Jason Barr on Building the Skyline and the Economics of Skyscrapers
Mar 27 2017

fBuilding%20the%20Skyline.jpg Why does the Manhattan skyline look like it does with incredible skyscrapers south of City Hall then almost no tall buildings until midtown? Jason Barr of Rutgers University-Newark and author of Building the Skyline talks with EconTalk host Russ Roberts about the evolution of Manhattan as a place to live and work, and the mix of individual choices and government policy that created the skyline of Manhattan.

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Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Mar 27 2017 at 12:57pm

NYC has a Museum of Skyscrapers. http://www.skyscraper.org
I have to get there on my next visit.

Skyscrapers have created value out of thin air, air rights. Must be an interesting story.

Jason Am
Mar 28 2017 at 12:09pm

It would be interesting to also discuss the effect of regulations banning AirBnB in NYC in rental prices and total hotel floor space

Luke J
Mar 30 2017 at 9:06pm

I can’t say much re: Manhattan, but here in Portland, our city planners do not want skyscrapers because, SHADOWS!

Mar 31 2017 at 8:15am

Thank you, gentlemen.

There are some short films, some are Edison Company productions, from the Library of Congress which depict ‘Skyscrapers of New York City,’ ‘Excavating for a foundation,’ ‘Beginning of a skyscraper,’ ‘Panorama of Flatiron building,’ etc. at iTunes U. under the title ‘The Life of a City: Early Films of New York, 1898-1906.’

There is a similar collection of ‘Early Films of San Fransisco, 1897-1916.’

Sorry I am unable to provide a link, but they are easy to find on iTunes.

Kevin Ryan
Mar 31 2017 at 9:44am

Re Jason Am’s comment – “it would be interesting to also discuss the effect of regulations banning AirBnB in NYC in rental prices and total hotel floor space”

I always enjoying listening to discussions of AirBnB and similar. However I would be sceptical that much could be said on this effect at this time.

Do worthwhile unbiased studies exist of the impact of the ENTRY of AirBnB into New York (preferably) or similar cities?

If not, and particularly bearing in mind the lessons of the last podcast – the Andrew Gelman – I would be inclined to think that the entry resulted directionally in:-
a) lower hotel floor space than would otherwise be the case;
b) lower hotel prices than would otherwise be the case;
c) higher residential prices than would otherwise be the case in the rental sector for buildings of the type which are being let out through AirBnB;
d) more residential building in NYC than would otherwise be the case;
e) more tourists in NYC due largely to the availability of lower accommodation prices in the AirBnB properties – and then with knock-on effects for the economy due to that

But I would have no idea how material these effects would have been in practice; and how they evolved over time.

While the banning/crackdown would tend to reverse these effects, but again with great uncertainty over quantification and timeframe – with the actual and perceived strength of enforcement in practice, and evolution of the rules (eg whether they are further strengthened or scrapped) being additional critical issues

Robert Swan
Apr 1 2017 at 7:38pm

Interesting discussion and a very believable thesis.

A couple of thoughts:

Dr Barr nicely explained the limits of vertical growth — that more and more space would need to be devoted to elevators; cable lengths; etc. But at the end of the talk, when comparing Houston with New York, he suggested that Houston was less constrained than NY. Did he not see the analogous limits to growth of a sprawling city: more and more space devoted to transport, the lengthening commute times, etc? It is at least conceivable that Russ’s suggestion that looser zoning rules would make living in NY more affordable.

Thinking of elevators as “vertical roads” brought to mind the occasionally touched-on theme of self-driving cars. You summon your “car”, give it a destination, and it does the rest for you. It seems the future is already with us!

Joe Cullin
Apr 3 2017 at 12:31am

Very interesting. I heard the bedrock explanation long ago and never questioned it.

You mentioned Chicago a couple of times, it reminded me of this lecture on c-span:


Joe Lombardi
Apr 8 2017 at 4:17pm

Was there a discussion about the distribution of heights of NYC buildings somewhere around the 50 minute mark? I can’t seem to find the text, but I remember hearing that 1.7% (?) of the buildings in NYC are greater than 30ft tall. This is surprising, is there a data source for this information?

[The only mention of “1.7%” was with regard to the speed of elevators after the time-mark 36:09. There are other mentions of buildings in NYC, of various heights. You may misremember the podcast episode details. –Econlib Ed.

Addendum by commenter: Ok, I found the time mark, it’s at 1:07. The sentence ends with –“Manhattan is decidedly low-rise”–Joe.]

Apr 11 2017 at 9:26am

Jason Barr said, “And so all these industries were tied together, creating tremendous pressure on land values in midtown, and then giving rise to skyscrapers.”

This is just a really great quote. Jason draws a parallel, in words, between physics and economics–equating price increases to increases in pressure. This is interesting because, in physics, pressure differences dissipate in all directions, but especially in the direction of least resistance. It appears that may also be true in economics. I also find fascinating how prices–which are imaginary constructs–appear to cause physical changes in the real world. It is almost as if there is a causal association between human imagination and changes in reality. That’s an illusion,
of course, but a beautiful one.

Comments are closed.


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Podcast Episode Highlights

Intro. [Recording date: March 7, 2017.]

Russ Roberts: Your book, Building the Skyline: The Birth and Growth of Manhattan's Skyscrapers, is our topic for today. I want to start with a quote from the book about the shape of Manhattan skyline; and anybody who has driven into New York City (NYC) or flown over it is struck by this. I've actually always wondered about it. So, we're going to start with that. So, here's the quote from the book:

The Manhattan skyline has a particular shape. Skyscrapers rise at the southern tip and then just seem to disappear north of City Hall, re-emerging near 34th Street in Midtown. Conventional wisdom holds that the shape of Manhattan's bedrock is the reason, but the contours of the skyline have much less to do with the contours of the bedrock below ground. The depth to bedrock is a red herring; the geological roots of the skyline, rather, are tied to how it affected the initial settlement patterns on the island and economic growth from that point forward.

You then continue:

Skyscraper locations and heights were determined by where people were working and living at the time of their creation in the last decade of the nineteenth century; the location of these neighborhoods was determined long before that. The decisions made about where to live and work before the Civil War would lock-in a particular trajectory for the city; and the skyline would arise out of this history.

So, let's start with the geology, briefly. What's the bedrock claim? Obviously, you have to anchor--you can't build a skyscraper in a swamp, on top of a swamp, directly. You need to do something below that swamp. So, how does bedrock play a role in skyscraper construction?

Jason Barr: Sure. Well, the first part relates to this, what I call the bedrock myth. If you look at the depth to bedrock from Manhattan, in Manhattan, you'll notice that the depth--I mean, if you were able to look at maps or do some kind of test borings or something--you would notice that the bedrock depths are relatively close to the surface in lower Manhattan. And then they start to plunge into a kind of bedrock valley once you get north of City Hall--which is, City Hall is sort of the northern end of lower Manhattan. And then you go into what today is Chinatown and Little Italy and the Lower East Side. And in these neighborhoods the bedrock is very, very far below the surface. Then the bedrock valley--it hits its lowest point in the Lower East Site and the bedrock goes closer and closer to the surface. So, at about 14th Street, the bedrock is pretty close to the surface. So, geologists--the best I can tell, the best I can trace this idea that the depth of the bedrock influences skyline, the best I can tell comes from a geologist who wrote a book about NYC (New York City) geology in about 1968, and his name was Chris Schuberth. And so he wrote, in his book about NYC geology, that one can't help but notice there are no skyscrapers where the bedrock is the deepest. And so this sort of gave rise to this conventional wisdom that these geological constraints influenced the shape of the skyline. So, to the other question--in my book--

Russ Roberts: Is it true that you have to get down to the bedrock? So it would be more expensive, presumably, to anchor a skyscraper when bedrock is far from the surface? It's still feasible, though.

