Why N.Y.C. Must Scrape the Sky

The Bloomberg administration is fast-tracking a plan to transform the zoning near Grand Central Terminal, with changes that would allow developers to knock down smaller, older buildings and build new, modern towers.

This is something that the city could really use (disclosure: I write a biweekly column for Bloomberg View). Building up is the best way for New York to house the new businesses that bring jobs. Even if scrappy startups can’t afford shiny new midtown space, more supply at the center will moderate prices for cheaper real estate throughout the city.

New York has come roaring back since the difficult days of the 1970s. Many factors contributed to the city’s resurgence, including the extraordinary achievements of the NYPD, which enabled New York to morph from mean streets to urban playground, and a steady flow of immigrants seeking economic opportunity.

But the economic life of the city has increasingly become dominated by finance. In 2009, 37% of the total wages earned on the island of Manhattan were earned by those working in finance and insurance.

The city is lucky to have the revenues generated by all those Wall Street salaries, but there is a downside to success in finance: high real estate costs. Finance is willing to pay top dollar to locate in New York, because it is so valuable to be at the center of the action and to know what’s going on.

There is no industry where an extra tidbit of knowledge can make you more money overnight, and that’s why finance — despite the allure of Stamford and Greenwich — remains so attracted to New York’s density and the knowledge that spreads from person to person.

Since finance is willing to pay so much for midtown properties, less lucrative businesses get pushed out, sometimes to cheaper parts of the city and sometimes outside of New York altogether.

Fifty years ago, the great urbanist Jane Jacobs wrote in her masterpiece "The Death and Life of Great American Cities," that only "well established, high-turnover, standardized or heavily subsidized" operations can afford expensive real estate. She made a compelling case that cities need cheap space to allow new, experimental enterprises to flourish, and New York still needs its entrepreneurs.

Yet Jacobs’ call for cheap space was coupled with a strange argument about affordability. She noted that old buildings were cheap and new buildings were expensive — which seemed to suggest that cities needed to keep their old buildings.

But that’s not how supply and demand work. When we restrict new construction and force new buildings to be shorter than economic logic dictates, we are limiting supply. Limits on supply keep prices up.

Big mistake. There is now compelling evidence that building regulations reduce construction and increase prices, both in historic cities and NIMBYist suburbs. A primary reason why lakefront condominiums are so affordable in Chicago is that Mayor Richard Daley unleashed the cranes. So too would more building around Grand Central satiate demand and limit price growth elsewhere.

Jacobs was a big supporter of creating the Greenwich Village Historic District, which saved a charming part of Manhattan — at the cost of turning an area that had been affordable into a neighborhood where only hedge fund multimillionaires can buy townhouses.

When I’ve looked at the data, I’ve found that blocks had significantly less building when they were restricted by historic districts. Over time, landmarked areas have become more expensive and less socially or economically diverse. So when the Landmarks Preservation Commission has recently expanded the Park Slope Historic District in Brooklyn, allowing less building in Brooklyn, that only strengthens the case for allowing more building at Manhattan’s core.

The case for allowing new building in Manhattan is about the environment as well as economics. My work with Matthew Kahn finds that a household in New York City produces about 7 tons less carbon per year than a suburban household of comparable size and earnings. Cities mean less driving and smaller living spaces with less energy use. That’s another reason to allow more high rise construction in Manhattan, whether you are worried about global warming or just the price of gasoline at the pump.

Just as we should fear a city built only for finance, we should fear a city that’s too expensive for normal people. Allowing more construction is the best means of achieving both ends. New building doesn’t need subsidies — prices are high enough to engender plenty of construction. But the rules should be made easier and height limitations should be eased.

I hope that the administration pushes hard to give the city the freedom it needs to change and develop.

This piece originally appeared in New York Daily News

This piece originally appeared in New York Daily News