Wednesday, April 23, 2014

Fear of heights: absent zoning, would all constructions be high-rises?

One of the common fears of people when we talk of relaxing zoning is the fear that very tall buildings will come to their neighborhoods, which will dominate them, hiding the sun during parts of the day and making it harder to protect their privacy as people high up will be able to see them in their backyard.

Why is there that fear? Often, the problem is that this is often the form that density takes up in many North American cities, like New York, Toronto and Vancouver. So some people come to believe that this is what density means and that any relaxing of zoning will lead to very tall condo towers.

However, I think it's best to reassure them. Without zoning, these very tall condo towers would not likely be very common. In fact, the reason why they are such a huge part of the new dense constructions in cities is essentially the fault of zoning. So let's consider high-rises and why they will never dominate housing unless we really have no choice but build them...

High rises don't make economic sense as long as you can satisfy demand with low-rise and mid-rise buildings

There are two main components to the cost of housing: the price of land and the cost of construction. The main advantage of building higher is lowering the price of land per housing unit. For instance, if there's a lot in a city worth 200 000$ and you want to build housing on it, and the lot is only big enough to have 1 unit per floor. If you build only 1 story, then that unit will have to include in its price the full 200 000$ price tag of the lot. But if you build 2 stories, then that price falls to 100 000$ per unit. If you build 4 stories, then that cost is down to 50 000$ per unit, etc...

However, the law of diminishing returns is in full swing here. The taller you build, the less an additional story will reduce the price. If you start with one story and add another, then you halve the effective price of land per unit. But if you start with 4 stories and add another, you reduce the price by only 20%. Graphically, it gives this neat curve:
The cost of land per unit depending on the number of stories of a building
You can see that the cost plateaus around 10 stories, but even past 6 stories, there is little to gain by adding a few stories.

Meanwhile, the taller you build, the more expensive the building gets. That's because low-rise constructions, up to 4 stories, can be built with wood frames and can be walk-ups, meaning with stairs leading to the different floors. The construction norms are also more lax. Meanwhile, taller buildings require elevators, which are expensive to build and maintain, they also require steel or concrete frames, and must be able to withstand a lot more weight and stress, resulting in the need for more structural engineering. All else being equal, wind and earthquakes will affect taller buildings much more than smaller ones.

All these elements add up to the cost of high-rises. How much so? Estimates I've seen says that a low-rise building can cost 150 to 200$ per square foot to build, but high-rises add 80 to 300$ per square foot to those costs, depending on how tall they get. I am lucky to have an empirical test of it. Where I live, there were a few recent constructions both of low-rise and high-rise condos, built within a few hundred meters of each other with similar standards of construction.
Lasalle 14-story condo towers

Lasalle new 3-story condos
So I went ahead and searched on real estate sites for the prices and sizes of condos of the two types, and got interesting results. Here is the graph of all the listings I found, the red squares are low-rise condos, the blue diamonds are high-rise condos.
Price ($) vs size (square feet), low-rise in red, high-rise in blue
Overall, each square foot of a low-rise condo costs 262$, while each square foot of an high-rise condo costs 366$, a whopping 104$ more. This is near a subway station by the way, the terminus of a line, but still, land should be pretty expensive nonetheless.

So economically speaking, if you can add the same amount of units by either building 3- or 4-story buildings or building 10+-story buildings, the smaller buildings are likely to be much more economically efficient. If you still try to build tall towers, competitors could significantly undercut you by building low-rise or mid-rise condos instead. The only time that high-rises really become economical is when you already are maxed out of low-rise and mid-rise buildings and need to build more units, at which time the only way to do so is to build higher, and then you may have to build very high to compensate the higher construction costs with lower land prices.

Of course, this assumes that people do not care whether they live on the second floor or on the twentieth floor, which is not true, and it's a nice segue to the next point.

People tend to prefer low-rises over high-rises

Everything I've seen confirms this. If you ask people, most of them prefer to live closer to the ground, and if they can have a door that opens right on the street, the better. People feel less isolated and getting in and out of their home is much easier. If they have kids, it is easier to keep an eye on them when they're outside if you're on a second floor balcony instead of a tenth floor balcony. In a way, high-rises are a bit like vertical culs-de-sac.

Now, that isn't to say there aren't some people who crave the isolation and calm of high-rise apartments, of the panorama they offer, of the security of controlled accesses to the building, or the amenities of big condo towers. Some people do like this, and may be ready to pay the price for it, or accept smaller accommodations in order to afford it. But most people, if offered the exact same unit for the exact same price, but one high up in a tower and the other a mere stairway away from the street, will tend to prefer the one close to the street.

