Two chronic circumstances of the real estate industry compromise the design and productivity of cities—the fact that assets and host markets are often out of sync, and the developer’s inability to control processes and functions. It is time to take better control and facilitate change.
Problem: Markets Change, Buildings Don’t
It is often difficult to achieve density because original construction is typically in low-activity, low-value locations where density is often not feasible. Various issues of feasibility and highest and best use are point-in-time determinants for what gets built. Real estate assets are relatively fixed once entitled, designed, financed, and occupied through agreements that involve various contracts and commitments. But markets evolve, sometimes rapidly, leaving an asynchronous relationship between the fixed real estate assets and their host markets. Additional demand may be present that the real estate cannot accommodate. That creates the problem: this asynchronous relationship leads to losses for stakeholders.
Losses: We Need to Grow Up!
In locations where density can be beneficial, this asynchrony can generate losses because most built assets cannot evolve. When asynchrony occurs, market demand is instead accommodated in another location—historically, at the urban edge, absorbing farmland and open space. In many cities and metropolitan areas, this localized supply constraint, and its channeling to other locations, is an important cause of sprawl and, increasingly, gentrification. In addition, several vital economic, planning, environmental, and quality-of-life objectives are compromised, including effective density for walkable, mixed-use neighborhoods and the use of transportation systems. For infrastructure, return on investment can be compromised when density is fixed. For cities, revenue per unit of land area can be limited.
Betterment programs, best practices, and communities of practice established to solve problems—such as smart growth, new urbanism, the 15-minute city, smart cities, the U.S. Green Building Council, and others all with good programs—have fallen short of their potential because of the inability of real estate to co-evolve density with markets. Many of real estate’s longstanding challenges are rooted in this too-little-acknowledged problem of asynchrony and how it first influences and later constrains density in key locations. We can change this.
Historically, cultures have had methods of allowing settlements to grow organically, adding structures—commonly using local materials and designs—to serve growing needs. The result has generally been favorable scale and places that are often cherished today.
Over the past 100 years, large and rapidly growing populations, modern planning and building, and the dominance of vehicles and roads have brought challenges to the quality of life. And though technology has created problems of its own, it may also offer significant solutions, in particular by delivering the ability for building and projects to evolve, such as through creation of new modular systems and even structures generated by 3-D printing.
Recently, and often in disruptive patterns, states and cities have passed laws to increase density in both suburban and urban settings with the goal of solving supply/demand imbalances. To a degree, the inability of fixed assets to evolve—plus resistance in communities to new, denser projects—has contributed to the same continuing supply-constraint crisis that prompts these disruptive efforts. Especially in key locations such as near expensive infrastructure, the ability for fixed assets to evolve could increase the productivity of investments.
What is needed today is a broad understanding of how communities are affected by systemic failures of planning and markets—in particular, planning’s forecasting, implementation, and management functions relating to density. Failure to accommodate evolving local demand causes market disruption. Demand accommodated by supply built elsewhere—such as in more suburban and exurban locations—is a source of sprawl. When that alternative supply itself is not enabled beforehand to accommodate more capacity, the sprawl pattern is extended. Conversely, density managed more effectively—and in a way that acknowledges the systemic and complementary role it can play in development—can bring about creation of better communities in both higher- and lower-density neighborhoods. The framework of various infrastructure—for example, for transportation, energy, and water—plays an important role in this ineffectiveness. Lost potential accrues every day.
A flexible—or pre-enabled—public plan accommodating evolving density is a treasure trove of opportunity for second- and third-generation developers and investors, and for equity sharing. It empowers speedy adaptation to changing markets, demographics, costs, and environmental conditions and reduces the ineffective channeling of supply. The current resetting of values in office, residential, and retail land uses offers a window during which to establish greenfield and redevelopment projects that evolve in value and are pre-enabled for added density to better serve communities.
As archetypes, in architecture and planning, we often look to nature’s patterns and systemic function. In order to accomplish those, we need to acknowledge the systematic business processes unique to real estate development and management―both as is and should be.
