The economics of skyscrapers
The economics of skyscrapers
Simon Wong
Introduction
What are the economics of skyscrapers? It is not usually the first question one would ask; in general people are more concerned about the height, the design, shape, look and its usage than its economics. Its staggering costs or budget may come as an occasional surprise e.g. Dubai’s Burj Khalifa’s $4Bn construction cost but it is not the core economics that interests me. In this section, I will consider some of the fundamental economic principles which exist in skyscrapers: scale of production and price discrimination in the discipline of the micro-economics together with a look at economic data linking the global economy and growth of skyscrapers on the macroeconomic level. The ideal height for a skyscraper will vary from place to place, depending on the cost paid for the land, the size of the plot, the level of rents, zoning restrictions, and the cost of construction. In assessing the economic viability of one design against another, a developer will usually assess the cost per foot (both the ‘hard costs,’ including materials and labour involved in construction, and the ‘soft costs’ including financing, planning permission, permits and design) and compare it to the revenue per foot to be generated in rent or sales. Technological factors must also be considered in the technical processes of production. Technical factors make their impact on the supply side, since they usually involve some increase or reduction in costs which affects the profitability of the plant. Market factors operate on the demand side, dictating the size of the skyscrapers by restricting its growth to the point where the supply satisfies the demand for the land use concerned. Dependent on where you are, technical and market influences may be equally important in deciding the ideal height. Technical economies. These arise from the increased use of specialization and from mechanization, automation and computerization. Of particular interest is the more economic combination of factors that large-scale operation makes possible. A 44-tonne truck with a driver and mate is a more economic combination of labour and capital than a 5-tonne truck and driver. Financial Economies. Many large-scale construction firms find it easy to borrow money at favourable rates of interest. They can usually offer collateral security, such as title deeds to property and mortgages on fixed assets or stocks. They can often afford fire appliances and security guards, so that they obtain favourable insurance rates, or they may even act as their own insurers, setting aside funds for contingencies. Their ‘public company’ status attracts investors, who willingly subscribe capital, often paying a premium on shares or debentures for the privilege of becoming members or creditors. Research Economies. Competition for skyscrapers is usually low but research is still important to keep the construction cheap and efficient in order to maximize profit and land use. Research not only reveals new machinery, new methods of work, and new markets: it results in more efficient use of present resources, waste products, etc. Large-scale firms can usually afford research departments, since the cost can be spread more thinly over the larger volume of production. The Scale of Production-How high is efficient?
88
Made with FlippingBook - Online Brochure Maker