A large literature argues that land-use regulations can limit housing construction and contribute to affordability problems in many cities. Beyond higher housing costs, such restrictions may also generate broader economic losses by preventing workers from moving to the most productive locations, thereby creating spatial misallocation (Hsieh and Moretti 2019).

Most of this debate has focused on the horizontal expansion of cities – how zoning rules restrict new housing and push development outward. Yet cities can also accommodate population growth by building upward. A growing literature highlights that limits on building heights can similarly constrain housing supply and contribute to affordability problems (Brueckner et al. 2017). Related work also documents large gaps between actual and economically feasible building heights across cities, suggesting that many urban areas are built far below their potential skylines (Barr et al. 2021, Jedwab et al. 2022, Barr and Jedwab 2023).

However, this literature has largely focused on partial-equilibrium effects in housing markets. Height limits may have broader consequences in general equilibrium. By restricting vertical development in central locations, they can prevent firms and workers from concentrating in the most productive parts of cities. At the same time, height limits may influence urban amenities in opposing ways: they can mitigate density-related disamenities but may also increase sprawl and commuting distances. The overall welfare effects of height limits therefore remain poorly understood.

The rise of vertical cities

To understand the relevance of the topic, it is instructive to observe how cities have grown vertically since the early 20th century. Innovations such as steel-frame construction and the electric elevator enabled the first skyscrapers, and continued advances in engineering and materials have steadily reduced the cost of building tall (Barr and Ahlfeldt 2020, 2022). As a result, tall buildings have spread far beyond a handful of wealthy cities and 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 economies (Figure 2). Today, tall buildings represent over 20% of the value of the global real estate stock and play a central role in accommodating urban population growth.

Figure 1 The global skyscraper boom, 1895–2020

Notes: The figure shows the evolution of the total stock of tall building heights (km) covering tall buildings above 55 metres (13–14 floors).
Source: Ahlfeldt et al. (2026).

Figure 2 The skyscraper revolution in the developing world, 1975–2015

Notes: Bubble sizes indicate the change in the total stock of tall building heights (km) for all 12,877 world cities of at least 50,000 residents circa 2015. Tiny grey dots indicate cities with no tall buildings. Only buildings above 55 metres (13–14 floors) are included in the calculations.
Source: Ahlfeldt et al. (2026).

Yet, this transformation has occurred despite the fact that many cities impose strict limits on vertical development. Height caps, floor-area ratio restrictions, and other planning rules often constrain how tall buildings can be. These policies are typically motivated by concerns about congestion, shadowing, or the perceived negative externalities of density.

The key question is therefore whether such restrictions prevent cities from realising the benefits of vertical development.

Measuring the economic effects of building tall

To answer this question, we assembled a global dataset covering more than 11,000 urban agglomerations and roughly 300,000 tall buildings (Ahlfeldt et al. 2026). A central challenge is identifying the causal effect of building tall on urban development, since rapidly growing cities may naturally construct more skyscrapers.

We address this problem by exploiting variation in bedrock depth beneath cities. Geological conditions affect the cost of building tall because foundations must anchor into bedrock or rely on costly engineering solutions when bedrock is too deep or too shallow. Cities with intermediate bedrock depths therefore face lower construction costs. Since these geological conditions were determined long before modern urban development, they provide a source of variation in skyscraper construction that is unrelated to contemporary economic demand.

Using this approach, we find that increases in tall building construction have large effects on urban population and land use. The elasticity of city population with respect to aggregate building heights is about 0.13, while the elasticity of built-up land area is about −0.16. In other words, cities that build taller tend to accommodate more residents while using less land.

The skyscraper revolution and urban development

These results suggest that vertical development plays a significant role in urbanisation. Cities that expand vertically can accommodate more workers in productive locations. This facilitates structural transformation as workers move from rural areas into urban labour markets, where productivity and wages are typically higher.

At the same time, vertical growth makes cities more compact. Greater density reduces commuting distances and improves access to jobs and amenities. These effects reinforce agglomeration economies, which are widely recognised as a key driver of urban productivity (Combes and Gobillon 2015). By accommodating more people within existing urban footprints, tall buildings also reduce the need for cities to expand into surrounding agricultural land or natural ecosystems.

Do height limits make sense?