Jason Barr: Yeah. Yeah. Okay. So, the short answer to your question is: Sort of. And let me explain. So, today, the technology doesn't necessarily require getting to bedrock, when you are looking at skyscrapers across the world. But, let me just talk a little bit about Manhattan's skyscraper history and the foundations. The original buildings--the original low-rise buildings were just essentially built on the layer of sand that sits on the bedrock. As long as the buildings aren't very tall, it's not a problem. You can just basically build these spread-footing foundations and you can just build the building on these foundations. But as buildings became heavier and taller, in the second half of the 19th century, the new foundation technologies needed to be implemented to make sure that the buildings didn't lean, or settle, or anything like that. And so the original technologies were using things like piles, where they would just drive these long wooden piles into the sand, and the till, until the pile stops moving downward. And then they would build the foundation on top of these piles; and that was fine. But then when steel came along, and elevator technology was implemented, buildings got much taller and much heavier. And so piles weren't a good solution. There were some experiments with like these concrete mats that were meant to stabilize the building. But the real problem for lower Manhattan is that the bedrock itself is below the water-line. So, after you--if you dig and dig, eventually you are going to get this wet, like viscous sand and tale. And so, as buildings become heavier and heavier in NYC, the technology required, was to anchor the buildings to the bedrock. Because, the bedrock wasn't that far down. And it just seemed the best way to build foundations to anchor the skyscrapers, because of this wet soil and sand that was sitting on top of the bedrock. But the truth is--so that became, this case on technology--they would, basically pump compressed air into a box without a bottom and dig, dig, dig until this box hit the bedrock. Then they'd fill the box with cement and build foundation piers from there. And then they would build the building on top of these piers, to stabilize the building. So, to your other question about the Lower East Side, where the bedrock is very far down--I mean, I, over the years I've been just crunching the numbers and looking at the costs and benefits of skyscraper construction in the early part of their history, of the late 19th century or the 20th century. And it's just clear that once you start looking at the data, this idea that the bedrock depth was somehow a barrier--that just doesn't hold up. So, it's a sort of a case where a geologist sees a correlation between where skyscrapers are and the bedrock is, and then sort of makes the next leap, that somehow those bedrock depths were causal. Based on my data, and based on the research that I did: If there was a demand for skyscrapers in the Lower East Side, for example, or the neighborhood which is today Chinatown, engineers, architects, and developers would have been able to find technological solutions to provide those skyscrapers there.


Russ Roberts: So, when I look at the skyline, I've always assumed, as an economist, that there's a law. That it's stopping--or some kind of regulation--that's making it infeasible. Because it's very unnatural for, given the land values of NYC, for it to be economically profitable to build really tall buildings in mid-town Manhattan. And really tall buildings on the southern tip of Manhattan, lower Manhattan; but not in between. So, we're going to get to that. And as you talk about it, there are some laws. But let's talk about the evolution of the residential and work patterns. What's beautiful about your book is it goes back a very long time. And it starts with the earliest days of New York City, when most of the population lived down by the tip, because of the presence there of the port. And the fort. The rest of it was farmland, wilderness, woods. The silum[?] that now has 2.3 million people. When we start in colonial times we are talking about what, 60,000 people, maybe? Living in, mostly at the bottom?

Jason Barr: Uh, yeah. Well, that's a good question. Literally, when the Dutch arrived, with the formation of the Dutch West India Company, I mean the initial settlers, there was maybe a couple of hundred people living off the island of Manhattan. And, sure. Over the 17th century and 18th century, NYC grew relatively slowly. And, yes. So, by the--I don't have the number on the exact top of my head. But by the English colonial period there was, you know, there was just maybe a few thousand people--10,000, 20,000 people. And it wasn't really until the 1820s, when NYC's population really started its dramatical take-off. So, yeah.

Russ Roberts: So, how did the population spread north? What are some of the patterns that happened as the population spread north? And of course, 'north' today might be Westchester county.

Jason Barr: Right.

Russ Roberts: Or even Albany. Or Rochester.

Jason Barr: Right.

Russ Roberts: That's all upstate. But in the early days, 'North' was, like 20th Street. Right? Because there was nothing--

Jason Barr: Very north. One of the things that I have in my book is sort of the footprint, the evolution of the footprint of Manhattan over the course of the 19th century. And, yeah. I mean, so basically the northern footprint--it just kept moving more and more as the population grew. But, I think to your question, though, is basically, between the founding of New York, which was originally New Amsterdam in about 1626, and about 1830. So, in that almost 2 centuries, most of the people who lived in New York City, which was then Manhattan, lived on the lower 10nth. And the reason was because there was no public transportation. There was no mass transit. I mean, for most people, the way to get around was walking. And so, in that way, the geographic footprint of the city was just constrained by, um, you know, access. And so most of the activity was around the ports, and around the fort. And what I think was interesting--when I started collected data from these old directories. So, the old directories were, I guess, the precursors to the phone books. And I guess phone books don't exist any more, because of the Internet. But, from--starting in the late 1700s, every year, one or more companies would print these directories, which contain information about where people were living, where they were working, what kind of jobs they were employed in. And so by collecting this old data, you could see where people were living and working in the early part of the 19th century, in the early 1800s. And what you see is that most of the people are clustered in the lower tip of Manhattan, and that the very wealthy people are actually living in the heart of the city; and the lower-income people, the lower-skilled people, are living on the northern areas of the city. But then around 1830 or so, with the introduction of horse-drawn streetcars, this was the first time that you witness a commuting to work. So the wealthy people, those who can afford to take public transportation, actually kind of left the heart of the city and moved to the northern fringes of the city. And so, areas, for example, around like Washington Square Park, became sort of wealthy enclaves. And the lower-income people, the lower-skilled people, still remained in the neighborhoods that--the historical, working class neighborhoods. But those historical working class neighborhoods were now in the center of the city. And the wealthy people were on the northern fringes. And so, once the streetcar tracks were laid down and kept moving north, it just sort of increased the pace at which the population was moving north on the island.


Russ Roberts: It's ironic, because we think, today, which is true, that public transportation is mainly for lower-income people who can't afford a car.

Jason Barr: Ha, heh, heh. Yeah.

Russ Roberts: I assume there were some wealthy people who had horses.

Jason Barr: Right.

Russ Roberts: But in general, as you say, most people traveled by foot. And public transportation was an incredible luxury--because it cost money. Because walking, there was no out-of-pocket cost in terms of cash.

Jason Barr: Yeah, exactly.