Combine that with the cost advantage of the low-rise and mid-rise, and you realize that the conditions aren't there for a multiplication of high-rise housing, even without zoning. You'd still get a few in certain situations, in the downtown area or in a few scenic places for people who actually are ready to pay more for this type of housing, but it's a niche housing market.

So since the demand for it is low, there is little incentive to build a lot of it.

So why are they building so many tall condo towers in certain cities?

Good question, me. The reason is paradoxical. The reason why they build condo towers so tall is that they restrict heights too much.

Yes, I did choose the most convoluted way to say that.

It's about zoning, again. The reality is that in a lot of cities in North America, the vast majority of the land is zoned for very low density housing like single-family homes, and building even low-rise condos is illegal in most places. So adding a lot of housing units by building low-rise and mid-rise buildings is just not possible, unless zoning were changed. Changing the zoning would also risk running into a lot of opposition and be costly for developers, so fighting for a zoning change to build 3-story condos instead of 2-story houses isn't really worth it.

At the same time, these areas are all built up, there is little or no vacant lot left, and people still want housing to come live there. So the only solution to provide these people with housing is to exploit to their full extent the few places where it is legal to build high buildings, and where local residents don't care if another tower sprouts up in the neighborhood. Since the demand for housing is so great and the opportunities to build new housing so few, every opportunity leads to very, very high condo towers. There is simply no alternative as things stand.

This essentially is a shortage of land for new constructions, caused by zoning. Even if there is an upzoning "creep", with zones allowing mid-rise and low-rise constructions slowly taking over lesser density zoning adjacent to them, the slow creep keeps the land in shortage conditions, and thus prices are artificially high.

So the reason why many North American cities keep building huge condo towers is because they make it way too hard to build low-rise and mid-rise housing in their lower density neighborhoods. High-rises aren't to fear if zoning was relaxed, if anything, I think the pressure to build more high-rises would actually weaken and less of them would actually be built.

Now, none of this is about my opinion on whether or not building high-rises is good or not, I was merely judging them on their objective merits and people's housing preferences. My opinion on height limits and the like will come later.


  1. In the US, any multi-family residential building with more than four units has to have wheelchair access to every single unit. So unless you're breaking a development into four-unit chunks or otherwise having ground-floor access to every unit, you need an elevator.

    The height limit in California, at least, for wooden buildings with sprinklers is five stories, which can sit on top of a concrete retail/parking podium. And, lo and behold, we see an awful lot of five- or six-story apartment buildings here, even in areas with higher FARs. Particularly after the recession, a lot of sites in downtown Los Angeles that had been fully entitled for high-rise condos were instead built as wood-frame mid-rise buildings. It turns out there just isn't that much demand for higher-cost high-rise condos.

    Except, apparently, among foreign real-estate investors, which is a whole different story… I remember in Kuala Lumpur that the vast majority of luxury high-rise condos were marketed to expats and foreign investors, whereas most urban Malaysians live in terrace-house sprawl. The same is true to a lesser extent in New York: most locals live in mid-rise buildings, while the condos belong to the jet-setters. And there are only so many jet-setters to buy expensive condos.

    1. Wheelchair access is an issue in walk-ups. It would be best to ask simply for wheelchair access to 1 or 2 units in low-rise buildings, that way ground floor units can be wheelchair accessible and provide units to the disabled without making buildings too expensive by forcing them to have expensive elevators for two or three stories.

      Effectively, there isn't really much demand for high-rises in general, it's just not a type of housing most people really desire. The big exception is the very rich and investors, who like them for the same reasons most people dislike them.

      High-rise condos are very safe and isolated from street life, often with controlled access with a guard or concierge on the ground floor. It is hard from the street to see which apartment is occupied and which is not, and even then finding that apartment from the inside is quite difficult. Most condos are pretty small, but that's not a problem when it's just a secondary residence, most of one person's stuff can be in their primary residence, with only basic furnishings in their "pied à terre". Maintenance is also quite easy as most of the building is maintained by employees, and the small condo can be cleaned up in a short time. Many people like having a bit of land of their own, but investors care not at all for it, for them it's just a complication requiring more maintenance, and the very rich tend to have primary houses or retreats elsewhere with big lawns, away from cities, so their desire for a yard is quite satisfied.

      Essentially, they're often like small private hotel rooms more than actual residences.

    2. And then there was the "condo hotel" fad before the recession, which basically petered out… I think people do accept tiny condos as their primary residences in cities that are more uniformly high-density, like Hong Kong or Manhattan. Though those cities have such a high degree of activity that people tend to live their lives out and about, only going home to sleep.

  2. Worst case scenario, a city with relaxed zoning ends up looking like Brooklyn or Paris, unless you're in a developing country.

