unlike medical doctors, researchers can’t control the experiment to such a fine degree. Instead, they need a way to locate a reasonable control group similar to the “treated,” or upzoned, lots before the upzoning was enacted.
Several studies use the so-called border method. They compare blocks in the upzoned area to those just on the other side. Presumably, two blocks across the street are very similar otherwise. Another approach uses time as the difference. When areas are rezoned randomly at different times, one can compare neighborhoods before and after the rezoning. Finally, another method is to use a statistical algorithm to match upzoned parcels to similar non-upzoned parcels elsewhere in the city.[1]
With this in mind, we now turn to the findings.
Upzoning in Seattle (left) and rezoning in São Paulo (right). Source: Krimmel and Wang 2023) and Anagol et al. (2023). Note: “BAR” is Building Area Ratio (same as Floor Area Ratio).
Upzonings Around the World
New York
New York City, under Mayor Michael Bloomberg, from 2004 to 2013 rezoned nearly 40% of the city’s residential land. Central areas of Manhattan, Brooklyn, and western Queens, which had underutilized industrial sites, waterfront blocks, and transit-accessible neighborhoods, were upzoned by increasing the maximum allowable FAR for residential use.
Hsi-Ling Liao, in her 2023 paper, “The Effect of Rezoning on Local Housing Supply and Demand: Evidence from New York City,” compares upzoned parcels to those that were not upzoned but were within 1000 feet (305 m) of the boundary. She concludes that in the upzoned districts, “…the number of residential units increased by more than 4 percent seven years after upzoning. The parcels that are more intensively treated and receive a stronger boost in allowed residential capacity experience an 8 percent increase in housing supply.”
A very similar study was conducted by Xuequan Elsie Peng in her 2023 paper, “The Dynamics of Urban Development: Evidence from Land Use Reform in New York.” She compares the new housing units in the upzoned blocks to those that are within 650 meters away (0.4 miles). Her findings echo those of Liao’s—in the upzoned areas after six years, the number of units increased by about 4%, while after 12 years, the number of units increased by about 8%, relative to the blocks that were not upzoned.
Peng also studies treatment intensities by investigating if more generous FAR allowances lead to more housing. She finds that in the low upzoning case (FAR increases of less than 30%), there was about 2% more housing, on average, after ten years relative to the non-upzoned blocks. In the high upzoning case (FAR increases greater than 92%), she finds that these neighborhoods added about 8% more housing, on average, after ten years than non-treated blocks.
After matching upzoned parcels to similar non-upzoned ones, Dong concludes that upzoned parcels were about two times more likely to be developed fifteen years after upzoning and that “further analysis suggests that the 111 upzoned parcels produced 240 dwelling on 33.8 acres of land. The density is 7.1 units per acre. The fifty-eight control parcels produced eight dwelling units on 18.6 acres of land. The density is 4.3 units per acre. These findings suggest that upzoning not only sped up housing developments but also increased housing production.”
Seattle
Jacob Krimmel and Betty Wang study the case of rezonings in Seattle in their 2023 paper, “Upzoning with Strings Attached: Evidence from Seattle’s Affordable Housing Mandate.” Unlike New York and Portland, Seattle took a different approach. In 2019, select neighborhoods were upzoned to allow more floor area, but this benefit came with a “tax”—a mandatory housing affordability (MHA) requirement for developers to either include affordable units or pay into a fund for the city to spend on affordable units elsewhere. The authors write, “The reform combines two policy levers that some economists consider to conflict with one another: Increasing development capacity through upzoning and requiring private development to create income-restricted affordable housing.”
The MHA areas were applied to areas already zoned for multifamily, commercial, or high-density single-family homes (such as townhouses). However, the upzoning was relatively mild, amounting to one additional floor than otherwise, on average. Comparing blocks that were in MHA areas to those that had no change, they conclude that the program, in fact, backfired in that it drove new construction away from the MHA areas. They find
strong evidence of developers strategically siting projects away from MHA-zoned plots – despite their upzoning – and instead to nearby blocks and parcels not subject to the program’s affordability requirements. The differential reduction from MHA to non-MHA zones could be as large as 70% of average permitting activity at the border.