Russ Roberts: So, that kind of--that sprawl--you really pointed out is kind of the beginning of what we now call sprawl--of suburban life. People wanting to live further away; and presumably with slightly larger, less density--

Jason Barr: Exactly--

Russ Roberts: Larger properties, more expensive properties per square foot. And: How far north are we talking about with that street-, with that horse-drawn street car?

Jason Barr: Well, in the 1830s, the 1840s, we are really only talking about what today is today Washington Square Park. We are talking about like 14th Street, lower 5th Avenue.

Russ Roberts: It's not very far.

Jason Barr: No, no, no. It's only like a couple of miles, you know. I mean, street cars were not--while they were much more convenient and they would arrive every 5 minutes at a particular place, for example. But certainly, they were street cars, and so they were, somewhat like buses today. You know, they would move forward a block; they'd have to stop; move forward. And so, they were not like today's automobiles.


Russ Roberts: When did midtown, which would be 34th Street and north--when did it start to become more populated? And why?

Jason Barr: Well, it really--it began in earnest, I mean the roots of midtown I would say began after the Civil War. So, really in the early 1870s is where you start to see the seeds of Midtown, itself. And the reason is, because, this process of upper-class families and middle-class families moving north on the island. As they moved north, as the streetcar lines continued to be laid, to move people further and further north, you see this northward movement of upper and middle-class households. And, what happens is the shopping--the big retail and entertainment--uh, the entertainment, um, you know, theaters and restaurants are sort of following these households. And so, after the Civil War, a lot of the retail is just moving north, moving north. And so, for example, they wind up moving to, you know, restaurants, and hotels, and theaters. Wind up moving to Madison Square. And also Union Square. Union Square is about 14th Street. Madison Square is around 23rd Street. And so, it's, um, when it's when this retail and when the entertainment districts start forming in these neighborhoods, that Midtown as a kind of commercial hub starts to form. So, this is really taking place, you know, in the 1870s and the 1880s.


Russ Roberts: So, before we get to why, then, skyscrapers came there rather than elsewhere, let's talk about the technology of skyscrapers and what made them possible. And, as you point out, until late--I think I don't have the dates right--late part of the 19th century, it really wasn't very profitable to build a building more than 5 stories tall, because nobody wanted to walk up 5 flights of stairs. 'Scuse me, it's before, it's mid-19th century. Mid-19th century, before the elevator was invented, and was safe, there is no, um--more than 5 stories is a bummer. And in fact, you point out that people paid a premium to live on the lower floors. Whereas of course with an elevator people paid to live on the higher floors.

Jason Barr: Yeah. So, [?]--

Russ Roberts: So, how did that--talk about how did that evolution? And how they moved--once elevators came along? And steel--it came possible to build really tall buildings?

Jason Barr: Well, so let's see. A lot of this technology really was floating around in different forms. I mean, steel obviously had been around for the railroads. And elevators had been around--as early as the 1830s or 1840s. Definitely by the 1850s, the technology for elevators was there. And there's a famous example of Elijah Otis unveiling his safety brake at an exposition in New York City in the early 1850s. And so, once people realized that elevators were safe and that there was some safety brake that would prevent an elevator from free-falling--you know, building developers realized that there was a--basic a profit opportunity. A way to innovate. To essentially create buildings that were fulfilling a demand. And the first skyscrapers in NYC were all in lower Manhattan. Um--you know, there are these tremendous industrial agglomerations. You had the print media industry, which is called Newspaper Row, which is of course across the street--which was across the street from City Hall. And, um, Pace University is in that area today. Then you had Wall Street, and the financial sector, for example. And so, these industries, were, they just had these tremendous forces of agglomeration. There were just tremendous forces pulling these together, the businesses to be together. And this was just creating tremendous pressure on the land values. And developers--if they were paying a lot of money for the land, and they are saying that okay, well, if we have to pay all this money for the land, there has to be a way for us to, um, to recover our investment. And so, the developers just started searching for, for technological, for means to supply the building space. And so--it was around the 1880s, early 1890s, when engineers realized that you could get rid of masonry, load-bearing walls. One of the fundamental barriers to building tall, before steel, was the fact that the walls themselves were made of masonry: brick or stone. And they had to bear the load of the building. But as the building got taller and taller, the thickness of the walls on the bottom ground had to become proportionately thicker to hold the weight of the building itself. So, what would happen, if you build more than 6 or 7 or 8 stories, those walls became incredibly thick; and it would eat into the amount of rentable space on the lower floors. And it just wouldn't make it profitable on that regard. And then, second, as you said, without elevators, the amount of money coming in at the upper floors was just less and less. So, you had thicker walls on the bottom. And you had less money coming in on the upper floors. All of those made it uneconomical to build tall. But then when steel came--and steel allowed for the ability for the, to the eliminate the walls, bearing the load, the steel beams could now bear the load. So, the walls of the building became--as they called them, they were just mere curtains. They were just windows, and just facades to hold out the elements. And so it was just steel that allowed buildings to become taller and taller. Because the steel beams were so strong, they didn't need to be nearly as thick. And the space--you had roughly the same amount of space on the ground floors as you did on the upper floors. And then, the elevators, of course, like you say, they created this rapid transport up to the upper floors. And at that point--


Russ Roberts: But there is this incredible constraint, which I'd never really thought about, which is: As you start to add more floors, you have to add more elevators. Because there's more and more people on those additional floors, needing to get on the elevator at the bottom.

Jason Barr: Exactly.

Russ Roberts: get on the elevator on the 20th floor and just use it for the last--you could. You could walk the first 20 floors. But that's not very appealing. So, you've got to have an elevator that goes from the bottom to the top. Once you do that, as you adding more floors, you need more and more people, which means you have to add additional elevators. And as you do that, you are devoting less and less space to rental, and income-generating footage, square footage. Because the elevators are eating up part of the core of the building. I mean, that's just an incredible tradeoff that inevitably reduces the optimal height, or constrains the optimal height of a building for economic return.

Jason Barr: Uh, yeah. Absolutely. Exactly. So, right. So, there are certain rules of thumb in the industry, in the engineering industry, that if you want a goal of a few more floors you have to add an extra building shaft, an elevator shaft, and you have to eat into the rental of the space. So, you are 100% right. It just introduces a tradeoff. But, once the steel and elevators were there, sort of, the engineering constraints to height were more or less eliminated. And then the fundamental question becomes this economic question about whether adding that extra elevator shaft to go taller and taller generates enough revenue with those extra floors. And, at the end of the day, in some sense it's just a cost-benefit analysis--

Russ Roberts: supply and demand--

Jason Barr: It's just determined by how much people are willing to pay beyond those top floors and whether it justifies--exactly--the reduced space overall. So, yeah, no, I think it's a totally fascinating dilemma, if you will. And engineers and architects and developers, they are just trying to, you know, all the time they are just trying to figure out how to figure out new technology to make elevators more efficient. And how to make, hope to optimize that elevator space in order to kind of reduce the amount of space and to move people up and down.

Russ Roberts: It's actually hard to think of a more important technology breakthrough than that safety break in transforming urban life. You know? I mean, steel is important, too, obviously. But that safety, that seemingly small thing to make people comfortable getting on an elevator, which we never think about any more--well, you might if you are a physics student, occasionally; there are good physics problems involving elevators in free-fall. But, in general, that's such a transformative insight by Otis. Incredible.

