Eve is here. You love urban density and are a big fan of skyscrapers and high-rise apartment buildings. But it’s nothing if it doesn’t create vibrant street life. When I lived near King’s Cross in Potts Point, Sydney, there was the usual high-density shopping street with ready-to-go grocery stores, mini-marts/specialty food stores, pharmacies, newsstands, pubs, coffee shops…and there were prostitutes. Therefore, there is no need for skyscrapers like Manhattan. Just enough to draw enough people into it to create other living living spaces.
Oh, and I lived in Manhattan’s first elevator-equipped apartment building, completed in 1915, for over 25 years.
Written by Gabriel Ahlfeldt, Professor of Econometrics at Humboldt University. London School of Economics and Political Science; Nathaniel Baum-Snow, Associate Professor of Economics and Urban Studies, Brown University. Rotman Professor of Economic Analysis and Policy at the University of Toronto Graduate School of Management. Premier Research Chair in Productivity and Competitiveness and Professor of Economic Analysis and Policy at the University of Toronto. Remi Jedwab, professor of economics and international affairs at George Washington University. Originally published on VoxEU
Land use regulations, including height restrictions, affect housing affordability and urban productivity. This column analyzes more than 11,000 urban agglomerations and 300,000 high-rise buildings to investigate the effects of height restrictions on welfare. Vertical growth increases land efficiency, reduces commuting, and improves worker welfare. Although higher density may increase housing demand and rents, the associated benefits more than offset the costs. Discussions about housing supply should not only focus on horizontal expansion. Enabling cities to build upward can be equally important to accommodate urban growth, improve access to opportunity, and protect valuable land.
Much of the literature argues that land use regulations limit housing construction and can create housing affordability problems in many cities. Beyond raising housing costs, such restrictions can prevent workers from moving to the most productive locations, thereby causing spatial misallocation and causing broader economic losses (Hsieh and Moretti 2019).
Much of this discussion has focused on the horizontal expansion of cities, or how zoning rules limit new housing and push development outward. But cities can also accommodate population growth by building upwards. A growing body of literature highlights that building height restrictions can similarly limit housing supply and create affordability issues (Brueckner et al. 2017). Related studies have also documented large gaps between current and economically viable building heights across cities, suggesting that many urban areas are being built well below their potential skyline (Barr et al. 2021, Jedwab et al. 2022, Barr and Jedwab 2023).
However, this literature mainly focuses on partial equilibrium effects in the housing market. Height restrictions can have broader effects on general equilibrium. Limiting vertical development in the city center prevents businesses and workers from concentrating in the most productive areas of the city. At the same time, height restrictions can have contradictory effects on urban amenities. Height restrictions can alleviate density-related inconveniences, but they can also lead to sprawl and increased commuting distances. Therefore, the impact of height restrictions on overall welfare remains poorly understood.
The rise of the vertical city
To understand the relevance of this topic, it is useful to look at how cities have grown vertically since the early 20th century. Technological innovations such as steel construction and electric elevators made the construction of the first skyscrapers possible, and continued advances in engineering and materials have steadily reduced the cost of tall buildings (Barr and Ahlfeldt 2020, 2022). As a result, skyscrapers have spread far beyond a few wealthy cities and have become a common feature of urban development in emerging economies.
Our data show that since the 1970s, the total stock of tall building heights has increased dramatically (Figure 1), especially in developing countries (Figure 2). High-rise buildings currently account for more than 20% of the value of the world’s real estate stock and play a central role in accommodating growing urban populations.
Figure 1 Global skyscraper boom, 1895-2020
Note: This figure shows the evolution of the total stock of tall building heights (km) covering tall buildings over 55 meters (13-14 floors).
Source: Ahlfeldt et al. (2026).
Figure 2 Skyscraper revolution in developing countries, 1975–2015
Note: Bubble size indicates the change in the total stock of tall building heights (km) in all 12,877 cities around the world with populations of 50,000 or more around 2015. Small gray dots indicate cities without tall buildings. Only buildings over 55 meters in height (13-14 floors) are included in the calculation.
Source: Ahlfeldt et al. (2026).
However, this transformation is occurring despite the fact that many cities have imposed strict restrictions on vertical development. Height restrictions, floor area ratio restrictions, and other planning rules often limit the height of buildings. These policies are typically motivated by concerns about the perceived negative externalities of crowding, shadowing, or density.
