Why Aren’t Cities Taller?

Urban economics studies the spatial distribution of activity. In most urban econ models, the reason that cities aren’t taller is that, per square meter of useable space, taller buildings cost more to physically make. (Supporting quotes below.) According to this usual theory, buildings only get taller when something else compensates for these costs, like a scarce ocean view, or higher status or land prices.

Knowing this, and wondering how tall future cities might get, I went looking for data on just how fast building cost rises with height. And I was surprised to learn: within most of the usual range, taller buildings cost less per square meter to build. For example, for office buildings across 26 US cities, 11-20 stories tend to be cheaper than 5-10 stories, which are cheaper than 2-4 stories (quote below). I also found data on two sets of Chinese residential buildings. Here is cost to build per square meter (on Y axis) vs. height in meters (on X axis) for 24 buildings 3 to 39 stories tall, built in Hong Kong in the early 1990s:

HongKongBuildingGraph

Here are 36 buildings 2 to 37 stories tall, built in Shanghai between 2000 and 2007:

ShnghaiBuildingGraph

The Shanghai buildings don’t get more expensive till after about 20 stories, while Hong Kong buildings are still cheap at 40 stories.

Now I have no doubt that some elements of cost, like structural mass, rise with height, and that there is some height where such costs dominate. But since there are scale economies in making bigger buildings, it isn’t obvious theoretically where rising structure costs overwhelm scale economies.

Perhaps the above figures are misleading somehow. But we know that taking land prices, higher status, and better views into account would push for even taller buildings. And a big part of higher costs for heights that are rarely used could just be from less local experience with such heights. So why aren’t most buildings at least 20 stories tall?

Perhaps tall buildings have only been cheaper recently. But the Hong Kong data is from twenty years ago, and most buildings made in the last years are not at least 20 stories tall. In fact, in Manhattan new residential buildings have actually gotten shorter. Perhaps capital markets fail to concentrate enough capital in builders’ hands to enable big buildings. But this seems hard to believe.

Perhaps trying to build high makes you a magnet for litigation, envy, and corrupt regulators. Your ambition suggests that you have deeper pockets to tax, and other tall buildings nearby that would lose status and local market share have many ways to veto you. Maybe since most tall buildings are prevented local builders have less experience with them, and thus have higher costs to make them. And many few local builders are up to the task, so they have market power to demand higher prices.

Maybe local governments usually can’t coordinate well to build supporting infrastructure, like roads, schools, power, sewers, etc., to match taller buildings. So they veto them instead. Or maybe local non-property-owning voters believe that more tall buildings will hurt them personally. (The big city nearest me actually has a law against buildings over 40 meters tall.)

Note that most of these explanations are variations on the same theme: local governments fail to coordinate to enable tall buildings. Which is in fact my favored explanation. City density, and hence city size, is mainly limited by the abilities of the conflicting elements that influence local governments to coordinate to enable taller buildings.

Remember those futurist images of dense tall cities scraping the skies? The engineers have done their job to make it possible. It is politics that isn’t yet up to the task.

Those promised quotes:On urban econ models:

The concavity in housing production means that the cost of building an additional floor increase with the height of the building. This is because of structural reinforcements and space lost to staircases, elevators and other infrastructure. (more)

Housing services are produced with land and capital according to a Cobb-Douglas production function with constant returns to scale, H = K1-a La, where K stands for capital and L stands for land. (more)

On US office building heights:

For the most common office building size, two to four stories tall, the range [over 26 US cities] is from just over $130 per square foot in Winston-Salem to over $230 per square foot in New York. The spread here is largely due to the local cost of labor and regulations that allow various construction types that are allowed in low rise construction. … You will see approximately a 4% savings in cost per square foot by increasing the stories to between five and ten stories. While one might expect a larger savings for that economy of scale, several new requirements come with the mid-rise building that are often not dealt with on the low rise buildings. For example, elevator shafts and service corridors get more complicated as well as HVAC systems. … For buildings between eleven and twenty stories tall, there is approximately an 11% savings over the mid rise buildings and 15% over low rise. This is largely due to the fact that similar elevator, HVAC and service equipment requirements are required for mid and high rise, resulting in more economy of scale for going up. (more)

On Chinese residential building heights:

All the [24 Hong Kong] projects were public sector housing developments and the framing systems were reinforced in situ concrete. The data are taken from bills of quantities obtained from a firm of construction cost consultants for projects constructed over a four year period in the early 1990s. (more)

36 [Shanghai] residential buildings, ranging from 2 to 37 storeys, were analysed. They were completed between 2000 and 2007. (more)

On regulation raising building costs:

My work with Joseph Gyourko and Raven Saks suggests that perhaps one-half of the cost of a Manhattan condominium can be understood as the price of land-use regulation.

In practice, complying with the regulatory environments of cities large enough to support STTs [= super-tall towers], is a time-consuming process that contributes to extending the duration of STT development and can result in significant sunk costs. [Such] costs add to the development programme and budget, impacting on com- mercial viability. In established metropolitan areas such as Manhattan, [such] costs can account for 50% of the cost of residential property. … Managing the large number of stakeholders and their expectations over the extended duration is a key project governance issue for STT development. The technical challenges arising in the design and construction of STTs are distinct from those of more common building types. The impact of dealing with these is a contributing factor to build costs and programme duration. (more)

On residents valuing taller buildings more:

We find that Dutch firms are willing to pay on average about 4 percent more for a building that is 10 meters taller, so there is a substantial premium associated with tall buildings. This premium is thought to be due to a combination of a within-building agglomeration, a landmark and a view effect. Given functional form assumptions on the agglomeration effect, the results suggest that the sum of the landmark and view effect is about 2.8-5.5 percent of the rent for a building that is 5 times the average height. (more)

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  • Alyssa Vance

    Simple: building tall is illegal, it’s against zoning regulations. Even in Houston, which nominally has “no zoning”, there are still lots of rules making tall buildings impractical, like requiring two free parking spaces per apartment.

