The Economics of The Economics of Skyscrapers: New York CitySkyscrapers: New York City

Urban EconomicsUrban Economics

Prof. BarrProf. Barr

Land Value ModelLand Value Model Profits for corporate firms:Profits for corporate firms:

ππ=PQ-AQ-C-sQd-R(d),=PQ-AQ-C-sQd-R(d),

which yields rent equation via zero profit condition:which yields rent equation via zero profit condition:

R(s)=(PQ-AQ-C-sQd),R(s)=(PQ-AQ-C-sQd),

where s is “cost of travel” for office workers (i.e., cost of walking/traveling where s is “cost of travel” for office workers (i.e., cost of walking/traveling to/from clients)to/from clients)

Bid Rent

Distance from center

Office sector

Manu. sector

Residential

Model cont.Model cont.

This says that rent per acre is function:This says that rent per acre is function:– Distance from centerDistance from center– RevenuesRevenues– CostsCosts– WagesWages

Competition among firms distributes land Competition among firms distributes land according to those who can and must pay the according to those who can and must pay the most for it:most for it:

i.e., land values and land use represent an i.e., land values and land use represent an process of economic evolution.process of economic evolution.

Steepest rents at the center.Steepest rents at the center.

NYC in the 19NYC in the 19thth c. c.• Rising commercial activity, esp. from 1825 Rising commercial activity, esp. from 1825

onwards (Erie Canal) and center of global trading.onwards (Erie Canal) and center of global trading.• More and more firms competing for same space.More and more firms competing for same space.• Rising population growth.Rising population growth.• Increasing corporate and administrative activities.Increasing corporate and administrative activities.• Manhattan is an island, with limited possibilities for Manhattan is an island, with limited possibilities for

commercial expansion.commercial expansion.• (1865: 44(1865: 44thth street northern-most development; street northern-most development;

1883: The Dakota (W. 721883: The Dakota (W. 72ndnd Street) was ‘in the Street) was ‘in the Dakotas’)Dakotas’)

City of New York (does not include Brooklyn)

Population%

Change

1790 33,131

1800 60,515 83%

1810 96,373 59%

1820 123,706 28%

1830 202,589 64%

1840 312,710 54%

1850 515,547 65%

1860 813,669 58%

1870 942,292 16%

1880 1,206,299 28%

1890 1,515,301 26%

NYC cont.NYC cont.

Increasing competition:Increasing competition:– Bids up value of land due to more profits of larger firms.Bids up value of land due to more profits of larger firms.– Large opportunity costs of travel for workers.Large opportunity costs of travel for workers.– More agglomeration economies.More agglomeration economies.– Greater need for face-to-face communications.Greater need for face-to-face communications.

Generates economic need for density and Generates economic need for density and economic demand for density.economic demand for density.

Rising land values drive technological innovations Rising land values drive technological innovations that could enable more intensive use of existing that could enable more intensive use of existing land.land.

The skyscraper!The skyscraper!

1811 Grid Plan1811 Grid Plan

In 1811 NYC land arranged according to the grid plan.In 1811 NYC land arranged according to the grid plan. Basic lot sizes were fixed at 25’ x 100’.Basic lot sizes were fixed at 25’ x 100’. Avenues and streets were either north/south or east/west.Avenues and streets were either north/south or east/west. Plan was designed to ‘rationalize’ development (e.g. Plan was designed to ‘rationalize’ development (e.g.

contrast Wall Street area with north of 14contrast Wall Street area with north of 14thth street) street) The effect was to aid business growth:The effect was to aid business growth:

– Real estate was made simple and easy to value.Real estate was made simple and easy to value.– Made lots a type of tradable commodity.Made lots a type of tradable commodity.– Gave clear property rights demarcations.Gave clear property rights demarcations.– Notice that is also made assemblage of large lots relatively difficult Notice that is also made assemblage of large lots relatively difficult

(also giving an incentive to build tall on smaller lots)(also giving an incentive to build tall on smaller lots)

Manhattan SchistManhattan Schist

• Unlike many geographies, in downtown Unlike many geographies, in downtown Manhattan bedrock is very close to the Manhattan bedrock is very close to the surface. surface.

• Bedrock is stable.Bedrock is stable.

• As a result, costs of digging and laying As a result, costs of digging and laying foundation are relatively low.foundation are relatively low.

• No need for caissons.No need for caissons.

Transportation Innovations and the Transportation Innovations and the Rise of NYC CBDRise of NYC CBD

Before 1815: NYC was a walking city.Before 1815: NYC was a walking city. Steam ferry service (Robert Fulton, 1817)Steam ferry service (Robert Fulton, 1817) Horse driven buses (omnibuses) (1820s-Horse driven buses (omnibuses) (1820s-

1840s)1840s) Horse driven buses on tracks (1850s-1880s)Horse driven buses on tracks (1850s-1880s) Electric Trolleys (1885-1920s)Electric Trolleys (1885-1920s) Commuter Railroads (1837)Commuter Railroads (1837) NYC Subway (1904)NYC Subway (1904)

Technological Innovations and the Technological Innovations and the SkyscraperSkyscraper

Iron and Steel Skeleton (1850s-1860s). Iron and Steel Skeleton (1850s-1860s). – Before that supporting walls were stone and brick. Too Before that supporting walls were stone and brick. Too

expensive to build high b.c. needed thicker and thicker expensive to build high b.c. needed thicker and thicker base walls.base walls.