Jason Barr: Yeah. No. I think it was just--based on our human, our natural fear of heights in some ways. So, you have to do whatever you can to eliminate people's fear of heights. And, I agree. It's just one of those transformative technologies that enable the rise of modern skylines.

Russ Roberts: And you call them 'vertical roads,' which I think is a really nice way to think about it. And of course you can walk a vertical road. You can take the stairs. But, because of gravity, you are eager to get on that elevator when you are on the 50th or 80th floor.

Jason Barr: Yeah. And people will pay--like you said earlier, before elevators, the most, the expensive floor was the second, the first or the second floor of the street level. So, yeah.


Russ Roberts: So, talk about the--a lot of people have the intuition, that is wrong, 'Well, land is fixed. There's a fixed amount of land. I mean, Manhattan is whatever its size is.' But, you point out that Manhattan gets bigger in two ways: the skyscrapers and landfill. So, talk about that.

Jason Barr: Yeah. When the Dutch came--the Dutch held New York, or New Amsterdam, in the 1620s--in many respects, they saw a place that was somewhat familiar, for example, compared to Amsterdam. There were wetlands--there were low-lying wetlands, and there were channels. And so, when the Dutch came, they started doing the kind of thing that they were familiar with back in the Netherlands: they started digging canals; they started filling in marshlands. And so, in many respects, one of the things that the Dutch started when they came to New York was this idea of creating land by draining wetlands and by creating these channels that would also help drain the wetlands. And when the English took over the colony in 1664, and lower Manhattan began to expand, well, because of the foot, there wasn't very--because of walking and lack of transportation because people were relying on their feet to get around, the natural thing to do was to extend the boundaries of lower Manhattan--to create made-lands, infill. And so bit by bit, the blocks of lower Manhattan moved further and further out into, initially into the East River. And one of the interesting benefits of actually expanding the shoreline was that the ships that were coming into the ports could dock their ships on made land, next to the made land, and still be in deeper water. So there was also this pull to expand the shoreline outward in order to make the port more efficient, because this way the ships didn't have to remain in deep water and then shuttle the goods in. So, between the Dutch and the English there's this tradition of expanding the city through landfill as a way to provide more access and to improve the efficiency of the port. So, in that regard, some estimates for lower Manhattan are that, compared to the original size of lower Manhattan, it's expanded some 30-50%.

Russ Roberts: Which is a shockingly large number. I would never have imagined; I would have said 5%.

Jason Barr: Yeah. Well, this is lower Manhattan. So, this is south of the City Hall today. There are areas around other neighborhoods that have been expanded north of that. It's less, because, part of the reason is because, you know, in the middle and the west part of the island, the elevation is fairly high and above ground. It's just close to the port, yeah, where there's more of a need to expand the city. And that, I would argue, is mostly due to the fact that, when the city is growing and there's not mass transit, it seems expanding into the rivers was the natural way to go.


Russ Roberts: And, of course, the other way of expanding land was you just build a building with more than one floor.

Jason Barr: Yeah, absolutely. Exactly, exactly. The way I think about it, too, is the skyscraper is a form of land in the sky. I mean, what is land? Land is geography. Land is an ability, a place where people can do things, whether it's living or working. And so, you can think of land on the ground or land in the sky. Again, it's just satisfying a need for people to be together, people to work together, live together, to satisfy all of the things that we need to do. And we need to be together, whether it's for work purposes or just relying on services and amenities. Exactly. So, land can be on the ground or land can be in the sky. That's the way I think of it.

Russ Roberts: You have an incredible statistic here. You say,

I calculate that the total usable building space of skyscrapers in Manhattan is 30 square miles of "land"; over 100% the size of Manhattan island for all buildings on the island. Further, for all buildings on the island, the approximate total usable floor area is 62 square miles.

So, Manhattan itself is something like 30 square miles? Is that right?

Jason Barr: No, actually--I think it's only about 20, 23-?--I want to say--I don't have it off the top of my head.

Russ Roberts: Twenty-something.

Jason Barr: Yeah. It's 20-30. Let's just say. Exactly. Ball-park.

Russ Roberts: So there's been a tripling of that, when you use all the buildings, not just the skyscrapers. They've added an additional doubling--they've more than doubled and added 62 square miles of floor space--so they've more than doubled the size of the island. I said 'tripled' because I was--it's the total usable floor area. But, of course, there's roads and parks and all that, too. But the bottom line is: Manhattan has gotten dramatically larger in its 4 centuries, almost 4 centuries of existence. And it can get much larger still, if regulations and incentives were there for that to happen. So, let's talk about what happened in the last part of the 19th century. The Skyscraper Era is late 19th century to, really, 1930s or so, is when there is this enormous increase in skyscrapers getting built in Manhattan. What was going on?

Jason Barr: Well, fundamentally, at the heart of it is just the rapid growth of New York City and Manhattan as the center of finance, the center--it had a tremendous industry. For example, the ladies garments--New York City and Manhattan was the Number One center of manufacturing of women's garments. People might not recognize that today because today's garment industry is something of a shadow of what it was in its heyday in the 1910s and 1920s. And New York City was a manufacturing hub. Wall Street was booming. The advertising, print media--all of these different industries were just clustered downtown. And so, like I said earlier, engineers, architects, and developers were working to figure out how to create more land on a land-constrained island. And so, when the skyscraper emerged, developers found themselves creating a profitable form of real estate. And you see an initial boom. And then--so, more or less there was an initial boom from the 1890s to just a little bit--to about 1913. And then you have a downturn, in WWI (World War I). And then, starting in the early 1920s you see a second boom that was just related, as I talk about in the book--the building boom of the 1920s following WWI was really an attempt to modernize Manhattan. There was a tremendous need for office space in a way that had never existed before in U.S. history. And so, the building boom of the 1920s represents the tremendous demand for service--to house service industries: Corporate headquarters and marketing and legal services. And so the war in 1920s represents kind of the skyscraper boom to house the growing services industry.

Russ Roberts: And as you point out, obviously, you spend a reasonable amount of time in the book--you don't focus on it--but you spend a reasonable amount of time in the book on the ego issues of builders showing off and the desire to have the tallest building, and all that. But you also point out, which I thought was--the economist in me; I mean, I'm interested in the eco part, I think there's something to it--but as you point out, the cost of adding a floor went down during this time period.

Jason Barr: Yeah, exactly.

Russ Roberts: Why was that?

Jason Barr: So, why was it? Because, I would say there's two reasons. One is the logistics of building these things had been worked out, if you will. So, in the 40-year period, let's say from 1890 to 1930, these builders had 40 years of figuring out how to build these structures quickly and efficiently. And so, there was a very steep learning curve that helped to--as the builders moved up this learning curve, it just helped them reduce the costs of construction. And then that combined with, you know, the reductions in the price of steel over time because of economies of scale. And perhaps access to low-wage labor, with immigration, also helped contribute to lower building costs. So, it was basically, I would argue, a learning-by-doing process: that as developers built more skyscrapers, they became more efficient at doing it. And it just helped lower the price of building space. And so, that also helped to contribute to the rise of these super-tall skyscrapers in the 1920s. They--by the mid-1920s, the know-how to make these structures was just so much more than it had been 20 or 30 years earlier. And so, they were able to deliver this floor space, this new land, much more efficiently.