    • http://overcomingbias.com RobinHanson

      That counts as failing to enable taller buildings.

      • IMASBA

        Why can’t it be failure of the proponents of skyscrapers to meet the demands of the local population? Tall cities tend to concentrate a existing population into a smaller area (you can build more appartments but not more parks, gardens and roads) so essentially you’re asking people to give up space for more income. Perhaps the extra income that is offered doesn’t meet the price the local population puts on having space (or there is enough extra income to be had but it is too unlikely to go to the local population). Zoning regulations are a way for the local population to band together in putting a high price on their space and nationwide zoning policy can be an instrument of governments to keep housing affordable (by forcing employers to spread out).

      • http://entitledtoanopinion.wordpress.com TGGP

        “so essentially you’re asking people to give up space for more income”

        No, the opposite! You yourself said zoning forces a “spread out”, that means taking up more (horizontal) space that could be used for parks, roads, etc! If you want more space devoted to unstackable public areas, that necessitates that you shift developed infrastructure upward.

        “Why can’t it be failure of the proponents of skyscrapers to meet the demands of the local population?”
        Because then the demands would be in the form of something other than a restriction on height! It’s an absolutely terrible tool to respond to the complaints you’ve brought up. Taxing the valuable real estate unlocked by allowing upward development would result in FAR less deadweight loss.

      • IMASBA

        “No, the opposite! You yourself said zoning forces a “spread out”, that means taking up more (horizontal) space that could be used for parks, roads, etc!”

        I think you misinterpreted what I meant by “spread out”. The conversion of several office blocks into one skyscraper does indeed create more space for roads and parks but that’s not the issue, the issue is that the extra space usually doesn’t go towards roads or parks, it goes towards more offices and homes: the skyscraper allows the city to become more densily populated, with less roads, and that’s what tends to happen. If you do keep the extra space open through regulations you’ll see an increase in real estate priceswith more people being squeezed in the same homes. Building tall buildings in cities is like adding mass to a black hole: everything surrounding the tall buildings tends to get sucked in, the host nation minus the city may definitely see an increase in space (the area of the city may become smaller), but the people in the city are squeezed together and actually experience less living space.

      • http://entitledtoanopinion.wordpress.com TGGP

        What you do with the available space is another issue, but it’s a moot issue if you don’t have the space to begin with because height restrictions have spread buildings all over rather than stacking them.

        If real estate prices (as experienced by individual residents, if not developers) are increasing, that’s a sign that there’s not enough housing stock. How to increase it without taking up space for roads & parks? Taller apartment buildings! I should note, like Yglesias, that when I discuss height restrictions, it is also something of a stand-in for a variety of rules like minimum parking requirements and single-family detached home zoning with minimum yard space that reduce the amount of floor-space for any given unit of real estate. Making parking spaces mandatory leads to more car-ownership & driving, further congesting the roads.

    • Doug

      This article about the skyscraper development process in New York suggests that acquiring “air rights” is the hardest process.

      http://www.nytimes.com/2013/06/09/realestate/new-york-citys-skyscraper-war.html

  • anonym

    Geological constraints in some areas on how much weight the ground will bear?

    • Lord

      Yes, tall buildings need to be built on bedrock and this is partially responsible for the skyline of New York. It can be too difficult and costly to build where the bedrock is too deep.

  • Douglas Knight

    Why do we have the distribution of heights that we do?

    Cities could be taller by having a few skyscrapers, or by having all buildings a little bit taller. All your explanations seem focused on limits to the very highest buildings, and not on why the shortest buildings are so short. But the latter seems more mysterious to me.

    • http://overcomingbias.com RobinHanson

      I ask why most buildings aren’t 20 or more floors. That is mostly a question about short buildings, not about the tallest.

      • Douglas Knight

        There’s more to distribution than the two bins of 20.

        My question, for every western city except Paris, is why are there so many 1 story buildings and so few 5 story buildings.

        All your hypotheses address only total population or the difficulty of the highest buildings (eg, difficulty raising capital, concentration of capital a target), but none of them address why the typical building isn’t slightly taller.

  • Lukas Gessner

    Frankly, among other good answers, one seems quite obvious: taller buildings (10-20 stories) may cost less per square meter than shorter ones, but they still cost more to build overall. And due to a lack of demand for 10-20 story buildings in cities in which these would be among the tallest, and a lack of status for 10-20 story buildings in which these would not making it difficult to charge extra rent to compensate for high construction costs, this gap between the expected normal distribution of building heights and the reality occurs.

    • http://overcomingbias.com RobinHanson

      You don’t need to charge more per square meter to recover the larger costs of a taller building. You can fit in more tenants, so you just change more of them the same amount.

      • Lukas Gessner

        That assumes that the increase in the number of tenants is exactly proportional to the increase in the number of floors; that isn’t always the case. Particularly in smaller cities which may lack tenants big enough to fill 10-20 story buildings, space can go for long periods unrented. My point remains: 10-20 stories seems to be, in a lot of places, either too big or too small.

  • http://twan.home.fmf.nl Twan van Laarhoven

    I have no idea how to read the plots. Label your axes, Robin!

  • Doug

    1) I believe you’re too easily dismissing the difficulty of financing large buildings. A good deal of empirical evidence indicates that tall skyscraper construction is much more pro-cyclical than other construction. Particularly the availability of loose credit leads to much more skyscraper construction (see below). For example you see many mega skyscrapers halt construction during financial crises. This strongly suggests that financial credit is a major constraining factor on tall buildings.

    http://en.wikipedia.org/wiki/Skyscraper_Index

    2) The charts you present look at the average cost of skyscrapers by height, whereas the relevant variable is the marginal cost. The distinction is important. You’ve blogged before about the large disparity of efficiency between the best firms and factories and the worst. I see no reason why it should be any different for construction teams.

