The Economics of Skyscrapers: New York City

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The Economics of Skyscrapers New York City

• Urban Economics
• Prof. Barr

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Land Value Model

• Profits for corporate firms
• pPQ-AQ-C-sQd-R(d),
• which yields rent equation via zero profit
  condition
• R(s)(PQ-AQ-C-sQd),
• where s is cost of travel for office workers
  (i.e., cost of walking/traveling to/from clients)

Office sector
Bid Rent
Manu. sector
Residential
Distance from center
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Model cont.

• This says that rent per acre is function
• Distance from center
• Revenues
• Costs
• Wages
• Competition among firms distributes land
  according to those who can and must pay the most
  for it
• i.e., land values and land use represent an
  process of economic evolution.
• Steepest rents at the center.

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NYC in the 19th c.

• Rising commercial activity, esp. from 1825
  onwards (Erie Canal) and center of global
  trading.
• More and more firms competing for same space.
• Rising population growth.
• Increasing corporate and administrative
  activities.
• Manhattan is an island, with limited
  possibilities for commercial expansion.
• (1865 44th street northern-most development
  1883 The Dakota (W. 72nd Street) was in the
  Dakotas)

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NYC cont.

• Increasing competition
• Bids up value of land due to more profits of
  larger firms.
• Large opportunity costs of travel for workers.
• More agglomeration economies.
• Greater need for face-to-face communications.
• Generates economic need for density and economic
  demand for density.
• Rising land values drive technological
  innovations that could enable more intensive use
  of existing land.
• ? The skyscraper!

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1811 Grid Plan

• In 1811 NYC land arranged according to the grid
  plan.
• Basic lot sizes were fixed at 25 x 100.
• Avenues and streets were either north/south or
  east/west.
• Plan was designed to rationalize development
  (e.g. contrast Wall Street area with north of
  14th street)
• The effect was to aid business growth
• Real estate was made simple and easy to value.
• Made lots a type of tradable commodity.
• Gave clear property rights demarcations.
• Notice that is also made assemblage of large lots
  relatively difficult (also giving an incentive to
  build tall on smaller lots)

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Manhattan Schist

• Unlike many geographies, in downtown Manhattan
  bedrock is very close to the surface.
• Bedrock is stable.
• As a result, costs of digging and laying
  foundation are relatively low.
• No need for caissons.

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Transportation Innovations and the Rise of NYC CBD

• Before 1815 NYC was a walking city.
• Steam ferry service (Robert Fulton, 1817)
• Horse driven buses (omnibuses) (1820s-1840s)
• Horse driven buses on tracks (1850s-1880s)
• Electric Trolleys (1885-1920s)
• Commuter Railroads (1837)
• NYC Subway (1904)

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Technological Innovations and the Skyscraper

• Iron and Steel Skeleton (1850s-1860s).
• Before that supporting walls were stone and
  brick. Too expensive to build high b.c. needed
  thicker and thicker base walls.
• 1855 Bessemer Steel process
• The Elevator
• Elisha Otis of Yonkers, NY developed safety break
  in 1851 (demonstrated at New York's Crystal
  Palace exhibition).
• 1871 Hydraulic elevator replaces steam.

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Skyscraper Technology cont.

• Heating and Cooling technology
• Steam and hot water systems were developed in
  19th c.
• Wind-bracing technology.
• Artificial Light
• Edison laid electric lights in downtown NYC in
  1871.
• 1938s fluorescent light bulbs on market.
• Steam powered construction tools
• cranes, shovels, etc.

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Skyscraper Early Time Line

• 1871 Great Fire of Chicago destroys downtown
  (The Loop).
• 1885 First Skyscraper, 10 story Home Insurance
  Building in Chicago.
• 1890 World Building Joseph Pulitzer's New York
  World (Newspaper row, 26 stories, first building
  in NYC to surpass 284 spire of Trinity Church)
• 1902 Flatiron Building
• 1913 Woolworth Building (Cathedral of
  Commerce)
• 1915 42-story Equitable Building.
• 1916 NYC Zoning Laws

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Skyscraper Timeline Cont.

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

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How High to Build?

• Key difference between engineering height and
  economic height.
• There is virtually no engineering limit to
  height.
• Economic height reflects the maximum height (and
  square footage) that generates the highest net
  return on the investment.
• Economic height reflects various costs to
  purchasing land, building and operating the
  structure.

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Economic Costs

• At some point (for floor height) the law of
  marginal diminishing returns starts to kick in
  (i.e., additional market rents do not cover
  additional costs)
• Taller buildings need
• Heavier foundations.
• Extra wind bracing.
• More space for elevators.
• More and larger mechanical systems for
  ventilation and heating.

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1916 Zoning Law

• Was first comprehensive zoning law in the
  country.
• Stated where different economic activity could
  take place in the city (i.e., zones).
• Did not restrict height per se
• Rules for how much of a lot could be used for the
  building (e.g., 25 had no restrictions).
• Introduced set back rules based on width of
  street.

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Skyscraper Epochs

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

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Skyscraper Epochs

• Period 1 1890-1916
• Tended to take up whole lot.
• Occasionally had towers.
• e.g., Equity Building, Singer Building, Woolworth
  Building.
• Arrangement of office space and building based on
  need to maximize exposure to sun light.
• 20-30 stories were profit maximizing.

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Epochs cont.

• 1916-WWII
• 1916 zoning created wedding cake style.
• 1920s (The Roaring Twenties) saw a massive
  speculative and building frenzy.
• Result Race to the heavens.
• e.g. Chrysler vs. 40 Wall.
• Empire State Building
• Art Deco style.
• Depression and WWII put kaybash on skyscraper
  market.

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Epochs cont.

• Post WWII 1970s
• The International Style
• e.g. 1952 The Lever House (Skidmore, Owings
  Merrill), 1958 The Seagrams Building (Ludwig Mies
  van der Rohe and Philip Johnson
• Glass boxes were not only in vogue but were more
  profitable
• Class less expensive than stone.
• A/C and florescent lighting allowed wide open
  (more rentable) space.
• 1961 Zoning Resolution promoted the style.

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1961 Zoning Resolution(from NYC Zoning Handbook)

• Incentive zoning" offered a bonus of extra floor
  space to encourage developers of office buildings
  and apartment towers to include plazas in their
  projects.
• Emphasized the creation of open space. A flexible
  document, it was a product of the best planning,
  economic and architectural skills of its time
  (nb were sorry, we made a mistake).
• Resulted in tall buildings out of scale with
  their neighborhoods. And the open space provided
  has not always been particularly useful or
  attractive.
• New approaches since 1961 incentive zoning,
  contextual zoning, special district, air-rights
  transfer and restrictive covenant techniques have
  been used to make zoning a more responsive and
  sensitive planning tool.

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Epochs cont.

• 1970s Present
• PoMo and Beyond
• e.g. Philip Johnsons ATT Building and The
  Lipstick Building
• The Freedom Tower, 1776 feet tall.
• Asian Tigers take lead in worlds tallest
  building.
• 60-70 max. economic height.

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References

• Gottman, J. (1965). Why the Skyscraper? The
  Geographical Review.
• Landau, S. B. and Condit (1996). Rise of the NY
  Skyscraper 1865-1913.
• Willis, C. (1996). Form Follows Function
  Skyscrapers and Skylines in New York and Chicago.