Russ Roberts: So, I want to--I've got to go back to elevators for a minute. Because, two important facts[?] that I wanted to mention, that I got out of your book. One is, shocking: In general, skyscrapers must devote about 30% of the total space to elevators, including their shafts, hallways, and machinery. So, that's something you just don't notice or think about as a user of a skyscraper. But the part I found--that's fascinating. But the part I found even more interesting is how elevators have gotten faster over time.

Jason Barr: Yeah.

Russ Roberts: Essentially, if you think of them as vertical roads and as elevators as sort of the railroad of the sky, you say, 'In New York, the Woolworth Building,' which was the tallest in the world at the time of its completion in 1913, which was what? Something, 55 stories?

Jason Barr: Yeah, 75 stories. Exactly.

Russ Roberts: So, it could run two cars at 700 feet a minute. So, in the Woolworth Building, it was going about 8 miles an hour, an elevator in 1913.

Jason Barr: Yeah.

Russ Roberts: Today, the elevator at Burj Khalifa, which is in where--Dubai?

Jason Barr: Dubai.

Russ Roberts: It goes 40 miles an hour. Forty miles an hour. So, that's a rather--it's a five-fold increase in speed. And as you point out, as you say, since 1931 they've increased by a factor of 3 and a half. Maximum speeds increased at an average rate of 1.7% since 1913. So that's just again an example of how technology and innovation and incentives work to make things more feasible than they were before.

Jason Barr: Yeah, no, I think that's right. Actually the funny--I don't know if it's funny--the interesting thing about elevators today is them actually moving too quickly. Because what happens is people get to the elevator and their ears start to pop.

Russ Roberts: You could miss your floor.

Jason Barr: Exactly.

Russ Roberts: You forget to push the button in time. Change your mind. It's too late.

Jason Barr: Yeah. It's actually about the experience. It could be painful to get into an elevator that's moving too quickly. And the other thing, too, is that the technology is basically having a long steel cable move a box up and down. So, at some point the ability to produce cables strong enough and long enough to move people up, you know, 120, 150 foot, it starts to become constrained. So, in today's skyscraper market the issues are how to move people up quicker, quicker, without them feeling it. And feeling their ears bursting; and things like this.

Russ Roberts: We clearly need a rest stop so the Sherpas can put down the stuff. You go up about 120 floors. Take a break. Drink a cup of coffee. Take a protein bar.


Russ Roberts: So, let's--so these technologies get better. There's learning by doing. There's this explosion of taller buildings, some of which driven by ego but most of it driven by economics. People simply finding it profitable given the increased demand for land in the city. So, here's my question--to come back to my original question--why did those tall buildings occur in Midtown rather than somewhere else, in the 1880-1930 period?

Jason Barr: Because--if we have to go back to, again, the earlier story about the public transportation, these horse-drawn streetcars that were being innovated in the 1830s. So, as the wealthy were suburbanizing, so to speak, they were moving north on the island, the retail--and the commercial businesses were following the middle class. And so, they were following them. And so they wound up, the retail and the entertainment and the commercial started setting up shop between Union Square and Madison Square, between 14th Street and 23rd Street. And so that's the story. Because what was happening was in the historical working class neighborhoods, which were on the northern part of the city, before the streetcar, remained in the center of the city. And the center of city at that point was north of City Hall but lower, but south of 14th Street. So, those became the tremendous immigrant, the huge immigration enclave. So, in 1840s, when the potato famine hit in Ireland, the Irish who were coming to New York were living in what then 5-Points, for example, which was just today, sort of the Chinatown area, Little Italy area. And so they were moving--the Irish who were hurt by the potato famine were moving to New York and living in the historical working class districts that had been in existence, since, let's say, the early 1800s. And so the middle class are moving north. Businesses are following. And so, when the amount of commercial activity hit a certain threshold, and land values became high enough, then skyscrapers developers realized, okay, in midtown there is a profit opportunity to build a skyscraper. And this had been around, 1900. And so once skyscraper developers saw this profit opportunity north of 14th Street, then it's set in motion, the building of high-rise buildings and this kind of created a kind of positive feedback loop in Manhattan. So, the point is that there are no skyscrapers south of 14th Street and north of City Hall not because of the bedrock, but because of this historical, demographic evolution: that the working class districts remained working class districts and there were very few incentives to build skyscrapers in the working class districts and the ethnic conclaves such as Five Points in the lower east side. But there was tremendous incentives for them to build skyscrapers north of 14th Street, where there was the demand for them. And that was related to, originally retail; and then you saw movement of architects, and builders; and the garment industry was moving there. And you know, Macy's had moved to Herald Square. And so all these industries were tied together, creating tremendous pressure on land values in midtown, and then giving rise to skyscrapers. And, the first skyscraper north of lower Manhattan was the Flatiron Building, on 23rd St. Which is still there today. [?] structure[?]

Russ Roberts: Not very tall, though. How tall is it? 20-something?

Jason Barr: Well, I figure--yeah, yeah. It's approximately 30 stories--20, 25, 30 stories. I don't know the exact number. But that was considered very tall--

Russ Roberts: and a beautiful building--

Jason Barr: back in the day.

Russ Roberts: So, someone should write a book called 'Potatoes and Pogroms,' because the Irish and the Jews, as you point out--you also include the Germans and the Italians--they were the bulk of the immigration and population in this time period of the late 19th century to the early 20th century. And they wanted to live near each other, for all kinds of reasons. And so tenements were created. And--I think I have the argument right--it's not profitable to build a tall tenement building, because the willingness to pay to compensate for those elevator costs isn't going to be there among lower-income people. The puzzle, then is: So, the tenement world--the world where immigrants live between north of City Hall and south of 14th Street--that's going to be lower-built, lower height-sized buildings, where relatively low-income people live. The question is: Why didn't they get pushed out? So, why didn't the expansion of, an of course, just to interrupt my train of thought for a second: It's true that there's some taller buildings north of 14th. But there aren't a lot of really tall buildings. So, when you again look at the skyline, from New Jersey you see, what looks to be just nothing between--I would say, it's more like closer to 34th--south of the Empire State Building, you don't get a lot of tall buildings until you get to the southern tip. And so, the puzzle then is why didn't it become economically feasible to build taller buildings? Like, why wasn't the Flatiron Building torn down and replaced by a 70-story condo that would attract higher-income, higher-paying people? And as you point out, that's because--I think I have it right--zoning and taxes, special kinds of taxes that were put in place, [?] 1911? And then again somewhat in 1961. But, it's that which locked in--it's those regulations that locked in the existing patterns of work and residence that we see today. Is that right?

Jason Barr: Yeah. I would argue it's mostly on the zoning end, the building regulations end.

Russ Roberts: Explain.