    One persistent impression I get from mega-skyscraper construction is that the architecture and construction tends to be much more complex and challenging. It seems most likely that the most talented and efficient architects and builders are focusing on the taller skyscrapers where the returns are higher, but so are the required skill. The mediocre teams focus on shorter buildings, where expected costs is less loaded on builder talent.

    Since a marginal tall skyscraper would involve a mediocre, short-building team, the costs would be much higher. The charts you present show the average among all teams tall building teams, most of whom are likely among the best of the best. This is not the relevant input on the margin.

  • Corp Guy

    Consider that for the last 12+ years, terrorism is a potential exogenous factor which would account for stakeholders’ reluctance to approve or move forward on tall-building projects.

    Consider where the growth in market cap has derived from in the last 20+ years in the domestic economy – high-productivity workplaces (revenue or output/employee) like Microsoft, Google, & Apple, which have traditionally eschewed vertical structures (both physically an organizationally) in favor of a collegial, ‘campus’ model, on the West Coast.

    Consider some of the large financial services firms in New York City who have relocated considerable operational resources (personnel) to low-cost near-shore (literally) locations: Goldman Sachs (Newark), Citi (Long Island City), UBS (Stamford). Not that these one-off optimization exercises necessarily should result in smaller buildings in the aggregate but my point is just around a general thrust towards minimizing occupancy/labor costs, which are an easy thing to rationalize away in an era (last 40+ years) wherein capital is increasingly dominant over labor.

  • MFawful

    Do tenants value space in tall buildings less than short buildings all else equal? I’ve worked in some tall buildings and hated it. You can’t open a window for fresh air, you can’t step outside for a few minutes or (realistically) go outside on your lunchbreak because just getting an elevator and riding it down takes a long time.

    It seems like a lot of corporations are making the move to sprawling campus-like environments rather than skyscrapers. Apple’s sprawling new headquarters is going to be just 4 stories high.

    • Antonio D’souza

      I’m sure tenants would value taller buildings much more if it takes less time to get to them because they are right above subway stations.

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  • informatimago

    A more fundamental problem is to manage physical communications that are basically done in 1 dimension for a cubic number of objects disposed in 3 dimensions. It is already complicated when they are disposed in 2 dimensions! Until you have flying cars, or you are disposed to live basically underground, concentrating 3D buildings is a problem.

  • Lord

    The greatest expense change occurs around 50 stories as hydraulics necessitate separate plumbing over vertical distances much larger than that.

    The taller the building the more space one would want around it for view, light, and air. The last thing anyone would want would be to stare in to the window of the building next door or worse, a blank wall. How many buildings do you see without windows?

    • Doug

      “How many buildings do you see without windows?”

      http://en.wikipedia.org/wiki/33_Thomas_Street

      • Lord

        The others are often art galleries though skylights are often used.

        If you could build something acceptable to people with no openings than a door, perhaps with display walls, uv solariums, air filtration and exchange, it would be quite an innovation but more from cost than preference. Inner cruise ship cabins come to mind.

    • JW Ogden

      One story buildings often look out to building next door.

      • Lord

        Even these usually have one wall facing the street or alley/backyard or atrium, but even those in high rises often have only one wall with windows. Ground floors are usually appropriated for commercial/industrial purposes in cities, and low stories eliminate the need for elevators though are often in the shadow of high rises, so there are a blend of considerations, but humans do need some sun, light, and air.

  • Jon Teets

    There’s an additional constraint in Shanghai. If the building can’t be completed in a year, the developers will have to replace a portion of the laborers, who go back to their hometowns around Chinese New Year and do not return to the project. Hiring, and more importantly the loss of what passes for “institutional knowledge” on construction sites results in delays & re-work, driving up costs.

    Further, developers find it much more difficult to hire highly-skilled labor and management (across a lot of industries, for that matter). in the three months leading up to the holiday as candidates are hanging on to collect their bonuses.

  • IMASBA

    I can think of 3 reasons cities aren’t taller:

    – there has to be an available potential population: a city that already houses 30% of a country’s population (or a city in a country that’s very urbanized) won’t grow bigger easily unless the country has a very liberal immigration policy

    – it’s too easy to say that inability to coordinate the support logistics of a tall city means government failure: the support logistics really are very difficult and simply unaffordable if there aren’t many corporations and rich people willing to pay top dollar/euro/pound/yen for city real estate

    – the local population may oppose tall buildings because they just don’t like to be surrounded by skyscrapers (or the people assicated with skyscrapers) and/or because it would necessitate demolishing entire neighborhoods (many older cities in Europe and Asia would have to be completely rebuild not only to make room for the skyscrapers themselves but also to make the city accessible enough for skyscraper construction and tall city support logistics)

    Also, just because people pay more for a hypothetical 20th floor than a hypothetical 19th floor does not mean they’ll want to pay significantly more for a 80th floor than for a 30 floor, don’t just assume you can extrapolate to ever bigger scales.

  • http://juridicalcoherence.blogspot.com/ Stephen Diamond

    If you place the stress on local, in local administrations fail to coordinate, centralist national governments should give rise to taller cities.

  • Curt Adams

    I suspect a big force is infrastructure support. A tall building means a lot of people and a lot of stuff moving in and out. You can’t support that well with passenger cars, which pretty much nixes anyplace in the US besides traditional big-city downtowns. Likewise in a historical city there’s not going to be a good way to move material in and out; people can walk and take the subway but not delivery trucks. Hong Kong, which faces neither constraint, is indeed stuffed to the gills with high-rises.

