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  1. 1. The Economics of Skyscrapers: New York City Urban Economics Prof. Barr
  2. 2. Land Value Model <ul><li>Profits for corporate firms: </li></ul><ul><li>π =PQ-AQ-C-sQd-R(d), </li></ul><ul><ul><li>which yields rent equation via zero profit condition: </li></ul></ul><ul><ul><li>R(s)=(PQ-AQ-C-sQd), </li></ul></ul><ul><ul><li>where s is “cost of travel” for office workers (i.e., cost of walking/traveling to/from clients) </li></ul></ul>Bid Rent Distance from center Office sector Manu. sector Residential
  3. 3. Model cont. <ul><li>This says that rent per acre is function: </li></ul><ul><ul><li>Distance from center </li></ul></ul><ul><ul><li>Revenues </li></ul></ul><ul><ul><li>Costs </li></ul></ul><ul><ul><li>Wages </li></ul></ul><ul><li>Competition among firms distributes land according to those who can and must pay the most for it: </li></ul><ul><li>i.e., land values and land use represent an process of economic evolution. </li></ul><ul><li>Steepest rents at the center. </li></ul>
  4. 4. NYC in the 19 th c. <ul><li>Rising commercial activity, esp. from 1825 onwards (Erie Canal) and center of global trading. </li></ul><ul><li>More and more firms competing for same space. </li></ul><ul><li>Rising population growth. </li></ul><ul><li>Increasing corporate and administrative activities. </li></ul><ul><li>Manhattan is an island, with limited possibilities for commercial expansion. </li></ul><ul><li>(1865: 44 th street northern-most development; 1883: The Dakota (W. 72 nd Street) was ‘in the Dakotas’) </li></ul>
  5. 5. 26% 1,515,301 1890 28% 1,206,299 1880 16% 942,292 1870 58% 813,669 1860 65% 515,547 1850 54% 312,710 1840 64% 202,589 1830 28% 123,706 1820 59% 96,373 1810 83% 60,515 1800 33,131 1790 % Change Population City of New York (does not include Brooklyn)
  6. 6. NYC cont. <ul><li>Increasing competition: </li></ul><ul><ul><li>Bids up value of land due to more profits of larger firms. </li></ul></ul><ul><ul><li>Large opportunity costs of travel for workers. </li></ul></ul><ul><ul><li>More agglomeration economies. </li></ul></ul><ul><ul><li>Greater need for face-to-face communications. </li></ul></ul><ul><li>Generates economic need for density and economic demand for density. </li></ul><ul><li>Rising land values drive technological innovations that could enable more intensive use of existing land. </li></ul><ul><li> The skyscraper! </li></ul>
  7. 7. 1811 Grid Plan <ul><li>In 1811 NYC land arranged according to the grid plan. </li></ul><ul><li>Basic lot sizes were fixed at 25’ x 100’. </li></ul><ul><li>Avenues and streets were either north/south or east/west. </li></ul><ul><li>Plan was designed to ‘rationalize’ development (e.g. contrast Wall Street area with north of 14 th street) </li></ul><ul><li>The effect was to aid business growth: </li></ul><ul><ul><li>Real estate was made simple and easy to value. </li></ul></ul><ul><ul><li>Made lots a type of tradable commodity. </li></ul></ul><ul><ul><li>Gave clear property rights demarcations. </li></ul></ul><ul><ul><li>Notice that is also made assemblage of large lots relatively difficult (also giving an incentive to build tall on smaller lots) </li></ul></ul>
  8. 9. Manhattan Schist <ul><li>Unlike many geographies, in downtown Manhattan bedrock is very close to the surface. </li></ul><ul><li>Bedrock is stable. </li></ul><ul><li>As a result, costs of digging and laying foundation are relatively low. </li></ul><ul><li>No need for caissons. </li></ul>
  9. 10. Transportation Innovations and the Rise of NYC CBD <ul><li>Before 1815: NYC was a walking city. </li></ul><ul><li>Steam ferry service (Robert Fulton, 1817) </li></ul><ul><li>Horse driven buses (omnibuses) (1820s-1840s) </li></ul><ul><li>Horse driven buses on tracks (1850s-1880s) </li></ul><ul><li>Electric Trolleys (1885-1920s) </li></ul><ul><li>Commuter Railroads (1837) </li></ul><ul><li>NYC Subway (1904) </li></ul>
  10. 11. Technological Innovations and the Skyscraper <ul><li>Iron and Steel Skeleton (1850s-1860s). </li></ul><ul><ul><li>Before that supporting walls were stone and brick. Too expensive to build high b.c. needed thicker and thicker base walls. </li></ul></ul><ul><ul><li>1855: Bessemer Steel process </li></ul></ul><ul><li>The Elevator </li></ul><ul><ul><li>Elisha Otis of Yonkers, NY developed safety break in 1851 (demonstrated at New York's Crystal Palace exhibition). </li></ul></ul><ul><ul><li>1871: Hydraulic elevator replaces steam. </li></ul></ul>
  11. 12. Skyscraper Technology cont. <ul><li>Heating and Cooling technology </li></ul><ul><ul><li>Steam and hot water systems were developed in 19 th c. </li></ul></ul><ul><li>Wind-bracing technology. </li></ul><ul><li>Artificial Light </li></ul><ul><ul><li>Edison laid electric lights in downtown NYC in 1871. </li></ul></ul><ul><ul><li>1938s fluorescent light bulbs on market. </li></ul></ul><ul><li>Steam powered construction tools </li></ul><ul><ul><li>cranes, shovels, etc. </li></ul></ul>