Jason Barr: Yeah, I will. The tax issue is much more complicated today because it involves subsidies and tax breaks on these things. It's very much complicated today. But to go back to the zoning issue: So, in the year 1890, for example, the only real regulations on, specifically on commercial buildings and tall buildings, in general, were just related to safety: how thick the steel had to be and so forth. So, there were no height regulations or anything like that. So, the 1890s, people for the first time really started to see what to them were really tall buildings--20-story buildings was incredibly tall. If you live in a world where everything you know is 10 stories or less, and the tallest structure you know is the church spire--then all of a sudden you see these buildings become higher and higher compared to the church spire that you are familiar with--all of a sudden, you know, it creates a certain anxiety among people. And they became worried that maybe they weren't safe. They became worried that maybe they were going to block out the sunlight of the neighboring structures. People started to worry that there was going to be too much congestion on the street because there were so many people in these neighborhoods. And so, throughout the early 20th century people were saying, 'Well, these building heights aren't regulated; and if unchecked we may create more of these urban problems.' And so, in the early 1900s people started thinking about ways to regulate tall buildings. In Chicago, they basically just said, in the 1890s, 'That's it. We're just going to limit the height of the building. And buildings in the Loop can't be more than--something like 100 feet.' Then they changed it to 200 feet, and so forth. So, basically in Chicago, they had just outright building-height caps.

Russ Roberts: Of course, those were very popular with people who had already built the tallest building, because it reduced competition for that land. This increased the price.

Jason Barr: Yeah. Absolutely. What it seems to be is some of the people who were lobbying for height caps were people who were worried about fire and safety, for example, because they felt that, you know, a 20-story building, you'd have all these people up there and it would be very difficult to get them out. But other people, like developers, if there was a glut of space, then a developer would say, 'Yeah, height caps are a great idea.'

Russ Roberts: Well, it's a classic Bootlegger and Baptist example, that we've talked about many times on this program. You have the civic-minded or kind-hearted people making an alliance with the self-interested people; and the kind-hearted people--the baptists who are trying to look and save people from Demon Rum--say, are giving cover to the developers who can say, 'Oh, yeah, yeah, yeah. We can't have people up there. It's too risky. We should just limit this. It's for our own good.' So that's a very natural American and worldwide problem.

Jason Barr: Well, as something of a side note, I tried to look at the relationship between height caps in Chicago and how that influenced the building in New York, and vice versa. There does seem to be some evidence. It's admittedly hard to tease out. But based on the data that I collected and the statistical methods, there does seem to be some evidence that when Chicago limited its height, it was actually beneficial to New York.


Russ Roberts: Yeah. New York landowners were lobbying Chicago politicians, also: 'It's too dangerous, these tall buildings. You guys have a fire problem; you don't have good fire departments. You've got to have lower buildings.'

Jason Barr: Yeah. Yeah. That might be true. But in New York, the real estate community was dead set against high regulations. And so the only way to kind of bring a large enough coalition on board was to, instead of regulating heights by having a cap, they essentially regulated the shapes of the building. So, in 1916, New York City implements the first comprehensive zoning code. And there were actually three components to this. One is regulating the shape of the building. And I can explain that a little bit more in one second. And the second part was just limiting the building, the uses of different neighborhoods. So, some neighborhoods, especially in the outer boroughs, were just zoned for residential. And also for low-rise residential. And the third one had to do with how much lot-area, how big the footprint of the building could be relative to the lot area. For skyscrapers, the big issue was the setback requirement. So, rather than having a height cap, the rule said that, based on the width of the street--there were two components. One was the width of the street. And the second component was a multiple number that the city determined when they created these zoning maps. So, a multiple number of 2 meant that a building could rise straight up 2 times the width of the street; and then it had to be set back a certain amount, and then it could rise up and had to set back. And so forth. Except that a tower was permissible. In other words, the building could have a high-rise tower that could go as tall as the developer wanted as long as it didn't have--as long as the floor area of the tower was less than a quarter of the lot size itself. So, that regulated the shape of the building.

Russ Roberts: That gives the distinctive shape of many New York buildings, which I'd never thought about.

Jason Barr: Yeah.

Russ Roberts: I always thought it was just like, kind of a safety thing--that as the building got taller, you had to make it narrower. But of course the World Trade Centers--the Twin Towers--were not like that. They were just straight up. There was no wedding-cake look to them.

Jason Barr: Right. Well, one of the reasons New York City has a bad reputation when it comes to architectural style is because developers, they just prefer--if they have their druthers, if you will, it's the glass[?] box is the most efficient way to build. So, the straight up--you have uniform floor plates; you have uniform materials.

Russ Roberts: You maximize the square footage available for rental. As you make the building narrower at the top, even if it's aesthetically pleasing in a certain sense, it's less space.

Jason Barr: Yeah. So, in a kind of a, sort of an unregulated world--if you look at the pre-1916 buildings, they go straight up. Because of light issues. Because, um, they wanted to maximize sunlight, they all have, like, sort air shafts that allow for more windows on the inside of the building. But, by and large--the Woolworth Building went straight up for over 30 floors, and then it had a tower. And the Equitable Building which was completed around 1915, was the same thing: It just goes straight up. So, then, after 1916, there were these set-back requirements. And the logic was that, if you are building very dense and very tall office structures, they are creating a negative externality: it's creating additional congestion, it's blocking sunlight. So, the idea was essentially by setting the buildings back, you are both allowing for more sunlight on the street, and in theory, you are reducing the number of people that would be in the structure. But, I think to your other point, the zoning, aside from this shape--what I call a 'shape tax,' because that's essentially what it was: the zoning codes were essentially penalizing a big square or rectangular building. But, the other thing it did is, basically, the writers of the zoning codes looked around and they said, 'Okay, tall buildings are here in Midtown; tall buildings are here in Downtown. So that's essentially where we're going to incentivize their construction. And we are going to create lower multiples, like, basically throughout the rest of the city.' So, multiples of 2.5 and 2 are the highest multiples that were available. In Lower Manhattan it was 2.5 and Midtown was 2. And other places, like, 1--much of the city had a multiple of 1, which meant that you had to build up 1 story--I'm sorry, you could build up a height equal to the street width and then you had to set back. So, that discouraged tall buildings.


Russ Roberts: So--I understand this; that's a huge factor. So that kind of locked in--it didn't literally lock it in, but it changed the economic incentives going forward, to make it much more economical to build skyscrapers in places they already were. Which happened to be Midtown and Lower Manhattan. The puzzle I--it's really a public choice/political economy question: Developers, you'd think, would push against that constantly. Right? So, if you think you want to buy land in that middle part where it's nice and flat, not very tall, and you could really make a killing if you could put a big building near Midtown, or near City Hall--near Lower Manhattan--on land that's currently zoned for only 1, say, or one width of the street--

Jason Barr: Well, that was--they updated the zoning codes in 1961. So, the logic, as [?] said, the patterns are the same of limiting building height in the neighborhoods you are talking about, but the rules are a little bit different. So, go on. I'm sorry.