  • David C

    I’ll have to agree with others who have pointed to capital formation. If you assume 1 million dollars per story in a dense, urban area, which I’m guessing is typical for a lot of downtowns, then there’s going to be a lot more people with enough capital to cover a 3-story building than a 30-story building. So more people are going to end up buying land with the intent of building shorter buildings.

    Even if you have enough capital to build a 20-story building, and you know that it’ll be slightly cheaper to do so, it’s also safer to build 4 5-story buildings in case one of them doesn’t turn a profit.

    Since it’s usually cheaper to buy a vacant lot and build fresh, or to renovate an existing building, preferences are going to be towards building out rather than up wherever possible.

    But most importantly, short buildings and tall buildings do not directly compete with one another in most cases. Even if investors in the short buildings have a greater chance of losing money on their investment, this only slightly increases the chance of the short building being demolished. As long as somebody can buy the short building at a lower price, and then turn a profit on it, they will do so. The only time a tall building will win out over a short building is if the cost of demolishing the short building and building a taller one is less than the cost of renovating or building fresh.

    This is only in highly dense areas, which will frequently be heavily regulated, such as in the case of New York or Paris. As long as the short buildings aren’t being demolished, tall buildings and short buildings will continue to be built at roughly the same rate as willing investors are able to acquire capital for each, respectively.

  • A

    How about geology? You can’t make buildings as tall as you want to, no matter how much money you throw at the problem, you now?

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  • stevesailer

    Street grids are very hard to change, so higher buildings generally equal worse traffic on the streets.

    • Robin Hanson

      That counts as failing to coordinate infrastructure with buildings.

      • stevesailer

        I’ll have to remember that all-purpose answer!

      • stevesailer

        Seriously, “coordinating infrastructure with buildings” means things like demolishing existing buildings to widen streets to support the traffic generated by new 50 story buildings. That’s a lot cheaper to do in, say, a district of one story warehouses near downtown than in a downtown area where the buildings already are 10 stories high. So, even downtowns tend to sprawl, and at less than maximum feasible height.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        Seems like it would be an externalized cost of construction—true failure to coordinate occurring when coalitions can’t agree on how to share the costs.

  • Tim Tyler

    Residents probably coordinate to prevent tall buildings from stealing their light and their parking places. Skyscrapers face NIMBY opposition.

  • http://juridicalcoherence.blogspot.com/ Stephen Diamond

    Just came upon this recent quote (from centrist Democrat Schumer), which might appeal to Robin:

    I just unsuccessfully, with Bloomberg, supported raising the building height in midtown Manhattan, so we could build more office buildings. Office buildings are our factories—imagine the people of Michigan saying, “We don’t want to build a new auto factory, because the Ford family will get richer, or the person who builds the factory will make money.”

    Do tall buildings symbolize (or promote) social inequality?

    • IMASBA

      It’s not like there’s a shortage of office space. You don’t need more tall buildings to have enough room to accomodate all existing jobs. Having more tall buildings can increase profitability (as long as nearby supply lines don’t get overtaxed with traffic.) At the same time it comes at a cost to local residents. So the question really becomes how much of the increased profitability will flow towards typical local residents and whether those residents believe it is enough to offset the disadvantages of being surrounded by tall buildings. It’s possible that in a better economy having more tall buildings in NYC would provide well-paying jobs to ordinary New Yorkers, it’s also possible that existing workplaces would just be moved into taller buildings and all the extra profits go to the executives and shareholders.

      • http://entitledtoanopinion.wordpress.com TGGP

        Depending on what you mean by “shortage”, I’d say there is one. Tenants are willing to pay a premium to be located in a downtown office. If some moved into a taller building, their previous office would be unlikely to just lie around empty. It’s precisely because space is currently scarce that additional space could reduce rent and thus increase profitability. And even if some offices did become empty, that means they could be potentially converted into apartments (though presumably that could require additional changes to zoning laws), which are certainly scarce in Manhattan.

      • IMASBA

        That’s not a real shortage. Sure, corporations would like to have all their offices, employees and suppliers squeezed onto the smallest surface possible and they will always look for new opportunities in that regard but that doesn’t mean they can’t perform their tasks and be profitable without that. I mean by that logic you could argue there’s a shortage of oil in Saudi Arabia because Saudis could save money by using more fuel efficient cars.

        “And even if some offices did become empty, that means they could be potentially converted into apartments”

        The buildings that become empty are often in ghost towns, they’ll just rot away. There are advantages to that (nature will reclaim the space and that’s a good thing), but there are also disadvantages for the people who get forced to live in ever more crowded cities because corporations want to squeeze everything onto the smallest surface possible. So the question people will aks is “when the corporation I work for increases their profits by moving to a crowded city, do I get a raise, and if so, how big of a raise?” It’s too easy ot just blame everything on government failure when there are legitimate concerns about externalized costs that Robin seems to overlook.

      • http://entitledtoanopinion.wordpress.com TGGP

        Schumer was talking about New York. New York is not by any means a “ghost town”.

        You say people are “forced” to live in more crowded places, I see that many people prefer dense living.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        I share that vibe. Compare New York and Los Angeles. Which is more fun?

      • IMASBA

        “Schumer was talking about New York. New York is not by any means a “ghost town”.”

        The people that would follow their employer to New York do often come from what would become ghost towns. In Europe this is actually quite an issue.

        “You say people are “forced” to live in more crowded places, I see that many people prefer dense living.”

        Many people do, but they’re not the only ones and there’s no way of making sure only people who prefer denser living have to move to a crowded city. There’s bound to be a lot of collateral.

      • IMASBA

        P.S. it’s not just Europe, in North America and Asia here are also millions of people who accept getting stuck in daily traffic jams as a price for not having to live in a city center.

