Helen Tauchen

Increased Costs of Office Building Operation and Construction: Effects on the Costs of Office Space and the Equilibrium Distribution of Offices

As has frequently been noted in recent years, the rate of increase in the prices of a number of products (e.g., energy, construction) which have major effects on the spatial structure of our cities has been considerably above that for most other goods. For example, during the 1965 to 1979 period construction costs for offices increased at an average annual rate of 7.4% in the U.S., while the most general measure of the rate of inflation, the implicit price deflator for GNP, increased by 5.9% (U.S. Department of Commerce, Bureau of the Census 1980, pp. 479, 784). During the same period, the composite index of fossil fuel prices rose by almost fivefold with approximately 70% of this increase occurring in the post-1973 period (U.S. Department of Commerce, Bureau of the Census, 1980, p. 607). A number of researchers have explored the effect of changing energy costs on the location of households and general land use patterns in cities,1 but little attention has been given to the effect of these changes on the location of offices, a major employer in our cities. Further, we are aware of no work that explores the likely spatial effects of increased construction costs. Our primary interest in the paper is the long-run effects of increased energy and construction costs on equilibrium firm densities and land values. To examine these issues, we develop an equilibrium model of firm location and solve the model for parameter values which may be considered