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The Economics of Skyscrapers: New York City

The Economics of Skyscrapers: New York City. Urban Economics Prof. Barr. Land Value Model. Profits for corporate firms: π =PQ-AQ-C-sQd-R(d), which yields rent equation via zero profit condition: R(s)=(PQ-AQ-C-sQd),

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The Economics of Skyscrapers: New York City

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  1. The Economics of Skyscrapers: New York City Urban Economics Prof. Barr

  2. Land Value Model • Profits for corporate firms: π=PQ-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

  3. 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.

  4. 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’)

  5. 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!

  6. 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)

  7. 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.

  8. 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)

  9. 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.

  10. 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.

  11. 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

  12. Skyscraper Timeline Cont. • 1929: Chrysler Building • 1930: Empire State Building • 1952: The Lever House • 1961: New Zoning Resolution • 1973: World Trade Center (Port Authority)

  13. 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.

  14. 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.

  15. 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.

  16. 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.”

  17. 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.

  18. Epochs cont. • 1916-WWII • 1916 zoning created ‘wedding cake’ style. • 1920’s (“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.

  19. 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.

  20. 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: “we’re 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.

  21. Epochs cont. • 1970s – Present • PoMo and Beyond • e.g. Philip Johnson’s AT&T Building and “The Lipstick” Building • The Freedom Tower, 1776 feet tall. • “Asian Tigers” take lead in world’s tallest building. • 60-70 max. economic height.

  22. 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.

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