        I really don’t see why it’s so difficult to admit that if cities just got rid of zoning laws this would effectively allow businesses to externalize all kinds of costs.

      • http://entitledtoanopinion.wordpress.com TGGP

        Traffic jams are the result of people not living close enough to the center. More people could live closer to the center if real estate wasn’t so expensive there (and its expensive because so many want to live close to the center of dense cities). It would be less expensive if there was more supply and removing restrictions on height would increase the supply.

        Traffic jams are also the result of people not paying for the cost of delaying others on the road. The solution is congestion pricing.

        We could talk about Houston-style junking of all zoning laws some other time, right now we are just talking about height.

      • IMASBA

        Do you really believe everyone who lives in suburbs would rather live in the city center? I bet most of those people choose to live outside of the city and would rather not work in the city, but they have to since that’s where the employers are.

        Zoning is not a separate issue: I contend that it’s leverage those who do not want to live in the city center (or at least not in something resembling a filthy, overcrowded Asian city) use to prevent employers from forcing them to all live in the city under ever more crowded circumstances.

      • IMASBA

        I think people like Robin are too entrenched in the view that any form of government is some superfluous organization that only looks after itself. City councils in democratic countries actually do communicate a lot with the local population. There are legitimate concerns about the advantages of more crowding (more profits because of shorter and more efficient supply lines) going mainly to executives and shareholders while the costs of disadvantages (asthma, lung cancer, noise, traffic jams, epidemics, less room) are shared among all citizens. There are no unions for living space, so people might just, intuitively look to city councils.

      • Eric Hammer

        I think you are a bit off base in how much operating in a city saves corporations money. New York for example has a very high wage premium, even compared to Northern VA outside DC. Although the real wage of the NYC worker might be lower due to cost of living, the cost to the company is higher. There is a good reason why most company head quarters are not in NYC, despite the advantages that might exist.

        Further, zoning aimed at reducing urban sprawl forces much more of the super dense city living than companies could. If people prefer living in much less dense areas (there are some of us!) but companies are unable to build office parks/campuses outside the main urban areas, such people are very limited in their options for work, requiring a drive in towards the city where offices can be built.

      • IMASBA

        TGGP

        “I think lots of people prefer living near city centers because of the preferences I see revealed in real estate prices.”

        Sure, you can have 2 million people vying for 1 million apartments in a city center. Of course a percentage of them only do that because they can’t get a job outside the city and if the population of the country is 10 million than there might just be 8 million people who really don’t want to live in the city center but would have no choice to cram up in or near the city if employers could move to the city center at will.

        Every Western CEO wants to own a factory in Chengdu, none of them wants to live there themselves…

        @ Eric Hammer

        “New York for example has a very high wage premium, even compared to Northern VA outside DC.”

        Does the wage premium persist when you lookt outside the top positions, are the wages of those top positions really higher than they would have been if the office wasn’t in NYC? I don’t think many people would agree with you if you said urbanization doesn’t generate more net profit for corporations.

        “Further, zoning aimed at reducing urban sprawl forces much more of the super dense city living than companies could. If people prefer living in much less dense areas (there are some of us!) but companies are unable to build office parks/campuses outside the main urban areas, such people are very limited in their options for work, requiring a drive in towards the city where offices can be built.”

        That kind of zoning would just be stupid, it’s exceedingly rare in Europe (maybe it’s different in the US) where outlying regions try hard to attract employers using favorable zoning laws, in any case it shouldn’t be used to discredit urban zoning, because it’s not the same thing.

      • Eric Hammer

        @ IMASBA: “Does the wage premium persist when you look outside the top positions, are the wages of those top positions really higher than they would have been if the office wasn’t in NYC?”

        I don’t have much information about top wages, but for wages from entry up to manager level NYC has a pretty significant wage premium for companies I and my wife have worked with and for, both as employees and consultants.

        The thing with cities is that SOME companies can generate more profits by being there physically. Having a million customers in one place is really handy, especially if you are a service industry. A manufacturer however would have to pay out the nose for real estate and workers, among other things, and so is more likely to relocate somewhere less dense and simply ship goods in. Workers will tend to go where jobs are, and it might be easier to find workers in a city, but whether it makes sense for a corporation to have a presence in a city is very dependent on a number of things. Shorter supply lines are in no way guaranteed, for example, unless your suppliers are off shore, and even then, the difference between being in the port city and 1-2 hours away is pretty trivial supply wise. Containers usually sit in the port for 3 days to a few weeks, so the extra hours are not costing you much. Drayage differences are going to run a bit less than 100$; driving things into cities isn’t cheap.

        “That kind of zoning would just be stupid, it’s exceedingly rare in Europe”

        Yup, fairly common here. Even in places cheek by jowl with very rural areas one sees local authorities pushing to preserve farms by disallowing development, despite the fact the farm owners apparently don’t want the farms anymore.
        I don’t think it is all that different from urban zoning, however. Some people want an area to remain a certain way, and use government to force that arrangement, regardless of the preferences of those who own the land or want to buy it.

      • IMASBA

        “A manufacturer however would have to pay out the nose for real estate and workers”

        Why would they have to pay more for workers? I know for a fact that there are many, many people in cities who work for minimum wage or something close to it, that’s true in the Europe and Asia and if I’m to believe many stories from the US it’s not really different there. I guess that’s a wage premium over the unemployment benefits they’d be collecting if they lived in a rural area, but not really relevant.

        “The thing with cities is that SOME companies can generate more profits by being there physically.”

        Not just some, more than the city can handle while remaining liveable and they also employ more people than the number of people that wants to live in a large city.

        “but for wages from entry up to manager level NYC has a pretty significant wage premium for companies I and my wife have worked with and for, both as employees and consultants.”