  12. 13. Skyscraper Early Time Line <ul><li>1871: Great Fire of Chicago destroys downtown (The Loop). </li></ul><ul><li>1885: First Skyscraper, 10 story Home Insurance Building in Chicago. </li></ul><ul><li>1890: World Building Joseph Pulitzer's New York World (Newspaper row, 26 stories, first building in NYC to surpass 284’ spire of Trinity Church) </li></ul><ul><li>1902: Flatiron Building </li></ul><ul><li>1913: Woolworth Building (“Cathedral of Commerce”) </li></ul><ul><li>1915: 42-story Equitable Building. </li></ul><ul><li>1916: NYC Zoning Laws </li></ul>
  13. 14. Skyscraper Timeline Cont. <ul><li>1929: Chrysler Building </li></ul><ul><li>1930: Empire State Building </li></ul><ul><li>1952: The Lever House </li></ul><ul><li>1961: New Zoning Resolution </li></ul><ul><li>1973: World Trade Center (Port Authority) </li></ul>
  14. 15. How High to Build? <ul><li>Key difference between engineering height and economic height . </li></ul><ul><li>There is virtually no engineering limit to height. </li></ul><ul><li>Economic height reflects the maximum height (and square footage) that generates the highest net return on the investment. </li></ul><ul><li>Economic height reflects various costs to purchasing land, building and operating the structure. </li></ul>
  15. 16. Economic Costs <ul><li>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): </li></ul><ul><li>Taller buildings need: </li></ul><ul><ul><li>Heavier foundations. </li></ul></ul><ul><ul><li>Extra wind bracing. </li></ul></ul><ul><ul><li>More space for elevators. </li></ul></ul><ul><ul><li>More and larger mechanical systems for ventilation and heating. </li></ul></ul>
  16. 17. 1916 Zoning Law <ul><li>Was first comprehensive zoning law in the country. </li></ul><ul><li>Stated where different economic activity could take place in the city (i.e., zones). </li></ul><ul><li>Did not restrict height per se : </li></ul><ul><ul><li>Rules for how much of a lot could be used for the building (e.g., 25% had no restrictions). </li></ul></ul><ul><ul><li>Introduced ‘set back’ rules based on width of street. </li></ul></ul>
  17. 18. Skyscraper Epochs <ul><li>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.” </li></ul>
  18. 19. Skyscraper Epochs <ul><li>Period 1: 1890-1916 </li></ul><ul><ul><li>Tended to take up whole lot. </li></ul></ul><ul><ul><li>Occasionally had towers. </li></ul></ul><ul><ul><li>e.g., Equity Building, Singer Building, Woolworth Building. </li></ul></ul><ul><ul><li>Arrangement of office space and building based on need to maximize exposure to sun light. </li></ul></ul><ul><ul><li>20-30 stories were profit maximizing. </li></ul></ul>
  19. 20. Epochs cont. <ul><li>1916-WWII </li></ul><ul><ul><li>1916 zoning created ‘wedding cake’ style. </li></ul></ul><ul><ul><li>1920’s (“The Roaring Twenties”) saw a massive speculative and building frenzy. </li></ul></ul><ul><ul><li>Result: Race to the heavens. </li></ul></ul><ul><ul><li>e.g. Chrysler vs. 40 Wall. </li></ul></ul><ul><ul><li>Empire State Building </li></ul></ul><ul><ul><li>Art Deco style. </li></ul></ul><ul><ul><li>Depression and WWII put ‘kaybash’ on skyscraper market. </li></ul></ul>
  20. 21. Epochs cont. <ul><li>Post WWII – 1970s </li></ul><ul><ul><li>The International Style </li></ul></ul><ul><ul><li>e.g. 1952: The Lever House (Skidmore, Owings & Merrill), 1958 The Seagrams Building (Ludwig Mies van der Rohe and Philip Johnson </li></ul></ul><ul><ul><li>Glass boxes were not only in vogue but were more profitable: </li></ul></ul><ul><ul><ul><li>Class less expensive than stone. </li></ul></ul></ul><ul><ul><ul><li>A/C and florescent lighting allowed wide open (more rentable) space. </li></ul></ul></ul><ul><ul><li>1961 Zoning Resolution promoted the style. </li></ul></ul>
  21. 22. 1961 Zoning Resolution (from NYC Zoning Handbook ) <ul><li>“ Incentive zoning&quot; offered a bonus of extra floor space to encourage developers of office buildings and apartment towers to include plazas in their projects. </li></ul><ul><li>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 : “we’re sorry, we made a mistake”). </li></ul><ul><li>“ Resulted in tall buildings out of scale with their neighborhoods. And the open space provided has not always been particularly useful or attractive.” </li></ul><ul><li>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. </li></ul>
  22. 23. Epochs cont. <ul><li>1970s – Present </li></ul><ul><ul><li>PoMo and Beyond </li></ul></ul><ul><ul><li>e.g. Philip Johnson’s AT&T Building and “The Lipstick” Building </li></ul></ul><ul><ul><li>The Freedom Tower, 1776 feet tall. </li></ul></ul><ul><ul><li>“ Asian Tigers” take lead in world’s tallest building. </li></ul></ul><ul><ul><li>60-70 max. economic height. </li></ul></ul>
  23. 28. References <ul><li>Gottman, J. (1965). “Why the Skyscraper?” The Geographical Review . </li></ul><ul><li>Landau, S. B. and Condit (1996). Rise of the NY Skyscraper: 1865-1913. </li></ul><ul><li>Willis, C. (1996). Form Follows Function: Skyscrapers and Skylines in New York and Chicago. </li></ul>