Russ Roberts: No, it's interesting that--there is a constant tension, and it's implicit in your book about the beauty and identity of a city, and the opportunities for innovation and change and dynamism. So, when I think of, say, Florence. Florence today, in Italy--I've never been there, but my son was there recently and I've looked at a lot of pictures that he took and that others have taken--it's a gorgeous city. It looks a lot like it looked centuries ago. There's a reason for that. It's not just random, I'm sure, that Florence is unchanged. And New York, there's more of a tradeoff. New York has changed a lot. But as you pointed out, after Penn Station got torn down in the 1960s, replaced by Madison Square Garden--and there's a beautiful picture of the old Penn Station--I'd never seen it; it's just magnificent; or hideous, depending on one's taste--structure, there was a big movement, for whatever reason toward locking in, and historical landmarks being preserved, and things like that. So, there's this inevitable tension; and it's just interesting to me that, say, over the last 50 years, certain features of the Manhattan landscape, and skyscape, have been preserved. And others are sort of in constant flux. One example that you write about briefly is the Hudson Yards Project, which is unbelievably enormous expansion of effective land by building over an enormous rail yard, covering it with a roof, through incredible technology, and so on.

Jason Barr: Yeah. Right. So, it's almost as if certain areas of Manhattan are on limits, and certain areas are off limits. And this creates--I agree--it creates quite a dramatic tension, because what happens is that the office market--I would argue the office market functions fairly well. I was just looking at the vacancy numbers today for Manhattan offices, and that's something like 9%. So, that's, you know, it's not great, it's not terrible. So, in other words, office area--

Russ Roberts: But as you point out, I think in the Great Depression, it was just like the human unemployment rate: the office unemployment rate was 25% in the mid-1930s.

Jason Barr: Oh, yeah. Absolutely. Exactly. So, right--

Russ Roberts: So, now it's a relatively low number, and it's born by buildings; and it's not--and the people who invested in them. It's not a human tragedy, except incorrectly through lost expectations of money.

Jason Barr: Uh, yeah. But part of it is--there needs to be a certain vacancy just for expansions and for turnover and for things like this. But, New York, although there's of course a lag with building tall office buildings, but New York's office market seems to work in accordance with the laws of supply and demand. And part of that is because there's sort of enough areas that are zoned and encouraged, you know, New York encourages offices in the specific areas of Midtown and Downtown. The problem is that the market, the residential market doesn't work quite well across all areas. I mean, where Midtown is, is where the demand for these super-luxury buildings are. And again, the zoning is permissive of, for these kind of buildings. So, you know, there's a lot of complaints in New York about, 'We just see these super-tall luxury condos; and we have this housing affordability problem.' Well, you know, I think we need to really seriously discuss housing affordability because it's a tremendous issue. But, you just can't deny the deny the fact that much of the city is kept low-rise to preserve the--its historical character. So, as a result, developers tend to build in areas where the zoning is more permissive. And where those are, where the demand for buildings in those neighborhoods tend to be of the luxury variety.


Russ Roberts: It is an interesting question, though: If you had--you said the market, the office space market works pretty well. Of course, it's not much of a market. As you said, it's partly liberated and partly highly constrained. And it's quite funky. But in the pre-1916 era, before the zoning and shape tax, it was much more of a free market. There was all kinds of housing choices: you could live in a fancy place or a not-so-fancy place. You could live in a tenement. You could live in a high-density, very high-density dwelling with lots of other people crowded together. And the question now would be--to me, the fascinating question would be if there were no zoning. Would Manhattan just be an enormous number of 70-story height in condos? Or would it be a mix of affordability? It could be that it's just not affordable for low-income people to live that close to the high-demand areas of Wall Street, Times Square, and so on. That may be the case: maybe they would be pushed out and find themselves living in Brooklyn and Queens and New Jersey and Connecticut, etc. It's hard to know. I [?] your speculation.

Jason Barr: Okay. Yeah, okay. Speculation is always risky business.

Russ Roberts: Why? We're not going to see it. You're not going to be held accountable.

Jason Barr: Right.

Russ Roberts: It's nothing to worry about. It's a freebie.

Jason Barr: All right. All right. So, here's what I can say. I've done an exercise. It's not in the book. It was in a--there's a real estate website and magazine called The Real Deal. And so I talked, I discussed this little exercise I did with this reporter, who wrote about it and he posted an article online. What I did was I took real estate prices across--I think I used zip codes. And I found--I tried to look at the average, or I should say the median sale price of real estate by zip code across the city. And so, if you think of the price of real estate as an indication of what people are willing to pay in those neighborhoods, you can then do some back-of-the-envelope calculations and say, 'All right: if this cost so-much per square foot to build, and here's what developers would receive,' you could just sort of map out across the city neighborhoods that are completely under-built based on the current prices. And to answer your question: You wouldn't necessarily get 70-story buildings everywhere. As you go further and further in Manhattan, the price of space drops pretty quickly as you go away from Midtown and you go into neighborhoods like Washington Heights, for example. And so, in those neighborhoods you would probably get 20- or 30-story buildings. And then in the Bronx and in Queens you might get 10- or 15-story buildings. But, the demand of a neighborhood just--it's certainly true that based on the current prices of real estate the demand for much taller buildings exists. Now, what that optimal height is in different neighborhoods is going to depend on the relationship, the ratio of the income that can be generated relative to the cost of construction. But one of the big problems is rent stabilization--I talk about this in the Epilogue to my book--is, New York City, in an attempt to preserve housing affordability initiated rent control after WWII; and then that became rent stabilization. So, rent control limited the actual amount of rent you pay; rent stabilization limits the increases in the rent. And also that gives the right of the tenant to remain: the landlord does not have the legal authority to remove a tenant if they are in a rent-stabilized unit. So, that slows down turnover, and it disincentivizes developers' tearing down older buildings and building newer higher-rise buildings. And there's a big tension in the city about rent stabilization. I mean, obviously if you have a rent stabilized unit, you are getting a benefit; and people like that. But a lot of people in New York like it because they think it encourages neighborhood diversity. And, you know, it's one of these tradeoffs: you have neighborhood diversity; and if people value neighborhood diversity and they value people of different income levels all living in the same neighborhood then certainly rent stabilization encourages that. And if you eliminated rent stabilization, I think you are right: there would be a lot more people of low and moderate income that would move out to, say, Queens or the Bronx. And many New Yorkers, they feel like they don't want to see that kind of thing unfold to Manhattan. Now, in the very long run, I believe that you can both build many kinds of houses, many types of housing to accommodate many different kinds of people. But in the short run, or the medium run, I think if you got rid of rent stabilization, got rid of zoning, like in the next 10, 15 years, you'd see this mass exodus of people with low incomes leaving Manhattan. And I don't think New Yorkers--if they're polled about that issue, they don't seem to want that to happen.


Russ Roberts: Do you think that's true? So, here's the issue, for me. And I look at--I've spent some time in Washington, D.C.; I've spent some time in the Bay Area in California; I visit New York from time to time. All three have had massive increases in the price of land over the last 25-50 years. And you quantify it very clearly in your book: I think it's from 1993 to 2007. Which is a 14-year period. Land prices in Manhattan were rising at over 20% a year. Now, of course, it fell after the Recession; and I don't know what it's done since. But, large metropolitan areas--it would be true of Boston, it would be true of Chicago--they've had huge increases. And my impression is that most of that is driven--it's true that people like to live in cities more than did, say, in 1920. Or 1850. But a lot of it's due to restrictions on land use, zoning, and other things. And we could argue till the cows come home about whether that's good for preserving the character of the city, the thing I alluded to earlier. But, I want to read a quote from the book. You say,

When we think of Manhattan as the ultimate skyscraper city, we ignore the fact that high rises that constitute thirty stories or more are only 1.7% of all buildings on the island. In fact, 70% of all structures on the island have five or fewer stories, while 90% of all structures are ten stories or less. Manhattan is decidedly low-rise.