        Really entry level? As in janitors, paid interns (the lucky few that still exist) and recent college graduates starting their first, minimum wage, flexible hours job? I have a hard time believing that.

      • Eric Hammer

        Cities have a higher cost of living than non-cities, and while there are certainly minimum wage jobs, those minimum wages are not necessarily the same minimum wage as outside the city, for one thing.
        And yes, entry level from right out of college. I don’t have recent experience with interns, but from talking with some younger colleagues almost all internships are paid due to labor laws, and some pay very well compared to non-internships. I don’t know about janitors, but given that minimum wages in cities are often a good bit higher, there’s a premium.
        For reference, the national minimum wage is 7.25$ an hour. DC’s minimum wage is 8.25$, Baltimore’s is 9.75$. A company can save ~12% on minimum wages by moving outside DC to a smaller town, as small towns generally don’t have their own minimum wages. Moving from Baltimore saves about 25%. If a company employs many minimum wage workers, there had better be some pretty compelling reason to move to the city.

        Compelling reasons, I might add, that have not yet shown up in this thread (though I may have missed them.) Why is being in a city so fantastic for corporations but bad for workers?

      • IMASBA

        “Cities have a higher cost of living than non-cities,”

        And that higher cost usually gets passed to the worker.

        “and while there are certainly minimum wage jobs, those minimum wages are not necessarily the same minimum wage as outside the city, for one thing.”

        Here in Europe minimum wages and union negotiated wages are set nationally. I know the US has different minimum wages for each state but I don’t think the minimum wage in NYC differs from that of Albany. China does have higher minimum wages for large cities, but they plan all their factories.

        “I don’t have recent experience with interns, but from talking with some younger colleagues almost all internships are paid due to labor laws, and some pay very well compared to non-internships.”

        Sounds like the magical 1990s. What business are you in?

        I cannot find references supporting your claims that places like Baltimore and NYC have higher minimum wages than their parent states (both equal to the federal minimum of $7.25).

        “Compelling reasons, I might add, that have not yet shown up in this thread. Why is being in a city so fantastic for corporations but bad for workers?”

        Corporations have extensive infrastructure available, also proximity to suppliers, clients and major transportation hubs and simply economies of scale due to high population density.

        The disadvantages for the workers should be obvious: air pollution, noise, contagions, smaller homes, congested traffic.

      • Eric Hammer

        US Minimum Wage is set by whatever locality sees fit to set it. Here’s some links:

        http://www.businessforafairminimumwage.org/news/00141/maryland-minimum-wage-bill-summary

        http://www.dol.gov/whd/minwage/america.htm#DC

        I was in the chemical, supply chain and consulting industries till recently. In the 1990’s it was possible to get an unpaid internship, but now they are illegal outside of working for Congress etc. due to min. wage laws. (Congress exempts themselves.)

        Things might be different in the EU, but in the States the infrastructure is no better in cities than outside, and suppliers are just as likely to be outside the main metro hubs than inside. Carlisle, PA is one of the larger hubs for the Mid Atlantic region and it is about as far from a city as you can get; I am pretty sure there isn’t a single building higher than 6 stories. Its advantages are that it sits across two major interstates and “out in the middle of nowhere” where land is cheap for big warehouses is cheap.

        It really does depend on the kind of industry you are looking at. Manufacturing is almost never in major cities here, generally on the outskirts. Usually you see smaller, more human capital oriented businesses located in cities as opposed to big capital intensive firms. Only the corporate offices of the latter might be in a city, as far as I can tell because the people like living there.

        Things might be different in the EU, but in the States people want to move to the cities, and hope to find a job there, not the other way around generally. I am not a fan of cities myself, but I am the strange one for it, not the other way around. Maybe the EU is just bad at cities?

      • IMASBA

        “US Minimum Wage is set by whatever locality sees fit to set it.”

        It is, but NYC and Baltimore haven’t made use of that power, neither have LA, Chicago, Houston and Miami.

        “I was in the chemical, supply chain and consulting industries till recently. In the 1990’s it was possible to get an unpaid internship, but now they are illegal outside of working for Congress etc. due to min. wage laws.”

        It’s illegal but the ban is not enforced: http://www.theatlantic.com/business/archive/2013/11/how-washington-abandoned-americas-unpaid-interns/281125/

        “It really does depend on the kind of industry you are looking at. Manufacturing is almost never in major cities here, generally on the outskirts. Usually you see smaller, more human capital oriented businesses located in cities as opposed to big capital intensive firms. Only the corporate offices of the latter might be in a city, as far as I can tell because the people like living there.”

        Manufacturing has been shrinking in favor of services for a long time now, still there are services businesses (such as small IT businesses) that are only in large cities because everyone else is, while they could be just as profitable, perhaps even more so, somewhere else, here’s to hoping future policies will succeed to bring those businesses to smaller cities.

        “Things might be different in the EU, but in the States people want to move to the cities, and hope to find a job there, not the other way around generally. I am not a fan of cities myself, but I am the strange one for it, not the other way around. Maybe the EU is just bad at cities?”

        There will certainly be differences between the EU and US. What I know is that here in the EU many rural communities and smaller cities are shrinking (pensioners, unemployed people and the occasional skilled laborer stay behind) in favor of large cities and that many young people who have to move to a large city to find a job wish they didn’t have to. European cities are generally overcrowded with sky high rents for ill maintained shoeboxes and about half of all households depending on subsidized housing to make ends meet in large cities. Still I know there are many Americans who prefer the suburbs or smaller cities, especially when they have children.

        “IMASBA, Eric is correct about even entry level workers making more.”

        Then why do so many people in cities make minimum wage or less?

