How do success metrics like corporate profits, government budget surpluses, and transit ridership influence urban form and resilience? Is it possible to craft a better future by thinking differently about how positive outcomes and their inevitable unintended consequences are measured?
Seeking answers to these questions, an interdisciplinary research team of professionals, students, and faculty from the Runstad Center for Real Estate Studies at the University of Washington recently traveled to Hong Kong, the most densely developed city in the world. From their findings emerged the framework for a new analytical tool, a success/damage ratio, designed to help policy makers evaluate decisions that shape the built environment and maximize the overall prosperity that those policies can achieve.
Since administrative authority was returned to China in 1997, Hong Kong’s unique fusion of capitalist roots within a socialist market economy has enabled it to leverage more than 150 years of experience in efficiently developing government-owned land to its maximum potential. Using this development model, Hong Kong and its close neighbors in the Guangdong province are rapidly becoming an integrated “mega-tropolis” and constitute a nexus of finance, technology, industry, and global commerce between China and the rest of the world.
However, Hong Kong’s growth oppor--tunities are now being tempered. One damper is a shortage of available land as buildout approaches the government-imposed limit of 25 percent of Hong Kong’s total land area and recent environmental policies restrict the further creation of new land through “reclamation” of the sea with landfill. Another significant factor is the increasing influence of an involved and vocal citizenry who highly value the livability, history, and character of their unique urban neighborhoods. To sustain future prosperity, leaders are being forced to consider the consequences of prodevelopment policies and find ways to balance the interests of people and the environment with the continued drive for profit and high economic growth rates.
During its visit in March, the Runstad Center team interviewed more than 25 leaders in Hong Kong’s real estate establishment and documented policies that have positively shaped the region’s unique character. The most significant findings were:
- The government owns all of Hong Kong’s developable land. “Capitalized land lease payments from private developers have generated big government budget surpluses in the years since the Asian economic crisis of the late 1990s,” says Nicholas Brooke, a longtime Hong Kong resident and chairman of the Hong Kong Science and Technology Parks Corporation.
- Public money invested in transit infrastructure projects, derived from the sale of development rights on land above transit stations, “creates an operating endowment and builds the catchment area for supporting operations,” says Essy Baniassad, a professor of architecture at the Chinese University of Hong Kong. “Public transportation pays for itself, but only if the rail company is a real estate developer and captures long-term value for the system.”
- A culture of community care has produced lasting contributions to long-term urban sustainability, especially in the areas of housing, transportation, and employment. “Nobody in Hong Kong will be left homeless,” says Ada Fung, deputy director of the Hong Kong Housing Authority.
- With an average private residence size of only 495 square feet (46 sq m), population density in Hong Kong averages 16,783 people per square mile (6,480 people per sq km); the densest district has a density more than eight times that level. This density drives the vibrancy of the street-level pedestrian experience and the viability of multiple revenue streams in building podiums. Efficient mobility choices support the most desirable neighborhoods.
- Hong Kong’s small fraction of developable land has created intense urban development and extremely high property values, notes architect Ronald Lu, chairman of Ronald Lu Partners. Preserved natural landscapes buffer some of the negative impacts of high population density.
The interviews also revealed some glaring unintended consequences, largely driven by the same policies that created success:
- While acknowledging the revenue gains from capitalized land lease payments, Brooke also recognizes the other side of the coin. “When development slows, as it did in the late ’90s, those one-time payments are lost and government coffers can quickly dry up,” he says.
- Big revenues from government and private sector development foster increasingly large real estate deals. While not inherently bad, these mega-developments in many cases fail to respond to the existing urban fabric that people find livable and attractive. One person interviewed, Sujata Govada of Urban Design and Planning Consultants Ltd., led ULI’s effort in Hong Kong to address the negative impacts of podium-style commercial development in the 2011 ULI publication Ten Principles for a Sustainable Approach to New Development: Towards Sustainable and Integrated Large-Scale Developments for a More Livable Hong Kong.