They further find that:
Worryingly, most of the drop in the number of units in MHA zones is coming from the multifamily segment of the market, where most of the housing products are 3- and 4-story townhouses and duplexes. This is of particular note because lowrise and small multifamily homes are seen as a more affordable alternative to luxury apartments for low- and moderate-income renters.
The rezonings involved two types of changes. The first was an increase in the allowable FAR, which in 2013 amounted to 17%, on average, while the 2015 rules increased the FAR from before 2013 to 33%, on average. Additionally, in both years, rules on on-site parking were made less stringent, allowing developers to provide fewer spots.
Freemark first compares parcels upzoned in 2013 to those left unzoned but were later upzoned in 2015. He then compares the parcels upzoned in 2015 to neighboring blocks just outside. For the 2013 upzonings, Freemark does not find evidence that they led to an increase in housing supply, as measured by new building permits.
However, this finding is likely due to three factors. First, the upzonings applied to both high- and low-income areas. Upzoning low-income areas is less likely to be effective if the income there is not high enough to compensate for the cost of new construction. Second, the period of investigation was from late-2013 to late-2015, a very short period to analyze the impacts of upzoning. Lastly, the average upzoning of 17% was rather small to have a meaningful impact, as other studies have shown.
However, in his analysis of the impact of the more generous 2015 upzonings, he finds (weak) evidence that the combined relaxation of parking and FAR rules increased the number of residential building permits in the nearly-three-year period after the rules changed (about 25 more permits in the upzoned areas versus the non-upzoned areas between September 2015 and June 2018).
Zurich
In their 2023 paper, “Making Housing Affordable? The Local Effects of Relaxing Land-Use Regulation,” Simon Büchler and Elena Lutz investigate the Canton of Zurich in Switzerland from 1995 to 2020. The canton contains 168 municipalities with a population of 1.52 million. Each municipality separately undertakes rezoning approximately every 15 years.
The authors exploit the independent and random timing of the rezonings to explore how increases in the FAR before and after the rezonings impact housing construction in 100-meter (328 feet) by 100-meter grid cells. For each cell, they measure the total floor area in five-year intervals and then track when the upzonings occurred. Thus, the treatment is the cell after upzoning, and the control is the cell before upzoning.
Their conclusion: “We find that large upzonings of more than 50% significantly increase the living space and housing units by 9-18% on upzoned parcels compared to non-treated parcels in the subsequent six to 15 years….In contrast, small upzonings, of 0-50%, do not incite a strong reaction from developers.”
Auckland
In their 2023 paper, “The Impact of Upzoning on Housing Construction in Auckland,” Ryan Greenaway-McGrevy and Peter Phillips study upzoning in Auckland, the largest city in New Zealand, with about 1.57 million residents. In 2016, the metropolis upzoned nearly three-quarters of its residential land.
The authors’ approach is to look at new building permits inside the upzoned areas versus those just outside. Studying the relative changes in annual building permits issued for new dwelling units, they conclude,
The response to the zoning change is immediate: The estimated treatment effects increase every year after implementation. By 2021, five years after the policy was introduced, some 23.06 additional permits are issued, on average, in upzoned areas compared to non-upzoned areas in each of the 479 Sas [Statistical areas, similar to census tracts]. This would correspond to 11,044 permits across the city. Cumulating the corresponding figures for 2016 through 2021 yields 34,614 additional permits in upzoned areas compared to non-upzoned areas. Treatment effects for attached dwellings exceed detached from 2019 onwards. By 2021, the estimated treatment effect for attached is 17.96 permits, while for detached it is 5.09.
São Paulo
Finally, in their 2023 paper, “Estimating the Economic Value of Zoning Reform,” Santosh Anagol, Fernando Ferreira, and Jonah Rexer study the case of São Paulo, the world’s fourth largest city, with 21 million residents in its metro area. The city undertook a rezoning in 2016. Similar to the other studies, they explore how raising the Floor Area Ratio—what they call the Built Area Ratio (BAR)—impacted new construction. On average, they found that the upzoning increased the allowable BAR by 36%, and more than half the city’s blocks received an increase.