        “That’s one reason why writers like Yglesias & Avent bang the drum on helping making it easier for low-end workers to live & work in cities in books like “The Rent is Too Damn High” and “The Gated City”.”

        The first book is about city rents having become to expensive for pretty much everyone and wages not making up the difference. The second book is about a privileged group of middle class homeowners who can choose between jobs in different places, for them the wages in the city also aren’t high enough to make up for the housing prices and it also does argue the cities help make the rich richer.

      • http://entitledtoanopinion.wordpress.com TGGP

        “Then why do so many people in cities make minimum wage or less?”
        How many is “so many”? A very small percentage of full-time workers make minimum wage. And one of the few areas exempted is farm labor, which is going to be found outside of cities. If you mean “so many” in terms of absolute numbers rather than percentages, that would be easily explained by the fact that so many people live in cities, so even if a small percentage make minimum wage multiplying that by the large population still results in a sizable number. But you might be asking why do so many of the poor live in cities. The answer is that there’s easier access to public transit & social services. Suburbs are more likely to be completely zoned so as to make it unaffordable for poor people to live there, and lack public housing as well. The people who currently make minimum wage in cities would not be likely to earn more outside cities. Really, you should read some economists on this. It’s not an issue with a left-right or freshwater-saltwater split, the wage premium for dense cities is quite well known.

        Yglesias thinks it is the poor in particular who are driven away by the high rents resulting from building restrictions. He views “gentrification” as being the result of increasingly desirable real estate being fought over, with rich people displacing poor people in old housing stock. He argues that if cities permitted more housing to be built, rich people would move into the new (generally higher quality) housing stock, while poor people could move into the place those rich people have vacated. Avent compares those restrictions in cities to those in “gated neighborhoods” commonly associated with suburbs which deliberately make themselves inaccessible to the poor.

      • IMASBA

        “How many is “so many”? A very small percentage of full-time workers make minimum wage. And one of the few areas exempted is farm labor, which is going to be found outside of cities.”

        Farm labor AND restaurants, though those are American specifics, no such exemptions exist in most other countries.

        There are approximately 325.000 people (not households) in NYC who work and make less than $8.25 per hour. A minority of the population for sure, but too many to sweep under the carpet.

        “But you might be asking why do so many of the poor live in cities. The answer is that there’s easier access to public transit & social services. Suburbs are more likely to be completely zoned so as to make it unaffordable for poor people to live there, and lack public housing as well.”

        Again, that seems to be an American specific, in Europe and parts of Asia there is plenty public transportation outside large cities, as well as public housing and social services. I definitely do oppose zoning that makes suburbs only accessible to wealthy people, in fact I don’t like city zoning either (which might sound surprising given everything I’ve said here), I just think there are sometimes some overlooked advantages to certain types of zoning, even though the underlying problems could be tackled much better with more direct approaches.

        “The people who currently make minimum wage in cities would not be likely to earn more outside cities.”

        I’m not saying they would, in fact they’d probably make less on average because many of them would be unemployed if they lived outside the city.

        “Really, you should read some economists on this. It’s not an issue with a left-right or freshwater-saltwater split, the wage premium for dense cities is quite well known.”

        I do believe there is a wage premium, it’s huge for high incomes, low to non-existent the further down you go and on average certainly significant enough to notice. In advanced economies about half of young people finishes college (or some equivalent), there are few jobs for these people outside large cities, so they move there and the cities become more populated. If, somehow, a magical force moved a lot of employers to small cities and towns then all the same jobs would still exist but the average employee would have much more living space and cleaner air, of course corporate profits would go down a notch as well because of decreased efficiency, a fraction of those profits might otherwise have gone to higher wages for employees living in cities, so there is definitely a trade-off (at least on average, a starbuck’s barista wouldn’t lose any income, but a high level HR manager might lose a lot), the point is the (potential) employees never agreed to the trade-off collectively, like having a labor market in a country where unions are illegal. Some instances of urban zoning have the (probably unintended in most cases, but not all), of acting a bit like “spacing unions”, transferring some of the externalized costs of urbanization back to employers.

        Yglesias and Avent provide only one possible solution to urban problems: you can try to cram more people into the city where the employers are, but another solution would be to take some employers out of the city and put them in less densily populated areas.

        Since the industrial revolution we’re ingrained to believe large cities bring prosperity, and they do, just far less than we think (1 city of 1 million doesn’t bring that much more than 5 cities of 200k people, there is certainly a small efficiency increase but people have the tendency to attribute the entire GDP of the 1 million people city to it being a large city, forgetting that probably 95% of that GDP would still exist if there were 5 200k cities instead) and with hidden costs (or not so hidden to people who move from a large home with a garden in a village to a shoebox in the city). We tend to think that during the industrial revolution factories in the cities offered much higher wages than employers in rural areas. In reality there was a population surplus in rural areas when agriculture (and other technologies) became more efficient, so rural wages collapsed/there were too few rural jobs available. The problem could just as well have been solved by building a factory in every village, instead of a lot of factory in one large city, but that would have meant less efficiency for the factories, thus lower profits for the factory owners, even if they had passed 100% of the cost of that to the workers the workers would only have lost a few percentage points of their income while still maintaining the premium of not having to live in city slums. It would have been another way to solve the problem that would have resulted in only a slightly smaller GDP, but probably more wealth for most citizens, unfortunately it’s also something that’s terribly difficult to coordinate (certainly impossible in the 19th century.) In any case I don’t think it’s a side of the story we should forget, even if it does seem like something that’s hard to tackle.

      • IMASBA

        P.S. Some skyscraper-infested cities of millions of people should definitely exist: they add vital infrastructure, creativity and prestige to a country, and there are many people who want to live in such a place, but such cities should be the exception, populations shouldn’t be forced into them while the rest of the country turns into ghost towns/underdeveloped wasteland.