Therefore, a key question is whether such restrictions prevent cities from realizing the benefits of vertical development.
Measuring the economic impact of high-rise buildings
To answer this question, we built a global dataset covering over 11,000 urban agglomerations and approximately 300,000 high-rise buildings (Ahlfeldt et al. 2026). A central challenge is to identify the causal effects of tall buildings on urban development, as rapidly growing cities are likely to naturally build more skyscrapers.
We address this issue by exploiting variations in bedrock depth beneath the city. Geological conditions affect the cost of high-rise buildings. This is because if the bedrock is too deep or too shallow, the foundation will need to be fixed to the bedrock or rely on expensive engineering solutions. Therefore, cities with medium bedrock depth have lower construction costs. These geological conditions were determined long before modern urban development and are therefore responsible for variations in skyscraper construction, independent of modern economic demands.
Using this approach, we find that increased construction of tall buildings has a significant impact on urban population and land use. The elasticity of urban population with respect to total building height is approximately 0.13, while the elasticity of built-up area is approximately -0.16. In other words, cities with taller buildings tend to be able to accommodate more residents while using less land.
Skyscraper revolution and urban development
These results suggest that vertical development plays an important role in urbanization. Cities that expand vertically can house more workers in productive locations. This fosters structural transformation as workers move from rural areas to urban labor markets where productivity and wages are generally higher.
At the same time, vertical growth makes cities more compact. Increasing density reduces commuting distances and improves access to jobs and amenities. These effects strengthen agglomeration economies, which are widely recognized as a key driver of urban productivity (Combes and Gobillon 2015). Tall buildings also reduce the need for cities to expand into surrounding farmland and natural ecosystems by allowing more people to be accommodated within existing city sites.
Are height restrictions meaningful?
So why are so many cities restricting vertical development?
Urban density is associated with both benefits and costs. Dense cities can bring productivity gains through agglomeration, but they can also create congestion, pollution, and other disadvantages. Height restrictions can therefore be understood as a policy aimed at mitigating these negative externalities.
To assess this trade-off, we combine reduced-form estimation with a quantitative urban model that incorporates agglomeration economies, commuting costs, migration responses, and housing supply decisions. This approach not only allows us to simulate how cities would respond if height restrictions are relaxed, but also allows us to infer important but difficult-to-measure parameters that determine how a city’s quality of life changes with density.
This result suggests that the benefits of vertical development outweigh the associated costs. Removing existing height restrictions would increase average worker benefits by about 3.7% in developing countries and 7.0% in developed countries, where height restrictions are typically more stringent.
These gains occur through several channels. Vertical development makes cities more compact, reducing commuting costs and improving access to jobs and amenities. At the same time, agglomeration economies raise productivity and wages because more workers are concentrated in dense urban environments. As a result of the associated outward shift in housing demand, rents will rise.
Importantly, while higher population density may increase housing demand and rents, the associated productivity gains and reduced commuting costs more than offset these effects from an overall welfare perspective.
Distribution dispute over land
Our analysis also highlights important distributional aspects of height restrictions. As cities allow more vertical development, the supply of floor space increases, especially near city centers where demand is strongest. This expansion reduces the scarcity value of land.
As a result, relaxing height restrictions tends to reduce the total value of land while improving worker welfare. In our simulations, removing existing height restrictions reduces the total value of land by approximately 3.9% in developing countries and 8.1% in developed countries.
This means that height restrictions effectively redistribute income from workers to landowners. Such regulations increase land prices by limiting the supply of urban space, benefiting existing property owners. This political-economic mechanism helps explain why restrictive land-use policies persist even if they reduce overall economic efficiency (Duranton and Puga 2023).
Policy implications
Height restrictions may partially alleviate the disadvantages associated with density, which helps explain why planners impose height restrictions. But if such regulations are too strict, cities may be unable to realize the productivity gains and land savings associated with vertical development. The broader lesson is that discussions about housing supply should not focus solely on horizontal expansion. Enabling cities to build upward can be equally important to accommodate urban growth, improve access to opportunity, and protect valuable land.
As the skyscraper revolution continues, policymakers will face difficult trade-offs between managing the costs of density and realizing the benefits of vertical urban development. The costs and benefits of height regulations are likely to increase over time as technological improvements continue to reduce the cost of constructing tall structures.
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