And I think, basically, your comment on rent stabilization and zoning, I think if we got rid of them, the price of land in Manhattan would fall dramatically. And the cost of renting any particular size space would fall dramatically. And I understand why current people who live there, or who have the privilege of rent-stabilized apartments want to keep them. I think a lot of them are not poor, by the way. They are the children and grandchildren of rich people, who have taken advantage of that opportunity and passed those on to their children. But the zoning thing--I think it would have, there would be an enormous change that the current developers would not like. And so, they are not going to ever--politically they are going to fight it. And I think people's intuition that you mention might be that it's protecting low income people. But to me, the zoning is privileged. These spaces--San Francisco, Washington, D.C., New York--for rich people more or less, because they artificially increased the price of land through the inability of developers to add square footage.

Jason Barr: Overall I agree with that. Yeah; no. Looking at the data, and my understanding of the New York State real estate market suggests that the so-called elasticity of supply--the ability of developers to build new housing to meet the demand--is constrained. And so, I agree. We have this issue of: Demand is rising; supply is somewhat constrained. So, who is going to get access to developable housing? Those who can afford to pay. I think in the short run--I agree with your assessment that in the long run, if a more open real estate market was allowed, there would be a much healthier market. You know, you'd see vacancies. Vacancy today in Manhattan on average is something like 1% or something like this--

Russ Roberts: In residential--

Jason Barr: Yeah. So, the irony--this has a side note. The irony of the rent-stabilization program is it's designed to help New Yorkers when there's a housing crisis, which, when there's a vacancy rate below 5%. But then you implement the rent stabilization and it creates a low vacancy. Thereby perpetuating the very crisis it was meant to solve. But--um--

Russ Roberts: Wouldn't be the first time.

Jason Barr Yeah. But, the point is, I think, in my opinion the problem is this: The problem that New Yorkers don't want to face or think about--and I tried to address this in the Epilogue to my book--is that if you just sort of transition from something today which is fairly restrictive to something that's much more open, in terms of construction, there would be an adjustment period. And I believe, in the short term adjustment period, prices would spike up. Prices would spike up. And then, as developers--because if you eliminated the rent stabilizations for example, all of a sudden the [?] would explode.

Russ Roberts: Sure. Yep.

Jason Barr So, how long is the long term? How quickly can we transition from this rapid rise in prices when we open the market to one where prices are then, start to fall and stabilize at a more, at a more, um, at a more affordable level? It could take--I don't know. It could take up to a decade. You know. It's hard to know. And so, to me, the issue is, how do we go from today to that future period in a decade in a way that really doesn't really, you know, cause a lot of turmoil and pain in the short run?

Russ Roberts: But of course the other problem is you've got the uncertainty about future regulation. Which is always going to--part of the tinkering with rent control and rent stabilization has meant that if you have a plot of land, you don't want to build rental property. You want to build ownership property, because you are less likely to be messed around with in the future. You have much more certainty about the flow of income from it.

Jason Barr Right.

Russ Roberts: And so it's just--if we loosened the zoning regulations over time--which would be my way of dealing with the short run transition issue--there would always be the uncertainty that it would revert back to what it was before. And it would be hard for politicians to keep their promises. Which seems to be a--

Jason Barr Well, I have two comments, though. One is that New York City changes--if the history of making big changes is any guide, New York City doesn't make changes very frequently. 1961, 1916--we're still in the 1961 world. And then rent stabilization, 1945--rent control in the 1940s to rent stabilization, I think it was in the 1970s or 1980s. So, they don't change very much.

Russ Roberts: That's true. They get a good run.

Jason Barr: But the other thing I want to say that people worry about is, if you see a neighborhood that has a lot of 5-story apartment buildings, which is all of a sudden going to become a neighborhood that has a lot of 10-story apartment buildings, then people start saying, 'Well, my schools are already overcrowded. My subway stop is already overcrowded.' And what I try to argue in the book is if you are going to start making changes to the zoning rules, you also have to consider the services and the amenities that go along with these things. And so, nothing is in a vacuum. I would say you can't just change rent control and change zoning and then say you've solved the problem. You have to also consider a host of neighborhood-related issues and schools and access to transportation, and these things. And this I think is just more than any politician is willing to consider at this time.


Russ Roberts: Yeah, and that's true. I'm going to read one of my favorite quotes from the book. You say--and this is a beautiful example of how the city and the skyline is emergent, rather than just designed. You say,

The rise in growth of the skyline must be viewed as a system of interrelated parts. One group's decisions influence other groups, whose subsequent decisions feedback and influence the rest. To put it succinctly, the battle for place leads to a land dance, a kind of multiple-partner waltz around space. Each tries to be the leader and take the dancers in a particular direction only to get a response to go in a different direction, and so on. The location and heights of buildings and land-use types form as a response to what is being built in other parts of the city. The micro-economy of a neighborhood is a result of a kind of economic "dialogue" with other neighborhoods throughout the city. To understand the skyscraper we need to understand its opposite: the tenement.

And I think that's a beautiful description of how markets work. And we don't give them much of a chance to work very well in places like New York, because as you point out, somebody usually would have to design public schools, since we don't allow private--we have public schools as the default in our cities. So, someone would have to figure that out. And the subways are public transportation; the politicians would have to figure that out. So, the opportunities for emergent solutions to the challenges of, say, taller buildings--it's going to be limited. So, one way to think about it, and we'll close on this, is Houston. So, my understanding is Houston has a lot less zoning. My guess is that as the hundreds of thousands, millions of people have moved to Houston over the last 25 years, I would guess the price of living in Houston hasn't gone up 25% a year. And the result is a city that's very affordable, but not as charming as New York. That could be for other reasons, as well. So, New York is more like a museum, and Houston's more like a rainforest to me. So, why don't you comment on that, and we'll end there.

Jason Barr: Well, I can't speak to the market in Houston. But the one thing I can say the differences are is that the New York metropolitan region, there's very little vacant land. And so, in some sense the city is closed. So the question becomes: How do you open up the city? How do you make the real estate market more dynamic without, you know, obviously upsetting people's desire to have a neighborhood character and things like that? Houston--actually my sister and her family used to live out in a suburb of Dallas. And so when I would go visit them, I would see these signs, these ranches that just said, 'Zoned for Real Estate.' So, in places like Houston and Dallas, it's still an open city in many respects. Still, as the price of housing increases let's say closer to the center, farmland can then be converted to residential. You don't have that kind of dynamic here just because the area is so dense and so built up.

Russ Roberts: It's an island. As you point out.

Jason Barr: Yeah. So, the question for us is not how do we mimic Houston, but how do we devise solutions for New York that mitigate the affordability, given that New York is, like you say, almost 400 years old. So, that's my thought.