First, a quick link for jhausner (with respect to energy efficiency being an easy solution, not necessarily hybrids as the headline states):
http://www.alternet.org/story/84982/?page=entire
Quote:
Originally Posted by quobobo
Small impact? Maybe in some cases, but think about how much the housing market here is artificially limited. Just take a look at any zoning map (freestanding houses everywhere), and remember that density bonuses are worth an awful lot (so there's clearly a lot of demand for more housing that isn't being met). There's a LOT of room to add extra housing supply.
Edward Glaeser of Harvard has estimated that regulations (mostly zoning, height limits limiting density) inflate the cost of housing in Manhattan by 50%, I wouldn't be surprised if we were higher as we have much more room to grow.
http://www.economics.harvard.edu/fac.../Manhattan.pdf |
Fascinating paper, quobobo - you always come through with the economics stuff.
Admittedly, there was no analysis behind my claim. I was just extrapolating (like others here) the rising density in Vancouver over the past, say, 15 years, in particular, appears to have had no impact on affordability. Metro Vancouver is likely, for the moment at least, the most expensive metro in North America (given recent price declines in expensive US metros).
After reading the paper, I'm going to have to agree that, on balance, the removal of height limits would increase affordability by more than a "small amount" as I said before. How much is very, very unknown, but I'd be pretty sure it's at least 15%, which is more than I was thinking by a "small amount".
For those who don't want to read the paper, the overall conclusion is that NIMBYs create regulations to protect the (perceived) value of their investments, causing prices to be higher than they'd be in a free market. The most important regulations from an economic standpoint are those that limit the size of the building, like height limits (which restrict marginal revenue). The authors argue that the 50% premium for prices in Manhattan compared to construction costs of the top floor (the marginal cost units) is essentially due to regulation. Now, basic economics dictates that developers set marginal revenue equal to marginal costs to maximize profits. A height limit stops developers from ever reaching this point, since marginal costs increase quite slowly with each additional floor, and
therefore we're left with a significant price premium and far shorter buildings compared to what a free market would produce.
Note this 50% cost premium number is before taking into account the social costs of removing regulations, which the authors estimate at up to 17.5%, which would leave a conservative 32.5% price premium due to height limits.
While generally in agreement, I have a number of criticisms for this paper, particularly in applying it to Vancouver:
1. Market prices reflect densification potential, even when density is regulated; for example, just because a SFH near a growing town centre is zoned single family today, it is very likely that it will be upzoned in the future, and the market responds to that, which probably makes up a chunk of the difference between marginal revenue and marginal costs (for non-high rises, at least). These effects are magnified in urban areas where smart growth policies and urban boundaries are in place (like Metro Vancouver).
2. While reasonably perfect competition may indeed be the case in Manhattan, I'm not sure if the same assumption can be made elsewhere, like Vancouver. I just don't know. If not, then some of our price premium comes from monopolistic profit.
3. The paper says, "... the cost schedule does not rise steeply with building height. Specifically, ... average costs typically rise by 0.5 percent for each added floor between 3 and 30, and then by 0.4 percent for each floor above 30." I accept that from the marginal cost side. But there is also the impact on decreased marginal revenue from reduced saleable floor space as building height grows due to requirements like needing more elevators (this is especially important with Vancouver's skinny towers). However, I'm not sure what the marginal revenue penalty would be exactly. Also, Vancouver condos have something like a 1.5% per floor view premium which might offset that marginal revenue reduction.
I wish the authors would go so far as to say how tall buildings should be. Using the paper's numbers, I gave it a shot. Figuring in a $250 psf marginal cost for the 30th floor, for a standard suburban tower here, and a marginal suburban revenue of $330 per built square foot (assuming it rises constant with height, with sales of a little over $500 per saleable square foot, and a 0.64 saleable-to-built ratio like in the paper),
our suburban condos would be 100-floor buildings if there were no height limits, as the 100th floor would cost $330 psf.
Or, let's say it costs $400 psf to build Shangri-La's 30th floor due to higher quality; it then costs $450 psf to build its 60th floor, and assuming saleable prices around $2,000 psf (that is, $1,300 per built square foot) with enough demand to sell the entire building,
Shangri-La would be 325 floors high, as the 325th floor would cost $1,300 psf.
4. The authors assume that no amount of additional density would alter the characteristics of Manhattan, which is already quite dense. Certainly, Vancouver would be transformed much more substantially if all regulations were lifted, which may bring more negative externalities than they calculated, especially with respect to the congestion externality.
The authors also did not account for some negative externalities of density that regulation protects against. The one that particularly jumps out at me in the Vancouver context is sunlight/shadowing. Our planners have gone to great lengths to ensure a livable city by maximizing natural light, although I'm not sure what the economic value of that would be. Also, we have more natural views to protect than Manhattan, and the authors say natural views are more valued.
Also, a huge one they overlooked in general is meeting minimal health/environmental/safety standards. If the building is unhealthy, the additional residents cause a disproportionate burden on our health care system. If the building is an energy hog, the additional residents create disproportionate pollution per capita. If the building is unsafe (i.e. it'd collapse in an earthquake), there are obvious negative externalities there as well.
5. The section on SFHs looks lazily put together and throws the entire paper into question. These places would seem to have more to gain from relaxed regulation (in some places at least) than Manhattan towers, but the authors don't have any data which shows that.
6. The analysis is really too narrow in scope, since it mainly looks at Manhattan. For it to be more persuasive, it needs to study a market where regulations/NIMBYs have a much smaller effect on restricting building heights. Was it the case that HK had no height limits for a period of time? Yet I don't see any 500 floor residential buildings there... Maybe Dubai is something to look at?
----
That's all I have to say about it. Still, a very insightful paper overall.
One last thing I found interesting was that in 2002, the mean/median price in Manhattan was $500/sq. ft. That's what
Jewel in Metrotown (and other suburban developments) started selling for yesterday, and there was even an overnight lineup at that price, though I'm not sure how well it actually sold.
Threaded Mode