Today, most people live in cities. As urban populations increase, nations must expand their real estate stocks to accommodate this growth. Recent research, however, has shown that housing prices in many countries are growing faster than incomes. Much of this affordability problem can be explained by regulatory barriers to new construction (Gyourko and Molloy 2015).
Around the world, while a country’s income is a good predictor of its per capita building stock, it is not perfect (see Figure 1). For example, cities in China embrace tall buildings, whereas Indian metropolises have draconian height restrictions (Brueckner and Sridhar 2012). Europe provides mixed examples, with tall buildings emerging in London and Frankfurt, but with few in Athens or Rome.
The variation in the willingness to build tall raises three questions. First, how many tall buildings might be ‘missing’ in some countries and around the world? Second, what might be the economic and environmental consequences of the failure to build up? And third, what might be drivers of the decision not to build tall? Our research is the first to provide answers to these questions and the first to create an international building stringency index that allows for direct cross-country comparisons.
Figure 1 Urban height density vs. national income, 2017
Note: Figure shows relationship between the log sum of building heights per total urban population and log of per capita GDP (PPP, constant 1990 international $) for 170 countries circa 2017.
Identifying the gaps
To create this index, we first constructed a new data set that includes nearly every tall building (80 meters or taller) worldwide. The building database comes from the Council on Tall Buildings and Urban Habitat (CTBUH). We aggregate these data to get each country’s total building height (which strongly correlates with total building area). Next, we measure a country’s willingness to build up – or not – if there is sufficient economic demand.
To do so, we begin by identifying eight benchmark countries that are relatively laissez-faire in their willingness to build tall. Next, we estimate how responsive their building industry is to economic conditions. In particular, the standard urban economics model posits that building density should be positively related to a city’s income and the fertility of its hinterland (Brueckner 1987). We ran a panel regression of the total tall building height on national income and agricultural land values for these benchmark countries.
Using the estimated parameters from this regression function, we obtain, for each country, a predicted total height that it ‘should’ have if its building sector responded similarly to the benchmark group. We then generate a building-height gap for each country, which is the difference between its predicted value and its total building height. Those countries with the largest gaps under-build, controlling for their income and land fertility.
Who does not build?
Table 1 gives those countries with the largest gaps (kilometres per million urban residents), which are also shown visually in Figure 2. The result support the common belief that Europe is more reluctant to build, despite its relative prosperity. Ireland, the number one country in the list, has no buildings taller than 100 metres and only five buildings taller than 50 metres (Barr and Lyons 2018), even though Dublin is one of the world’s ten wealthiest cities and a financial hub.
Regulations in Switzerland, for example, give strong veto power to those opposed to skyscrapers, and, as a result, there are few in that country (Vogel-Misicka 2011). There are only five tall buildings in Zurich, also one of the world’s wealthiest cities and a financial hub (OECD 2020). Interestingly the US makes it into the top twenty. The reason for this is California; despite its large wealth and productive agricultural sector, across the state, it has implemented relatively stringent building height regulations.
Across the Earth, we estimate that in 2020, there is 2,198 kilometres of total height. But our predicted value for the total ‘economic height’ is 4,828 km, which generates a gap of 2,630 kilometres, equivalent to 6,000 Empire State Buildings (Ahlfeldt and Barr 2020). We performed an analysis of which types of tall buildings are ‘missing’ and find that the majority are residential rather than commercial. In other words, cities around the world appear more eager to accommodate job growth than residential growth.
Table 1 Counties with the largest building-height gaps, 2020
Note: The gap is expressed in km of height per urban population.
Figure 2 Per capita building-height gaps around the world, 2020
Note: This figure shows the building height gaps per total urban population (km per million urban residents) for 158 countries, circa 2020. Positive gaps=under-build rel. to prediction; Negative gaps=overbuild relative to prediction.
