How the rise of pencil towers demonstrates the limits of cap and trade policies.
#econofNYC https://www.nytimes.com/2021/02/03/realestate/luxury-high-rise-432-park.html

I have loved the Midtown Manhattan skyline since before I moved to New York, however, in the last few years aesthetically unpleasant pencil buildings have poked up across Billionaire’s Row in a culmination of the booming value of central Manhattan and policy failure.

Midtown Manhattan is not only one of the most lucrative commercial centres of the world, but surrounded by amenities such as Central Park, the Theatre District and Michelin Star restaurants. The city has responded to the demand by once again building up.

The New York Times recently reported how life in the towers had no lived up to expectations, with residents of the 420m tall 432 Park Avenue mentioning flooding, wind sway and metal groaning noise, amongst the problems they faced living there.

The extreme height of the building subjects it to swaying in the wind and last year such movement caused elevator cables to get stuck and a resident was trapped for an hour and a half. Apparently 40 out of 103 unit owners had raised complaints with the building.

Problems for residents aside, the tall buildings abruptly penetrate the skyline and cast shadows across the surrounding buildings. The heart of the reason for these inappropriately tall, impractically skinny buildings are the zoning laws that allowed it to take place.

1961 zoning laws introduced the Floor Area Ratio, designed to constrain the scale of building in the city. Each lot receives an FAR value, for example ten, which allows them to build a ten storey building that fills the entire lot, or a 20 storey building in half the lot, etc.

In addition to FAR, the law included ‘air rights’ where developers could buy the unused building height of local lots and add it to their building allowance.

The policy was meant to help preserve historical buildings in high demand areas - instead of facing demolition pressure thanks to the high value of their land, they could sell building height rights to lucrative local projects to finance their own continuation.

The air rights policy meant that these buildings did not require any permission to build higher, hence these buildings were not subject to any board approval. Such policies created circumstances that incentivised building higher and thinner buildings, which are proving unsafe.

The idea of restricting an external cost and then allowing firms to trade the right to cause them is a popular idea known as ‘cap and trade’. President H W Bush introduced it in the Clean Air Act to cut down the pollution emissions of firms and successfully reduce acid rain.

Unfortunately this policy led to high concentrations of pollution in certain areas, particularly the Midwest. In certain parts of the country it was more valuable to emit pollution and pay the fee instead of buy green technology since old, well used infrastructure was in place.

The result was particularly bad air quality in industrial states, with the gap widening to far more than before and it led to the end of the policy. The same issue applies to buildings in Midtown as it is cheaper for developers to build fewer, thinner, taller buildings.

While building up has often been the answer, it may no longer be the perennial solution. The unpleasant living experiences in these buildings may put a stop to this trend, or zoning laws may change, so I am hopeful Midtown's fate is not to be surrounded by looming pencils.