The authors explore new housing permitting in upzoned blocks compared to non-upzoned blocks on the other side of the border. Their conclusion:
We find that the 1.4-point max BAR increase at the cut-off causes an increase of .003 multi-family dwelling permits filed per block per quarter, which is a sixty six percent increase in permits per unit of max BAR in treated relative to nearby control blocks. The differences in permitting activity between treatment and control blocks emerge just one year after the zoning reform was passed and increase thereafter, which is plausible given the time it likely takes for developers to create project plans, acquire land, and so on.
Upzoning and Housing Prices
Several studies also look at the impact of upzonings on real estate prices. Here the findings are mixed. However, interpreting price impacts is more complex. When rezonings occur, several processes are at work. The first is that upzoned parcel has the future opportunity—the so-called option value—to be redeveloped more densely and generate more revenue. A forward-looking market naturally means that upzoned parcels will sell at a premium, even if there is no redevelopment in the short run.
Second, upzoned neighborhoods typically mean more density, which means more Starbucks and other urban amenities, which raises local housing prices. There’s also the possibility of the opposite effect, where density causes more traffic congestion, street noise, crime, or trash—a so-called negative amenity effect—which will reduce prices (however, I sense is this is less of an issue today).
Then there is the supply effect: more housing will reduce prices, all else equal. However, when upzonings are small and take a long time to yield fruit, the supply effect may be swamped by the option value and amenity benefits.
The Findings
Liao’s study of New York City looks at the sale prices of buildings built before 2004 and thus excludes any buildings completed after the rezonings. She finds no statistically significant changes in housing prices in the upzoned areas, suggesting that the supply effect balanced out the amenity and option value effect.
Freemark’s study of Chicago found that after the upzonings in 2013, density bonuses increased prices by about 16%, on average, vis a vis the non-upzoned parcels. But focusing on location, he finds that the result was likely driven by price rises only in Downtown, with no increases in other neighborhoods. And zooming in only on condo sales, he finds that prices increased by 12%, on average. Since the period of his analysis was short, it suggests that Downtown condo buyers had higher expectations for their neighborhood that showed up quickly in the sale prices but were not offset by more supply.
Büchler and Lutz’s study of Zurich looks at average rental listing prices. They found that rental prices in upzoned cells typically saw no price changes over time. Again, the supply effects of lower rents were evidently matched by the amenities benefit.
Anagol et al. look at neighborhood housing prices for São Paulo and find that areas with larger BAR increases had greater increases in the number of home sale listings, where a 1-point increase in the maximum BAR was associated with a 10.9% increase in listings growth, on average. And just as importantly, with more listings and supply, they found that each one-point increase in maximum allowable BAR was associated with a 5.7 percentage point reduction in home prices.
All told, these studies suggest that price impacts hang in the balance between the different supply and demand forces, but they also demonstrate that price increases are not a foregone conclusion.
Upzoning Effects: Each graph shows the rise in housing supply after upzonings (on the right half of each graph). Upper left: Büchler and Lutz (2023) for Zurich, middle left: Peng (2023) for NYC, upper right: Liao (2023) for NYC, bottom right: Anagol et al. (2023) for São Paulo, bottom left from Greenaway-McGrevy and Phillips (2023) for Auckland.
Does Upzoning Work?
This research shows that, yes, upzoning works. Of the seven studies reviewed here (excluding the Krimmel and Wang study), all but one found a statistically significant uptick in new housing permits, completed units, or residential floor areas after upzonings—and because of the upzonings.
But, of course, there are nuances and caveats. The studies reveal that the units materialize only after several years, and their impacts are relatively modest. But they do show that if strategically managed, upzonings can be effective.
What are the key lessons from these studies?
Scale
The first is that scale matters—the greater the allowable floor area increases, the greater the impact the upzoning will have. For example, Liao and Peng found that small FAR increases yielded much less housing for New York than larger FAR increases. Büchler and Lutz found no effect in the Canton of Zurich for upzoning of less than 50% but saw about a 10% increase after ten years for large upzonings. In Chicago, upzonings of 33% seemed more effective than of 17%. And Krimmel and Wang show that mild upzonings with additional costs can backfire by diverting construction away from these areas.
