DP12351 Tall Buildings and Land Values: Height and Construction Cost Elasticities in Chicago, 1870-2010

Author(s): Gabriel Ahlfeldt, Daniel McMillen
Publication Date: October 2017
Keyword(s): Chicago, construction cost, density, height, land value, skyscraper
JEL(s): R20, R30
Programme Areas: International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12351

Cities around the world are experiencing unprecedented vertical growth. Yet, the economics of skyscrapers remain empirically understudied. This paper analyzes the determinants of the urban height profile by combining a micro-geographic data set on tall buildings with a unique panel of land prices covering 140 years. We provide novel esti-mates of the land price elasticity of height, the height elasticity of construction cost, and the elasticity of substitution between land and capital for tall buildings. In line with improvements in construction technology, the land price elasticity of height increased substantially over time, rationalizing a trend to ever taller buildings. The land price elasticity of height is larger for commercial than for residential buildings, suggesting that the typical segregation of land uses within cities is not exclusively shaped by the demand side, but also by the supply side.