Markets build bad cities


The cases of Paredes and Dharavi are examples of a centralized approach to urban development. Both were led by private consortiums and supported by public-private partnerships. Both aimed to create a safer, more sustainable living and working environment for the people who would live there.  And, as we discussed, both seemed destined to fail. However, I would argue that we should draw markedly different conclusions from these failures about the role of central planning in the growth of cities.

There are two kinds of cities in the world – those home to over 50% of the world’s population today, and those that will absorb nearly 100% of future growth for the next four decades (with a considerable degree of overlap). Cities like Bombay are adding over a thousand people per day – new neighborhoods springing up overnight. Governments are able to direct this growth to an extent through regulation (e.g., zoning) and the provision public services (e.g., mass transit). Markets do the rest.

In the case of Dharavi, markets may be enough, provided slum dwellers gain legal ownership over their homes. Offering land rights to families who have lived in the same home for generations is a complex process, but one with a relatively clear outcome – organic, continuous real estate improvement. When managing a built environment, the government has far greater constraint on sweeping public works projects. The process of razing thousands of homes and relocating thousands of families in Dharavi was virtually guaranteed to be corrupt and unpopular.

At the same time, markets seem to be bad at developing sustainable cities. As most industries have become more efficient, real estate development by some measures has become less so. Living PlanIt proposed to eliminate the massive waste endemic in traditional construction and urban design by building a ‘city’ from scratch. While they ran up against massive coordination and complexity problems, the idea was cogent. Centralized planning and development can ensure that the design and spacing of every building makes sense from an efficiency standpoint, and capture huge savings in reduced energy use and CO2 emissions. While there is a risk of building a ghost town (e.g., in China), there are ways to mitigate this risk (e.g., using large businesses as anchor tenants).

As governments look to create room for new urban populations, they would do well to review examples such as Living PlanIt and New Songdo City for inspiration. Greenfielding a city center is no easy task, but getting it right may be the best way to create a sustainable path for urbanization. For existing urban centers, government should focus on installing the right regulations and public services, rather than rebuilding from scratch.

3 thoughts on “Markets build bad cities

  1. JW,

    Clearly, there are several issues with “the market” in developing cities. The largest issue- which I was surprised that you didn’t mention- was the lack of pricing for externalities, like a carbon tax. The market can’t factor in what isn’t priced appropriately, and mispriced goods skew the market and create incentives for pollution.

    However, I became confused reading your argument about the use of the words “market” and “centralized”. Markets and the private are inherently more decentralized than government planning. If Dharavi and Paredes were “centralized” planning, than they weren’t market planned. Additionally, while centralized planning can ensure that the buildings are built for energy efficiency, the market has a greater incentive to look for cost savings from energy efficiency.

  2. By John Macomber

    There are a number of ways in which unfettered market forces or private sector actors can cause mischief. It can probably be stipulated that choice #1 is for an enlightened, forward thinking, well-funded, constituent oriented government to go ahead and arrange and regulate and nurture these cities.

    My concern is that there is little evidence of the ability or even inclination of “government” to do this. So we get either massive informal settlements or cluttered inefficient developer-driven sprawl, all around the Tier I cities. The thing that caught my attention is the potential for market-oriented city nurturing to attract a lot of capital and a fair amount of expertise. “Follow the money.”

    So the art is to channel that capital in such a way that a) the cities are appealing b) there is a reason for new cities to happen – to come into being – and c) mischief is contained and the value created goes to the constituents or the infrastructure or something with a long view for the public good, and does not just get raked off by bad actors. This is where the potential for the tools of business, negotiation, and contracts can do something really good and big. As a second choice in the even that enlightened, cash rich governments can’t do choice #1.

  3. JW,

    In times of incredible deficit spending and government contraction across the developed world, and even in most of the developing world, how would you propose financing this level of development centrally? It seems as though very few nations would be able to afford such development, and even fewer have the ability to completely dictate what happens (e.g. China).

    While greenfield development will be important, don’t you believe that when the cities grow, almost all of them will be from some established base? Whether that be a small town that grows quickly into a city, or a small city that grows into a megacity. If that is likely the case, what “regulations and public services” are you suggesting that would be helpful in sustaining a path to urbanization? Would it be something like many of the state and city agencies requiring LEED for not only all state or city-funded buildings, but also for any new building? If so, what does the result of that look like? I think people are looking for a simple clean solution to this issue where it doesn’t seem like that will ever exist. I think it is more important for individual jurisdictions to understand what they can do to encourage density and urbanization that is more sustainable and pedestrian friendly, while also focusing on how to improve the built environment over time through codes and zoning regulations.

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