      • George Parker

        I find your use the word ‘force’ ironic… since you can still live in the suburbs if the city core is zoned for maximum development. While under the current restrictive zoning many are _forced_ into the suburbs since development in the city is forcibly limited.

      • http://entitledtoanopinion.wordpress.com TGGP

        Good point about restaurants, and yes there are differences between America and other countries. But economies of scale exist worldwide. There would NOT be the same number of jobs if employers relocated to less dense areas. You cannot simply assume that any loss will come out of net profits, that’s determined by whether there’s enough ease of entry to make an industry competitive. And even if you looked at two different industries at some point in time and noticed one was more profitable than the other, what you’d expect to happen is that the more profitable industry will attract more investment (until the expected return on investment is equal), which would generally mean labor will also shift into that industry.

      • IMASBA

        “You cannot simply assume that any loss will come out of net profits, that’s determined by whether there’s enough ease of entry to make an industry competitive.”

        That almost sounds like Luddism. Some jobs would not exist, others would take their place. But you have a point if you competitiveness you meant international competitiveness, urbanization is a global phenomenon.

        “You cannot simply assume that any loss will come out of net profits”

        I’m not assuming that, incomes will go down a bit as well, but income and wealth are not the same thing so people could actually be better off. At least it would be nice if societies thought about the whole thing out loud: how far are we willing to go for a little bit more competitiveness and who pays for the crime, health effects of pollution and traffic congestion in megacities?

      • http://entitledtoanopinion.wordpress.com TGGP

        I don’t see the connection to Luddism. Industries with higher barriers to entry typically have higher profits (monopolies are the ur-example). An industry in which any damn fool can do the same thing as the established players at an affordable cost will typically have profits competed away. If a cost (typically a tax is what’s analyzed, but zoning regulations are another thing to look at) the question of who bears it is called “incidence” and is not always obvious.

        I am very much a fan of societies making more explicit what sorts of tradeoffs they want to make! That’s one reason why I think Pigovian taxation is so much better than regulatory fiat in many situations (though the most obvious reason to prefer it is avoiding dead-weight loss). America, for example, stupidly chose to respond to auto-emissions with CAFE regulations, whereas Europe’s reliance on taxes have worked out much better. In the theoretical ideal of perfect competition, marginal revenue equals marginal cost (leaving no profit). If governments were like that (if “seasteading” made the “governance industry” competitive), all taxes would be in accordance with costs rather than income.

      • Eric Hammer

        That first link I posted, that was from two years ago when Baltimore raised their minimum wage, which sits at 9.25$ now. Baltimore definitely sets their own minimum wage.

      • IMASBA

        That link was about a campaign for a proposal to raise the minimum wage for the state of Maryland, the proposal didn’t pass. The minimum wage is still $7.25 in Maryland, including Baltimore.

      • Eric Hammer

        Ahh my mistake. I was assuming that since I knew Baltimore had a higher required wage, that was the one. Trouble is the city level statutes are not called minimum wages, but living wages. NYC’s for example is 10$ with benefits, 11.50$ without “”Existing legislation defines a living wage in New York City as a minimum of $10 per hour with benefits, or $11.50 per hour without benefits.” from http://www.livingwagenyc.org/pagedetail.php?id=3

        Apparently some 149 municipalities have living wage rules, according to them. For Baltimore: The Living Wage Law currently requires the payment of the Living Wage of either $13.19 per hour, effective September 27, 2013 or $9.91 per hour effective September 27, 2013 depending upon the jurisdiction where the services are performed.

        http://www.dllr.state.md.us/labor/prev/livingwagefaqs.shtml#1

      • IMASBA

        There’s a reason they’re called something else: living wages only apply to certain types of contractors working for local government. They’re not limited to large cities either.

      • http://entitledtoanopinion.wordpress.com TGGP

        IMASBA, Eric is correct about even entry level workers making more. That’s one reason why writers like Yglesias & Avent bang the drum on helping making it easier for low-end workers to live & work in cities in books like “The Rent is Too Damn High” and “The Gated City”.

      • http://entitledtoanopinion.wordpress.com TGGP

        People can live outside the city center and commute. I used to do that. Many people don’t like long commutes and one of the benefits of living in a dense urban center is that the economies of scale are suited to walking & public transit.

        Net profits are going to depend on how competitive the industry is. Why one would think looking at net profits is a particularly relevant way to evaluate urban planning is beyond me.

      • http://entitledtoanopinion.wordpress.com TGGP

        I make no claim about EVERYONE. I’m originally from the suburbs and happen to like them, I currently live near a city center because my car broke down and it’s easier to get by without one there. I think lots of people prefer living near city centers because of the preferences I see revealed in real estate prices.

  • Scott Putnam

    plotting the building cost ($/sqM) in different global cities would give an indication of the cost of land-use regulations. The cost difference is obvious in NYC versus Houston, and I would hazard to guess London and Tokyo and Zurich have very high costs per sq meter. Since the cost of materials and labor is not very different, and the engineering firms for skycrapers are global, the biggest variable is local zoning.

  • Techy3

    The most influential book about project management in recent years argued that the vast majority of cost overruns come on projects that cannot be easily broken down into segments. A developer who plans to build five five-story buildings can easily build one and start renting it, then another etc. with little chance that a delay or problem on one building will affect his ability to complete the other four on time and on budget.

    If that developer instead built a single 25-story building a single delay or design flaw would prevent the developer from getting any rentable space to market on time. This increase in risk means that the developer should demand a much higher projected return on capital even if the average projected return for 25-story buildings is higher. Risk is a real cost that must be considered along with the building costs that Mr. Hanson reported. To evaluate developer behavior without regard to project risk is grossly mis-leading.

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