Why, then, do many cities restrict vertical development?

Urban density is associated with both benefits and costs. While dense cities generate productivity gains through agglomeration, they may also produce congestion, pollution, and other disamenities. Height limits can therefore be understood as policies aimed at mitigating these negative externalities.

To evaluate this trade-off, we combine our reduced-form estimates with a quantitative urban model that incorporates agglomeration economies, commuting costs, migration responses, and housing supply decisions. This approach allows us not only to simulate how cities would respond if height limits were relaxed, but also to infer an important but difficult-to-measure parameter governing how urban quality of life changes with density.

The results suggest that the benefits of vertical development outweigh the associated costs. Removing existing height constraints would increase average worker welfare by about 3.7% in developing economies and 7.0% in developed economies, where height restrictions are typically more stringent.

These gains arise through several channels. Greater vertical development allows cities to become more compact, which reduces commuting costs and improves access to jobs and amenities. At the same time, agglomeration economies raise productivity and wages as more workers cluster in dense urban environments. Rents increase as a result of the associated outward shift in housing demand.

Importantly, while higher density can increase housing demand and rents, the associated productivity gains and reductions in commuting costs more than offset these effects in terms of overall welfare.

A distributional conflict over land

Our analysis also highlights an important distributional dimension of height restrictions. When cities allow more vertical development, the supply of floor space increases, especially near city centres where demand is strongest. This expansion reduces the scarcity value of land.

As a result, relaxing height limits tends to reduce aggregate land values while increasing worker welfare. In our simulations, removing existing height restrictions would lower aggregate land values by about 3.9% in developing economies and 8.1% in developed economies.

This implies that height limits effectively redistribute income from workers to landowners. By restricting the supply of urban space, such regulations raise land prices and benefit incumbent property owners. This political economy mechanism helps explain why restrictive land-use policies may persist even when they reduce overall economic efficiency (Duranton and Puga 2023).

Policy implications

Height limits may partly mitigate the disamenities associated with density, which helps explain why planners impose them. But when such regulations are too restrictive, they can prevent cities from realising the productivity gains and land savings associated with vertical development. The broader lesson is that the debate about housing supply should not focus only on horizontal expansion. Allowing cities to build upward may be just as important for accommodating urban growth, improving access to opportunity, and preserving valuable land.

As the skyscraper revolution continues, policymakers will face difficult trade-offs between managing the costs of density and enabling the benefits of vertical urban development. The costs and benefits of height regulations will likely grow over time as technological improvements continue to reduce the cost of building tall structures.

References

Ahlfeldt, G M, and J Barr (2020), “The economics of skyscrapers: A synthesis”, VoxEU.org, 20 August.

Ahlfeldt, G M, and J Barr (2022), “The economics of skyscrapers: A synthesis”, Journal of Urban Economics 129: 103398.

Ahlfeldt, G M, N Baum-Snow, and R Jedwab (2026), “The skyscraper revolution: Global economic development and land savings”, manuscript.

Barr, J, and R Jedwab (2023), “Exciting, boring, and nonexistent skylines: Vertical building gaps in global perspective”, Real Estate Economics 51(4): 1264–303.

Barr, J, J K Brueckner, and R Jedwab (2021), “Cities without skylines: Worldwide building-height gaps, their determinants, and their implications”, VoxEU.org, 28 February.

Brueckner, J K, S Fu, Y Gu, and J Zhang (2017), “Measuring the stringency of land-use regulation: The case of China’s building height limits”, Review of Economics and Statistics 99(4): 663–77.

Combes, P-P, and L Gobillon (2015), “The empirics of agglomeration economies”, in G Duranton, J V Henderson, and W C Strange (eds.), Handbook of Regional and Urban Economics, Vol. 5A, Amsterdam: Elsevier.

Duranton, G, and D Puga (2023), “Urban growth and its aggregate implications”, Econometrica 91(6): 2219–59.

Hsieh, C-T, and E Moretti (2019), “Housing constraints and spatial misallocation”, American Economic Journal: Macroeconomics 11(2): 1–39.

Jedwab, R, J Barr, and J K Brueckner (2022), “Cities without skylines: Worldwide building-height gaps and their possible determinants and implications”, Journal of Urban Economics 132: 103507.