    1. Brooklyn, maybe, Paris... only insofar that most buildings are mid-rise. Paris has a very unique look which is the result of extremely strict controls on what may be built, especially in its center. A city with relaxed zoning wouldn't have these boulevards flanked with buildings of the exact same height for hundreds of meters, forming unbroken walls of buildings as they share walls with one another.

      Tokyo is a better example of what it could look like. Most of Tokyo is quite low, high-rises are present, mostly for offices, but residential buildings tend to be 3- to 10-stories tall only, even near the downtown area. Buildings are often eclectic and rarely share walls unlike in European cities, largely because to share walls, you need to restrict building shapes through zoning.

    2. I was being a bit facetious… Paris is obviously far from a "worst case scenario", lol. Though Paris does have severe affordability problems, along with de facto racial and socioeconomic segregation, as poorer immigrants are priced out of the inner city and forced to live in the banlieues.

      Urban Japan has peculiar problems all its own, like the precipitous depreciation of building values, along with some ridiculously long commutes (by train, though, so at least you can read on your Kindle and/or get groped by strangers).

  3. The diminishing returns for highrises in terms of value per land is actually even worse than you described. You also have to consider that lot coverage has to decrease as buildings get taller in order to let in enough light (both to the street, and to units). Having over 50% lot coverage for 2 storey buildings is no big deal, even 75% lot coverage is quite doable, but 75% lot coverage for skyscrapers is insane, I'm not sure if that exists anywhere at all. The closest might be around 50% in Hong Kong and Shenzhen and in most cities this would be considered a planning disaster.

    I'm not so sure that people necessarily prefer to live close to the ground even though I do, I think there are a fair bit who are lured by the idea of good views. A good test would be whether lower units command higher prices than upper units in any individual highrise. However, I do think that many people might prefer the idea of living in a more quiet lowrise scale neighbourhood. Thing is, even the areas outside downtown that allow apartment development are usually places like strip malls on arterial roads (especially in in the GTA, I think Montreal's better)... they're less commonly allowed on side streets.

    I think much of the reason you get highrises comes down to the fact that zoning affects land values. So if there's high demand for apartments, and only a small land area zoned to allow it, that land has its values inflated (compared to adjacent land zoned for SFH). So by dividing the land amongst a greater number of units, the density that costs the least might be surprisingly high, despite the higher construction costs.

    1. I'm someone who likes a view too when I go on a trip, I like rooms high up in hotels, yet even I am not sure I'd like living in a high rise. I don't think you could see this preference for low rise buildings by looking at the value of apartments on the lower floors versus on the higher floors. Generally, even the lower floors in high rise buildings are isolated from the street through a large setback and the need to access a door that may be at some distance to exit the building.

      From my personal experience, or rather observation, it is not as simple as "lower is better" or "higher is better". Basement units are always cheaper, that much is evident. In Montréal multiplexes, often the ground level unit is where the owner lives if he lives in his building, with cheaper units on the higher floor(s). In walk-ups, I've noticed that units on the higher floors, like the fourth to sixth story, tend to be cheaper, probably the effect of having to walk up and down every time is an annoyance.

      In taller buildings with elevators, often the only inconvenience of living on higher floors is a longer elevator ride, which is a minor annoyance. On the other hand, these buildings tend to be isolated anyway, even on the lower floors. So I can see why going on higher floors might be more attractive in these conditions: you get a better view, more sunlight and more air flow. The advantage of low rise buildings is the connection to the neighborhood, which I think is mostly absent in high rises, even on the lower floors.

      I agree of course about how zoning yields high rises, that was the point of my article. We can discuss why exactly that is... Is it that zoning, which makes multifamily apartments illegal in all but a few places, creates an artificial shortage of land for multifamily developments, pushing the value of land up, and thus forcing developers to build as high as possible to compensate the high land value? Or is the high land value a consequence of too much demand for multifamily apartments, which can only be satisfied through high rises, and since high rises have a lot of revenues per square foot, it means much higher land value as the land owners can demand higher prices from developers? So is the land value the CAUSE of high rise developments or is it a CONSEQUENCE of them? Maybe it's a bit of both, a cycle between the two.

      But anyway, the real cause is evident: zoning. When you don't allow multifamily development except on very small areas, you get high rises, if you allow them far and wide, you instead get dense low rise and mid rise neighborhoods.

    2. I used to live on the 11th floor of an 18-story building in a two-tower complex with 600 apartments. Now I live in the third floor of a five-story complex with 100 apartments. In my new place I get to see a lot more familiar faces, and it seems like much less of a bother to go out of the apartment. (It helps that the neighborhood is more lively.) In particular about 80% of the apartments here share one elevator, so it's the primary contact point with the neighbors. Just my two cents.