Given our global building-gaps index, we then see how it relates to important measures of urban well-being. We find that higher gaps correlate with more expensive housing prices (Figure 3). A one standard deviation increases in the gap is associated with a 0.15 standard deviation increase in the price level across countries. We also find that countries that build upward have less sprawl. For example, we estimate that a unitary decrease in the gap is associated with urban areas consuming 19% less land.
Figure 3 House prices and building-height gaps in 14 countries, 1870-2020
Note: This figure shows that real house prices have dramatically increased in developed countries since the 1950s (data from Knoll et al., 2017). The graph also shows that total kilometres of gap of these same 14 countries has increased since 1960.
We find that higher-gap countries also have more traffic congestion, as measured by the average increase in commuting times during rush hour relative to non-rush hour times. We find that a one unit increase in the gap is associated with 1.5% more congestion. Congestion and sprawl are associated with worse air quality, and our findings indicate a role for building height stringency. Across countries, a one standard deviation increase in the gap is associated with a 0.05–0.08 standard deviation increase in air pollution gases, including carbon monoxide and nitrogen oxide.
If countries generate large barriers to building up, we have shown they pay an economic price. But the question remains about why they feel the need for stringency. We test two possible theories. The first is the so-called home-voter hypothesis, which posits that homeowners elect pro-stringency political leaders to preserve home values for their constituents (Fischel, 2001). The second is due to national heritage – restrictions are aimed at preserving historic structures and neighbourhoods.
To test the home-voter hypothesis, we look at the degree to which the gaps correlate with homeownership rates across the globe. We find little relationship, suggesting that the home-voter hypothesis is not at work here. To test the heritage hypothesis, we look at the correlation of our gaps with the number of world heritage sites, as listed by UNESCO. We find that countries with more heritage sites also have higher gaps. Thus, our analysis suggests that the gaps are related to the demand for historical preservation.
The future of cities
Around the world, tall buildings evoke strong emotions. Some countries, particularly, in Asia embrace tall buildings as they urbanize. Other countries, such as India and those in Europe are reluctant to build tall, given their low-rise histories. The United Nations has estimated that by 2050, nearly 70% of the global population will reside in cities, and this trend is likely to continue for the result of the century (UN 2018). The critical question facing nations is how to house their residents without generating ever-higher housing costs. Achieving that goal is a towering responsibility and one that likely requires more high-rise towers.
Ahlfeldt, G and J Barr (2020), “The economics of skyscrapers: A synthesis”, CEPR Discussion Paper 14987.
Barr, J and R Lyons (2018), “Stop the sprawl! If we are serious about our future, we must look up”, Irish Independent, June.
Brueckner, J K (1987) “Chapter 20 The structure of urban equilibria: A unified treatment of the muth-mills model,” in Handbook of Regional and Urban Economics, Vol. 2, Urban Economics, pp. 821 – 845.
Brueckner, J K and K Seetharam Sridhar (2012), “Measuring welfare gains from relaxation of land-use restrictions: The case of India’s building-height limits,” Regional Science and Urban Economics 42(6): 1061–1067.
Fischel, W A (2001),The Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land-Use Policies.
Gyourko, J and R Molloy (2015), “Regulation and Housing Supply,” in G Duranton, J V Henderson, and W C Strange (eds), Handbook of Regional and Urban Economics, Vol. 5, pp. 1289–1337.
Jedwab, R, J Barr, and J Brueckner (2020), “Cities without Skylines: Worldwide Building-Height Gaps and Their Implications”, CESifo Working Paper 8511.
Knoll, K, M Schularick, and T Steger (2017), “No Price Like Home: Global House Prices, 1870-2012,” American Economic Review 107(2): 331–53.
United Nations (2018), “68% of the world population projected to live in urban areas by 2050, says UN”, 16 May.
Vogel-Misicka, S (2011), “Towering over Switzerland: The high-rise trend 2011”, Swissinfo.ch, 20 September.
1 Source: OECD statistics.