Costs Rise Curvilinearly with Height

Construction costs do not simply increase linearly with the height of buildings; they rise curvilinearly, influenced by changing building code requirements and construction complexities as height increments are crossed. For instance, moving from a 3-story to a 4-story building can result in significant cost increases, sometimes up to 50%, due to additional regulations triggered by the added floor. Similarly, transitioning from a 7-story to an 8-story structure can lead to a more than 50% rise in costs, while the increase from 6 to 7 stories might only be around 15 to 20%. This dynamic explains why many new multifamily buildings are capped at certain heights, typically around three or seven stories. The rising marginal costs directly impact the rents or sale prices that developers must set to ensure profitable construction. Research has shown that developers may need to charge approximately 30% higher rents for an eight-story building compared to a seven-story one to maintain profit margins. Interestingly, costs per square foot may decrease as additional floors are gained past certain height thresholds, leading to a reduction in the rents required to justify even taller buildings, like a 12-story structure compared to an 8-story one.