– 1855: Bessemer Steel process 1855: Bessemer Steel process

The ElevatorThe Elevator– Elisha Otis of Yonkers, NY developed safety break in Elisha Otis of Yonkers, NY developed safety break in

1851 (demonstrated at New York's Crystal Palace 1851 (demonstrated at New York's Crystal Palace exhibition).exhibition).

– 1871: Hydraulic elevator replaces steam.1871: Hydraulic elevator replaces steam.

Skyscraper Technology cont.Skyscraper Technology cont.

Heating and Cooling technologyHeating and Cooling technology– Steam and hot water systems were developed in 19Steam and hot water systems were developed in 19thth c. c.

Wind-bracing technology.Wind-bracing technology. Artificial LightArtificial Light

– Edison laid electric lights in downtown NYC in 1871.Edison laid electric lights in downtown NYC in 1871.– 1938s fluorescent light bulbs on market.1938s fluorescent light bulbs on market.

Steam powered construction tools Steam powered construction tools – cranes, shovels, etc.cranes, shovels, etc.

Skyscraper Early Time LineSkyscraper Early Time Line

1871: Great Fire of Chicago destroys downtown (The 1871: Great Fire of Chicago destroys downtown (The Loop).Loop).

1885: First Skyscraper, 10 story Home Insurance Building 1885: First Skyscraper, 10 story Home Insurance Building in Chicago.in Chicago.

1890: World Building Joseph Pulitzer's 1890: World Building Joseph Pulitzer's New YorkNew York World World (Newspaper row, 26 stories, first building in NYC to (Newspaper row, 26 stories, first building in NYC to surpass 284’ spire of Trinity Church) surpass 284’ spire of Trinity Church)

1902: Flatiron Building 1902: Flatiron Building 1913: Woolworth Building (“Cathedral of Commerce”)1913: Woolworth Building (“Cathedral of Commerce”) 1915: 42-story Equitable Building.1915: 42-story Equitable Building. 1916: NYC Zoning Laws1916: NYC Zoning Laws

Skyscraper Timeline Cont.Skyscraper Timeline Cont.

1929: Chrysler Building1929: Chrysler Building 1930: Empire State Building1930: Empire State Building 1952: The Lever House1952: The Lever House 1961: New Zoning Resolution 1961: New Zoning Resolution 1973: World Trade Center (Port Authority)1973: World Trade Center (Port Authority)

How High to Build?How High to Build?

Key difference between Key difference between engineering heightengineering height and and economic heighteconomic height..

There is virtually no engineering limit to height.There is virtually no engineering limit to height. Economic height reflects the maximum height (and Economic height reflects the maximum height (and

square footage) that generates the highest net square footage) that generates the highest net return on the investment.return on the investment.

Economic height reflects various costs to Economic height reflects various costs to purchasing land, building and operating the purchasing land, building and operating the structure.structure.

Economic CostsEconomic Costs

At some point (for floor height) the law of marginal At some point (for floor height) the law of marginal diminishing returns starts to kick in (i.e., additional diminishing returns starts to kick in (i.e., additional market rents do not cover additional costs):market rents do not cover additional costs):

Taller buildings need:Taller buildings need:– Heavier foundations.Heavier foundations.– Extra wind bracing.Extra wind bracing.– More space for elevators.More space for elevators.– More and larger mechanical systems for ventilation and More and larger mechanical systems for ventilation and

heating.heating.

1916 Zoning Law1916 Zoning Law

Was first comprehensive zoning law in the Was first comprehensive zoning law in the country.country.

Stated where different economic activity Stated where different economic activity could take place in the city (i.e., zones).could take place in the city (i.e., zones).

Did not restrict height Did not restrict height per seper se: : – Rules for how much of a lot could be used for Rules for how much of a lot could be used for

the building (e.g., 25% had no restrictions).the building (e.g., 25% had no restrictions).– Introduced ‘set back’ rules based on width of Introduced ‘set back’ rules based on width of

street.street.

Skyscraper EpochsSkyscraper Epochs

Though architects have discussed different Though architects have discussed different aesthetic styles that have evolved over the aesthetic styles that have evolved over the years, this discussion cannot take place years, this discussion cannot take place without also mentioning the larger without also mentioning the larger economic, technological and political forces economic, technological and political forces at work: “form follows finance.”at work: “form follows finance.”

Skyscraper EpochsSkyscraper Epochs

Period 1: 1890-1916Period 1: 1890-1916– Tended to take up whole lot.Tended to take up whole lot.– Occasionally had towers.Occasionally had towers.– e.g., Equity Building, Singer Building, e.g., Equity Building, Singer Building,

Woolworth Building.Woolworth Building.– Arrangement of office space and building based Arrangement of office space and building based

on need to maximize exposure to sun light.on need to maximize exposure to sun light.– 20-30 stories were profit maximizing.20-30 stories were profit maximizing.

