EKIP– Expert Club for Economics and Politics A Different Opinion
High-rise construction is not particularly popular in Sofia. Whether it is because it blocks someone's view or because it attracts new residents/workers to a neighborhood that the locals don't like, high-rise construction has recently become a favorite punching bag for politicians, public figures, and ordinary citizens. Quite unusually, the opinion of the entire Sofia public seems to be in sync on this issue – high-rise construction is bad and should be limited as much as possible. Or best of all – it should be completely eliminated.
In reality, however, tall buildings should not be something to be afraid of. On the contrary, tall and intensive (dense) buildings can be an extremely useful tool for more sustainable development of any modern city. That's right – more sustainable and even greener. But first and foremost, of course, the most obvious and direct positives of tall buildings are the economic ones.
Building regulations lead to impoverishment of the population
In every major city in the world, sooner or later, housing affordability becomes a major social problem. Due to the huge concentration of the population seeking a better life in the dynamic economy of large cities, property prices in them begin to grow rapidly. If the municipality imposes heavy regulations on construction, this growth often begins to outpace income growth, in which case the city's population becomes poorer. The construction regulations themselves actually have the effect of a tax, which increases the costs of construction companies for the implementation of each new construction site.
This occurs mainly due to the additional administrative costs that companies have to bear in order to comply with the regulations, as well as any additional specific material requirements that the regulations impose on them. Restrictions on where, what and how much can be built represent an artificial limitation of the available area that can be used for one type of construction or another. As we know from the laws of supply and demand, when the supply of a given good (in this case land) is limited, without the demand for it having changed, this leads to an increase in price. And accordingly, the more such regulations and restrictions are imposed, the more tangible the effect on property prices will be.
Research proves the negative effects of regulations
This is not just some hypothesis, but an empirically proven trend. For example, a study in the US on the elasticity of local housing supply [1] concludes that one of the factors determining its level is the comparative burden of local regulations on construction, as well as the level of taxes and the specific topography of the region. Another study, again using data from the United States [2], concludes that building regulations in Manhattan have a negative effect on housing supply, resulting in prices being twice as high as construction costs.
Another analysis, focusing on the UK property market, covering the period 1974–2008, concluded that regulations that restricted the supply of housing led to significant price increases in the country and led to an artificial increase in the cost of living and consequently led to the practical impoverishment of the population. [3] According to their economic model, in the absence of regulatory restrictions on supply, house prices in England in 2008 would have been 35% lower. [4]
Of course, the question remains about the balance between more construction and the negative externalities that can be caused by excessive construction. Yes, some regulations may always be necessary precisely to limit these negative effects. However, research on the topic shows that in most cases the regulations that apply to construction far exceed this level in severity and subsequently their negative effects on the property market. Examples of such studies are Glaeser & Gyourko, 2017; Cheshire and Sheppard, 2002; Glaeser, Gyourko and Saks, 2005; Turner, Haughwout and van der Klaauw, 2014. Sofia Municipality is no exception – regulations in Sofia are too strict and tend to become increasingly severe (this year, for example, regulations on building height were further tightened).
These regulations certainly contribute to the serious increase in property prices in Sofia over the past few years. Given our experience from less than 10 years ago, we should be acutely aware of the dangers that property bubbles pose, both to the finances of each household and to the economy as a whole. The scale of the negative effects of such bubbles would obviously be much smaller in places where building regulations are lighter and, accordingly, the supply on the market has more flexibility to respond to a surge in demand.
Do you care about the environment? Support tall construction!
A big myth that has been circulating recently in the context of a kind of war against tall buildings is that they are harmful to the environment and lead to more traffic in the city. Nothing could be further from the truth. The nonsense of such statements becomes clear the moment we think about what taller buildings are and what their direct effects are on the use of space within the city. It is obvious that tall buildings allow the concentration of more real estate, be it apartments, offices, shops or other types of business premises, within a fixed area.
The obvious implication of this is that the more that can be built vertically (high), the less there is a need to build horizontally. Therefore, the less area is needed for the expansion of the city. And saving area to the greatest extent possible is of utmost importance for a large city like Sofia, which continues to grow in population. If we want to protect the nature around Sofia and the green spaces in the city itself to the maximum extent, then we must support the deregulation of building restrictions, especially when it comes to the height of buildings.
This is not just an abstract theory. Harvard economist Edward Glaeser and urban planner David Owen have explained at length in their books Triumph of the City and Green Metropolis why, if they want to be “greener,” all cities should strive to be like Manhattan—densely built and high-rise. As we explained above, this is obvious when we look at the case from a purely economic perspective, focusing on how we can most efficiently and intensively utilize a given limited resource (land).
The biggest environmental destroyer is suburbanization, which is stimulated by regulations that limit the height and density of buildings in a given urban area. This process has been documented in great detail in a number of large Western cities, especially in the United States. A similar process is also observed in Sofia. Over the past three decades, the population of the capital has undergone extremely serious growth, which creates the need for expansion of the city in terms of new residential, working and recreational areas. However, due to restrictions on the permitted density and height of buildings, the expansion of the city has taken place almost entirely horizontally. This trend cannot continue indefinitely if we want to preserve the nature around Sofia.
Other positives related to traffic and municipal expenses
Furthermore, because it allows for a higher concentration of population within a unit of area, taller buildings shorten distances within the city. This is particularly important from a traffic congestion perspective. Taller buildings ease traffic precisely because they allow the city to expand vertically instead of horizontally, which obviously results in shorter horizontal distances that residents have to travel to get from one point to another.
The lower use of road transport also leads to lower emissions of particles harmful to health, which pollute Sofia's air. Especially in the last few years, air pollution over Sofia has been an extremely acute problem and road transport is one of the major sources of such pollution through the emission of fine dust particles. Since denser and higher construction leads to a lower need and, accordingly, the use of cars for transport, compared to lower and more sparse one, it thus reduces the level of air pollution.
But in addition to the above-mentioned negative effects on the property market, the environment and traffic, regulations that force low-rise and sprawling construction also have other negative effects. The horizontal expansion of the city beyond the already built residential and commercial complexes means that the municipality must plan and build completely new infrastructure in these areas. This brings with it a significant increase in the municipality's costs, related not only to the road, electricity and water supply infrastructure that needs to be built, but also to the expansion of public transport lines.
These costs will ultimately be borne by the capital's taxpayers. So in effect, the height and density restrictions harm them twice. Once in terms of the higher real estate prices they lead to, and once in terms of the higher municipal costs, which are ultimately financed through their taxes. These additional municipal costs can be partially or completely avoided if more intensive construction is allowed in metropolitan neighborhoods and regions with already established infrastructure.