Scope and Location
While these studies do not directly investigate the amount of total upzoning versus total new supply, the evidence suggests that broader is better because of housing supply’s connection with demand. In central neighborhoods, a new high-rise can trigger an upward price spiral because of the national or international demand.
Outside of the center, where demand is more tempered, and land values are lower, new supply will be more easily felt because the new tenants are less likely to trigger an upward price cycle. On the other hand, in locations where the cost of new construction is too high relative to the expected rents or incomes, upzonings may have little effect. Districts with high owner-occupied and single-family homes will likely also see slower impacts because redevelopment can only occur once owners decide to move, which can take several years.
These studies focus only on upzonings. But many cities downzoned some neighborhoods simultaneously with their upzonings. As a result, rezonings can wind up shifting supply rather than boosting it citywide. And if rezonings push construction from the periphery to the center, price relief may not result.
An Affordable Future
Upzoning is necessary for a healthy city to grow and accommodate more residents, but it is not sufficient to solve the affordability problem. Older, denser cities still have a host of other barriers or frictions that make new construction difficult and slow, particularly in neighborhoods where it’s needed most.
Parcels must be assembled, buildings must be emptied, and other building regulations must still be followed—producing a steep mountain to climb.
Greasing the Wheels
In other blog posts, I have discussed steps that cities can take, but let me highlight a few that can help grease the wheels:
Link upzonings to neighborhood housing vacancy rates. The lower the vacancy rates, the more generous the increases in the FAR. This will ensure that upzoning is applied where it’s needed most.
Construction subsidies should be the greatest in the middle- and moderate-income neighborhoods. Abundant affordable housing comes from the construction of middle-income housing outside the center. Lower-income residents will gain through the so-called filtering process, where the older housing becomes more affordable, and people move into the new middle-income housing.
Homeowners should have much more flexibility to add Accessory Dwelling Units (ADUs), such as converting a garage to an apartment, adding a “granny flat” in the yard, or subdividing their house to add an apartment. These new units, which don’t require demolitions or evictions, are a relatively easy way to provide affordable units and generate extra income for homeowners in the suburbs.
A land value insurance program can insure homeowners against reduced land values if rezonings should cause neighborhoods to become less valuable. This will reduce (though not eliminate) NIMBYism since residents have some economic protection against change.
Leadership
The real problem of housing affordability, however, is not economics, it’s politics. Upzonings are contentious because people see them as generating higher housing prices and bringing changes to their neighborhoods. As a result, they elect leaders who either enact NIMBY policies or merely tiptoe through the garden of affordability.
True affordable housing comes from expansive citywide policies. The only way to do this is for leaders to form coalitions, seek compromise, create carrot-and-stick programs, and compensate those harmed to prevent them from stopping reforms.
Our cities cannot afford the delay.
Works Discussed
Anagol, S., Ferreira, F. V., and Rexer, J. M. (2023). “Estimating the Economic Value of Zoning Reform.” National Bureau of Economic Research, Working Paper No. w29440.
Büchler, S., and Lutz, E. C. (2023). “The Local Effects of Relaxing Land Use Regulation on Housing Supply and Rents.” Working Paper (July).
Dong, H. (2021). “Exploring the Impacts of Zoning and Upzoning on Housing Development: A Quasi-experimental Analysis at the Parcel Level. Journal of Planning Education and Research.
Freemark, Y. (2020). “Upzoning Chicago: Impacts of a Zoning Reform on Property Values and Housing Construction.” Urban Affairs Review, 56(3), 758-789.
Greenaway-McGrevy, R., and Phillips, P. C. (2023). “The Impact of Zoning on Housing Construction in Auckland.” Journal of Urban Economics, 136, 103555.
Krimmel, J. and Wang, B. X. (2023). “Upzoning With Strings Attached: Evidence from Seattle’s Affordable Housing Mandate.” Working Paper (July) and summary in Cityscape (2023).
Peng, X. E. (2023). “The Dynamics of Urban Development: Evidence from Land Use Reform in New York.” Job Market Paper (January).
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[1] The matching method used by Dong is called propensity score matching. The rest of the papers used what is called Difference-in-Difference (DiD) regressions.
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.
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.
