ULI - Real Estate Trends Conference

Transcription

1 ULI - Real Estate Trends Conference Is the sky the limit? Impact of Highrise Buildings & Densification Paul Cheshire LSE & SERC June 23 rd 2015

2 Some Strengths of the Prize Winning Paper Is the sky the limit? High rise buildings and office rents A good paper illustrates the strengths of academic research: To explain Rent per m 2 greater in taller buildings. Puzzles: 1. Tall buildings explained by land prices? A central feature of modern urban economics 2. But if so: why tall buildings next to low rise ones? Could be there are vertical agglomeration economies Agglomeration economies underlie the success of cities 1. BUT correlation does not prove causation: 2. So main focus is on ingenious chasing down of causal connections. What are the factors that explain why there is a premium for taller buildings?

3 Let s take the Con out of Econometrics (Leamer, 1983) Identifying causal role of vertical agglomeration economies Taller buildings have higher rents per m 2 But could be all sorts of reasons e.g. characteristics of their locations; characteristics of the buildings; landmark statements ; advertising; views Unless researcher can isolate role of a particular factor cannot hope to accurately estimate its impact Process of tracking causation. Plausibly quantifying resultant impact of vertical agglomeration economies is the real contribution; what makes their answer interesting and credible. The hallmark of quality academic research. Underlying problem is omitted variables many likely are correlated with what you are interested in identifying.

4 Solutions? Various methods.. 1. Find a natural experiment: but often not possible 2. Eliminate omitted variables: often not possible; how know? 3. Find variables which can stand in for what you are investigating (tall buildings) but realistically not correlated with other relevant variables (so-called Instruments) 4. Probe and conduct sensitivity analysis 5. Do not claim more than your results justify. This paper uses 3, 4 & 5 And concludes that most probably the premium paid just because a building is taller (+4% per 10 metres) is likely a combination of agglomeration, landmark and view effects But this is on assumption agglomeration economies DO NOT increase at increasing rate with height.

5 Results suggest there is a premium for height: so density But beware of assuming causation: in sense of I increase density so I will increase agglomeration economies Implicitly what Densification policie supporters assume Think CrossRail: will reduce average density but increase agglomeration economies; increase density near stations Why? Allows people to move further from Central London but reduces times & increase productive interactions; Sensible policy is to facilitate higher density, taller buildings where and only where markets signal it is productive. Firms/households pay for access i.e. agglomeration economies; but other variables important too e.g. space (think house!); congestion; pollution; costs rise with density But in Britain policy prevents tall buildings, higher densities!

6 Why does incidence of tall buildings vary so much? Sao Paulo less than half skyscrapers per person as New York but nearly 1.75 times as many high rise (35m+) buildings; Brisbane 6 times as many skyscrapers per person as Paris - 8 times as many as London. Topping all cities in the tall buildings league table is a real surprise: Benidorm in Spain! Only tall building league London tops is Trophy Architect (TA) designed City Bldgs >100m per million Population Total Bldgs >100m TA Bldgs TA Percentage London % Chicago % Houston % Brussels % Benidorm % Sao Paulo Source: %

7 In London we regulate tall buildings & density away A long history London Fire Brigade - secured London Council Act of 1890 no building above 27ms Repealed in 1956; so absolute height limit until 1956 Post WWII planning legislation: plot ratios etc. In effect NO buildings higher than St Pauls until 1962 Then Conservation Areas and Listed Buildings + height protected areas & corridors; Development Control for decisions (not rules ) So decisions gameable : to persuade the planning committee or SoS use a Trophy Architect [the Minister] will only approve skyscrapers of exceptional design. For a building of this size to be acceptable, the quality of its design is critical the proposed tower is of highest architectural quality (John Prescott 2003, giving permission for the Shard )

8 Conservation Areas, Listed Buildings & height protected areas & corridors So even TAs can only build high where there is flexibility in the rules: just a few spots.

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14 Conclusions So: Good news! Employing a TA for a non-height controlled site in London gains the developer an extra 18 to 19 floors on average; p0154.pdf And: Bad news! But at a cost design and building costs; delayed and more expensive decisions, longer to rent out and significantly increased risk; appeals can be lost as well as won What London needs is not a densification policy; But more flexibility in policies that prevent densification where taller buildings would be efficient (and not destroy really valuable urban amenities); for example around CrossRail & mainline stations.