Solutions: We’re Out of Control
To better match change in density to evolving markets, density should be pre-enabled in key locations so targeted assets can be transformed to meet growing demand. Pre-enabling density involves aligning the timing, permissions, and capacities that are part of real estate development. (See graphic, “Functional Span of Control.”) When demand is not locally accommodated, it compromises quality-of-life, return-on-investment, environmental, and other desired outcomes. These are unnecessary losses that should be avoided.
The process of pre-enabling density, as well as the changes it requires, shines light on another systemic problem in development—that developers and other stakeholders have limited ability to shift the timing, permissions, and capacities needed to synchronize buildings and projects with markets. In contrast with other businesses, developers lack control of some of the most important functions in the development process. This has given real estate a reputation of inflexibility and unwillingness to change. A more accurate view is that developers show great agility working around inefficient industry constraints. That agility can be employed to create better communities if effective solutions are provided to overcome structural obstacles. A systemic change to processes is needed, as well as a more systematic approach to density in key locations.
Density’s Destiny: Applications of Pre-Enabled Density
Urban development is at a unique moment globally. Population growth, natural resource depletion and environmental problems, rising hard and soft costs, and global economic and social exchange are some primary forces converging to define this moment. From 2020 to 2050, the urban population will increase by 2.3 billion globally, according to Our World in Data. Density has a unique role to play in improving outcomes. Lack of density is not the sole cause of urban problems nor is greater density the sole solution. But its systemic role in urban development establishes its potential and its undervalued role. Underproductive assets placed in service over decades are now accruing losses daily.
Breakthroughs are needed, and they will require process change focused on overcoming obstacles.
First, at the property level, the current inability to add capacity at select locations and to buildings and projects needs to be overcome. In key locations, density needs to co-evolve with host markets.
Second, at the industry level, the need for pre-enabled density in itself exposes another challenge—the developer’s lack of functional control to generate change and perform well. Timelines, permissions, and capacities need to be reconsidered to give developers greater ability to facilitate a number of important, long-desired objectives such as greater deployment of new urbanism principles, smart growth, and allied objectives.
Techniques to redesign business processes can be applied to multi-stakeholder model projects, which can then provide local success that can be replicated on a broader scale. Functional control and coordination should be established with new project collaborations in which participants come to understand and seek to change industry processes.
Several existing and new project types—including those that address climate, transportation, housing and homelessness, farmland preservation, water, and other natural resource conservation, and others—could be good targets for such transformative collaboration. In these categories, many geographies and projects exist where substantial financial losses are eminent for investors, households, municipalities, and many others. Through these project types and with a new approach to development, long-needed positive change can be achieved.
In concordance with these recommendations, investors may be ready to adopt collaborative, coordinated, cross-functional actions that support these timing and control objectives. In its “5 Sustainable Investing Trends for Companies and Investors,” Morgan Stanley says, “In 2023, companies want to think about sustainability not as a single team, but as an integrated strategy across business functions.” When a major obstacle to positive change—in this case, the normally rigid criteria applied by capital investors and underwriters—becomes receptive to amending its requirements, productive change can occur.
Conclusion: It’s About Time
In the 14 years since “Planning Densification from the Start” was published in Urban Land, countless projects have been developed that are now in asynchronous relation with their host markets. Economic, social, and environmental losses are accruing in these projects, and these losses also contribute to the planet’s environmental problems. In those intervening years, we have contemplated the fact that change in real estate is difficult because the disparate owners of processes and functions have varying timelines and objectives that are not coordinated. The result is that developers have become resourceful and agile but in a system that does not align to optimize community outcomes, even though many stakeholders have that as an objective. The industry needs to rethink the system. What are now obstacles to change can become catalysts for change.
Various crises looming today make this an opportune time for that rethinking and transformation. To achieve better alignment and outcomes, we propose the creation of model projects that address these crises and are committed to rethinking functions, timing, capacities, and permissions in order to better match real estate with markets. The industry is out of functional control, and it’s about time that it grows up—with pre-enabled densification in key locations in order to improve multiple outcomes. Until the industry addresses these problems, efforts at improvement will fall short. If not now, when?
MARK SMITH and ERROL COWAN, Ph.D., work at Urban Betterment. PlannedDensification.com