Epochs cont.Epochs cont.

1916-WWII1916-WWII– 1916 zoning created ‘wedding cake’ style.1916 zoning created ‘wedding cake’ style.– 1920’s (“The Roaring Twenties”) saw a massive 1920’s (“The Roaring Twenties”) saw a massive

speculative and building frenzy.speculative and building frenzy.– Result: Race to the heavens.Result: Race to the heavens.– e.g. Chrysler vs. 40 Wall.e.g. Chrysler vs. 40 Wall.– Empire State BuildingEmpire State Building– Art Deco style.Art Deco style.– Depression and WWII put ‘kaybash’ on skyscraper Depression and WWII put ‘kaybash’ on skyscraper

market.market.

Epochs cont.Epochs cont.

Post WWII – 1970sPost WWII – 1970s– The International StyleThe International Style– e.g. 1952: The Lever House (Skidmore, Owings & e.g. 1952: The Lever House (Skidmore, Owings &

Merrill), 1958 The Seagrams Building (Ludwig Mies van Merrill), 1958 The Seagrams Building (Ludwig Mies van der Rohe and Philip Johnson der Rohe and Philip Johnson

– Glass boxes were not only in vogue but were more Glass boxes were not only in vogue but were more profitable:profitable: Class less expensive than stone.Class less expensive than stone. A/C and florescent lighting allowed wide open (more rentable) A/C and florescent lighting allowed wide open (more rentable)

space.space.

– 1961 Zoning Resolution promoted the style.1961 Zoning Resolution promoted the style.

1961 Zoning Resolution1961 Zoning Resolution(from (from NYC Zoning HandbookNYC Zoning Handbook))

““Incentive zoning" offered a bonus of extra floor space to Incentive zoning" offered a bonus of extra floor space to encourage developers of office buildings and apartment encourage developers of office buildings and apartment towers to include plazas in their projects. towers to include plazas in their projects.

Emphasized the creation of open space. A flexible Emphasized the creation of open space. A flexible document, it was a product of the best planning, economic document, it was a product of the best planning, economic and architectural skills of its time (and architectural skills of its time (nbnb: “we’re sorry, we : “we’re sorry, we made a mistake”). made a mistake”).

““Resulted in tall buildings out of scale with their Resulted in tall buildings out of scale with their neighborhoods. And the open space provided has not neighborhoods. And the open space provided has not always been particularly useful or attractive.” always been particularly useful or attractive.”

New approaches since 1961: incentive zoning, contextual New approaches since 1961: incentive zoning, contextual zoning, special district, air-rights transfer and restrictive zoning, special district, air-rights transfer and restrictive covenant techniques have been used to make zoning a covenant techniques have been used to make zoning a more responsive and sensitive planning tool. more responsive and sensitive planning tool.

Epochs cont.Epochs cont.

1970s – Present1970s – Present– PoMo and BeyondPoMo and Beyond– e.g. Philip Johnson’s AT&T Building and “The e.g. Philip Johnson’s AT&T Building and “The

Lipstick” BuildingLipstick” Building– The Freedom Tower, 1776 feet tall.The Freedom Tower, 1776 feet tall.– ““Asian Tigers” take lead in world’s tallest Asian Tigers” take lead in world’s tallest

building.building.– 60-70 max. economic height.60-70 max. economic height.

0

10

20

30

1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995

Avg. Number of Skyscrapers >100m built, 1895-2004

5 year MA

100

120

140

160

180

200

220

1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995

Avg. Height of Skyscrapers Above 100m (1995-2004)

Year

WWI1917-1919

WWII1940-1945

Great Depression1929-1939

NYC Fiscal Crises, 1975

1979 Oil Crises

1992 Recess-ion

10 year MA

0

200

400

600

800

1880 1900 1920 1940 1960 1980 2000 2020

Height of World's Tallest Skyscrapers Over Time, 1889-2007(meters)

Dubai

Taipei 101

Sears

WTC 1

Empire State

Chrysler

40 Wall

Petronas

Woolw orth

Met. Life

Singer

Park RowManhattan Life

World Build.

Home Insur.

Year

y=-7449+4x

0%

4%

8%

12%

2.7

2.9

3.0

3.2

3.3

3.5

3.7

3.8

4.0

4.1

4.3

4.4

4.6

4.7

4.9

5.0

5.2

5.3

5.5

5.6

5.8

5.9

Mor

e

Historgram: Meters per Floor Heightfor Skyscrapers in NYC 1895-2004

Mean=3.83St. Dev.=0.6

ReferencesReferences

Gottman, J. (1965). “Why the Skyscraper?” Gottman, J. (1965). “Why the Skyscraper?” The Geographical ReviewThe Geographical Review..

Landau, S. B. and Condit (1996). Landau, S. B. and Condit (1996). Rise of the Rise of the NY Skyscraper: 1865-1913.NY Skyscraper: 1865-1913.

Willis, C. (1996). Willis, C. (1996). Form Follows Function: Form Follows Function: Skyscrapers and Skylines in New York and Skyscrapers and Skylines in New York and Chicago. Chicago.