Ep 78: Building Height and Construction Costs with Anthony Orlando
Sep 4, 2024
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Anthony Orlando, a researcher specializing in building height and urban construction expenses, dives into the intricacies of housing affordability. He explains why taller buildings don’t necessarily lead to lower costs and highlights the crucial thresholds where expenses spike. Orlando also discusses the significance of regional building codes and the challenges developers face in multifamily construction. He underscores the need for a shift in urban investment strategies to effectively tackle modern housing issues, showcasing Seattle as a compelling case study.
Building height significantly impacts construction costs, with non-linear cost increases revealing challenges for affordable housing development.
Higher building heights can necessitate substantially increased rents, complicating the feasibility of construction without compromising housing affordability.
Urban height restrictions can inadvertently limit housing unit availability, necessitating a reevaluation to align with housing demand and affordability.
Deep dives
Impact of Building Height on Construction Costs
The relationship between building height and construction costs reveals that costs do not increase linearly with height. For instance, moving from three stories to four often incurs a significant cost jump due to differing building code requirements, which can raise costs by as much as 50%. Similarly, transitioning from seven to eight stories can lead to a dramatic cost increase, while a ten-story structure might actually have lower per-square-foot costs than an eight-story one. This insight challenges assumptions about the linearity of construction costs, emphasizing that height limitations in urban planning can inadvertently affect housing affordability.
Feasibility of Different Building Heights
The research introduces a method for estimating the minimum rents necessary to justify construction at various heights, termed break-even rents. Developers often require approximately 30% higher rents for eight-story buildings compared to seven-story ones due to the increased construction costs associated with the former. This finding highlights that while taller buildings might be theoretically beneficial for land use and density, they become financially unfeasible without significantly increasing rent prices. Hence, the configurational aspects of height must be considered carefully in urban planning to ensure feasible construction without compromising housing affordability.
Standard Urban Spatial Model Limitations
The standard urban spatial model, which predicts that land values and building heights decrease as one moves away from a city center, fails to account for the realities of construction economics. Changes in construction costs at specific height thresholds lead to discontinuities in the type and number of buildings constructed, often resulting in a significant number of buildings capped at certain heights, such as three and seven stories. Factors such as historical policies and transportation planning also disrupt this linear model, leading to a more polycentric pattern in cities like Los Angeles. Understanding these complexities aids in more accurately assessing urban development patterns and informing policy decisions.
The Consequence of Height Restrictions
Height restrictions in urban settings can lead to unintended consequences that inhibit the construction of affordable housing units. Even if developers are consistently building below a city’s maximum height, such as seven stories in an area with a ten-story limit, the restrictions can still shadow potential larger-scale construction that would alleviate housing shortages. By imposing these limits, cities may inadvertently decrease the number of housing units available, as developers might opt for lower heights that maximize their return without utilizing the full potential of the increased height. This understanding calls for a reevaluation of height restrictions in consideration of housing demand and affordability.
The Role of Land Prices in Multifamily Housing
The residual land value concept highlights how developers’ willingness to pay for land varies significantly across different cities based on the height of potential construction. In cities like Cleveland, land prices may render multifamily construction unfeasible; however, more expensive cities like Boston show a consistent willingness to build higher, as the economics favor multifamily development. The willingness to pay often decreases with higher building heights due to escalating construction costs forcing developers to seek balance between land and development costs. This delicate balancing act underscores the need for informed policies that can adapt to these economic realities to foster more multifamily and affordable housing developments.
Building taller lets us fit more homes on valuable urban land, but more homes doesn’t necessarily mean more affordable. Anthony Orlando joins to share his research on why taller isn’t always better — and the circumstances where it definitely is.