- Although large, lucrative podium structures fund transit station development and keep fares low, they tend to ignore the pedestrian environment. The pedestrian element may become unusable if it is not given priority in the transit node planning process.
- In spite of stated public objectives to the contrary, success at achieving urban renewal and economic development policies has come at the expense of individual and small business interests because longtime residents and independent businesses are moved out to make room for new upscale, dense commercial development in existing neighborhoods near downtown. In one of the most notable examples, a citizens’ concern group claims that “the community impacted most by development feels deeply disregarded by URA’s [Urban Renewal Authority] mission to benefit the greater good.”
- Hong Kong’s long-term economic success, coupled with its constrained land supply, pushes property prices ever higher. According to Christine Loh, CEO of the policy think tank Civic Exchange, an era of land reclamation from the ocean to feed land supply has likely come to a close as vocal environmental and community opposition to continued development mounts. As a consequence, new development now pursues land by pushing into the more distant New Territories and even into natural areas that are prized by local citizens.
As cities reach the limits of what their past investments in urban livability can sustain, environmental damage and increasing public opposition can erode what is acceptable and feasible to build. Pollution becomes more prevalent. People protest; profits suffer. “Our team went to Hong Kong expecting to find unqualified success: after all, Hong Kong has some of the most efficient land use and transit in the world,” says Scott Wolf, architecture principal at the Miller Hull Partnership of Seattle and a professional member of the research team. “The reality, however, is that their successes have come with a set of collateral damages.”
In developed economies, public process and land use rules often evolve to accommodate these pressures, allowing development to continue, but usually in a way that mitigates only the most significant potential impacts. These new rules and regulations also come at a cost, such as increased entitlement time or increased expenditures, which in turn present a financial check to growth. In Hong Kong, where real estate and related industries account for 14 percent of the gross domestic product, increased regulation ultimately depresses government revenues and developer profits because of the land ownership model. Thus, if the pendulum swings too far away from development, the overall economy and the average resident will suffer.
In part because of this tension and also due to the significant influence of government officials over land use, public policy has favored development and economic growth under both the British and the more recent Chinese tenure. However, as Lu notes, “Since 1997, Hong Kong has become more democratic. Land use issues have often required numerous consultations, resulting in delays and compromised design solutions.”
The researchers from the University of Washington concluded that one way for Hong Kong to maximize long-term prosperity in the face of growing public opposition to development is to reexamine the actual value proposition of policies that shape the built environment.
Traditionally, each stakeholder in the development process seeks to maximize financial benefits or minimize social and environmental costs, serving his or her own ends. The sum of interviews and data collected by the researchers, however, illustrates that, regardless of the developmental stage of the economy or whether government or the private sector holds the land, the overall contribution that the built environment makes to a region’s prosperity is a function of both its economic value and its social and environmental burden. While that conclusion may seem self-evident, the more complex issue is the need to measure all consequences of development policies—economic, political, social, cultural, and environmental—in a way that can be interpreted and evaluated on one balance sheet. Maximizing the ratio between these successes and damages requires accounting for all the variables.
The research team proposes that measuring prosperity using a success/damage ratio would allow all parties to the land use process to gain appropriate influence. Using this approach, the tradeoffs necessary to maximize the overall outcome for the public good can be discussed productively. For example, maximizing government land lease payments or developer profits by constructing large building podiums over transit stations may increase overall economic success, but if valuable heritage assets and numerous small businesses are lost in the process—thereby degrading the city’s resilience—then the ratio may actually decline, depending on the magnitude and persistence of the damage.
“Real estate is the field that shapes what our cities can become,” notes A-P Hurd, vice president of development for Touchstone, a Seattle developer, and a professional member of the research team. “Our industry is full of risk, yes, but also full of potential for transformative innovation. We have tremendous challenges, powerful tools, fragmented ownership, noncommodity products, and diversity of customers. It is our hope that the work of the University of Washington’s Runstad Center for Real Estate Studies fellows program continues to generate unconventional debate, systemic thinking, and collaborative problem solving between the academic and the real estate communities.”
