Leadership and Global Real Estate: How the CRE can take the lead on Urbanization

In 2008, a little observed milestone occurred. For the first time ever, the world’s population was evenly split between rural and urban areas. It is hard to overstate the importance of this development. After all, for millennia of recorded history, humans were hunter-gatherers, and later, farmers. As such, we spent most of our time first in the wilderness, and then in rural farmlands: and remarkably, as late as 1800, only 3% of the world’s population lived in cities.

This is rapidly changing and accelerating, however. As of 2014, the UN estimates that 54% of the world population lives in cities–a number that is projected to grow to 66% by 2050, by which time the population is estimated to be 9.7 billion. In America, the proportion of urban to rural inhabitants is even higher, topping out at 62.7%, with the vast majority of rural residents concentrated in Western states like California, Oregon, Colorado and Utah.

Clearly, urbanization is a mega-trend that is here to stay. But given such a massive concentration of populations into ever-shrinking areas, it is undeniable that there will be considerable challenges for planners, real estate developers, governments, and citizens alike. Successful urbanization will require a shared vision of prosperity without leaving anyone behind.

From my viewpoint there are  two major challenges that commercial real estate (CRE) industry can help address.

Urbanization consumes resources

Urbanization compounds a lack of resources exponentially. Thanks to their comparatively higher wages, markets, and household structures, urban populations consume more than rural ones, purchasing more durable goods, using more energy, and eating much more (especially resource-intensive foods like meat and milk). One researcher found that, from 1970 through the mid-1990s, developing markets tripled their consumption of meat (by 70 million metric tons) and doubled their consumption of milk (by 105 million metric tons).

Adding to this, another important consequence of urbanization is the displacement of farmland. The National Academy of Sciences estimates that nearly 60% of the world’s most fertile land is located near cities, and that the spread of cities will lead to a 3-4% decrease in global food production. 80% of this loss will occur in Africa (projected to lose 26% of its wheat production) and Asia (projected to lose 9% of its rice production). Though these numbers may seem small in the grand scheme of things, experts estimate the worldwide population to grow to approximately 10 billion by 2050. As such, any drop-off in food production, no matter how small, could easily lead to global disruption.

Urbanization can foster inequality

The numbers are quite clear: urban areas, on a whole, are vastly more unequal than rural ones. In New York City, for instance, the top 5% of households saw their earnings increase by 9% from 2012 to 2013. These households earned $864,394, or 88 times as much as the poorest 20% of the nation. Simultaneously, the people living below the poverty line increased from 2012 to 2013.

The primary culprit seems to be rent. Nearly 30% of New York City’s households spend 50% or more of their income on rent. For businesses, the picture is even worse: thanks to increased rent and a shift to online shopping, small businesses are rapidly going bankrupt. One restaurant owner even saw his rent jump from $5,000 a month to $25,000, a fivefold increase that forced him to shutter his eatery and retire.

Use smart growth to drive urban planning

To help mitigate these issues some in the commercial real estate industry have advocated helping mitigate urban sprawl by using smart growth, an approach that mixes land uses, promotes compact design, housing opportunities, balance environmental conservation with development, and most of all, build strong communities.

Though smart growth is a multi-fascted philosophy and design mindset that encompasses many disciplines, from urban planning to architecture to politics, its key goal can be summarized as thus: to build sustainable, environmentally friendly communities that are a joy to live in. Towards that end, smart growth focuses on several critical factors: input from community residents and stakeholders (politicians included), and increasing livability. It should be noted that critics have seen smart growth as a veiled attempt to limit development and stifle commerce.

Whatever the paradigm for smarter more integrated urban planning and development, one key focus area is mobility. For instance, one obstacle to increasing livability (and affordability) in cities and suburbs are town parking requirements. By allocating so much space to parking, politicians and planners are depriving communities of inexpensive housing and commercial development that are close to mass transit options. Essentially, developers are forced to build expensive parking garages, making additional shops, houses, apartments, and other developments both too far and too pricey–for resident, builder, and entrepreneur alike.

Ultimately, how we address our continued, breakneck urbanization will determine our future as a modern civilization. Though this may seem overstated, it’s true: after all, fitting 10 billion people on the Earth isn’t the hard part necessarily. Instead, it’s creating sustainable, strong, and livable communities that will endure and flourish..

2017-05-30T16:01:28+00:00May 30th, 2017|Blog|