The economics of skyscrapers

Why do firms pay more for space in skyscrapers? I’ve posted some answers on LSE’s Spatial Economics Research Centre blog. Drawing on new research by the SERC community, I look at the balance between agglomeration effects (people working in tall buildings are more productive) and reputation effects (managers like prestigious addresses).

The research findings suggest both effects are in play – particularly for very tall buildings like The Shard. That has important implications for planning the skyscape of London and other UK cities.

Now read on …

Megacities: the real story

We finally watched Andrew Marr’s Megacities last night. It’s a great piece of spectacular urbanism – endless cityscapes, vast crowds, skyscrapers, huge numbers, expansive metaphors. But it’s also quite badly wrong about what our urban future is going to look like. Let me explain.

The series has two basic premises. One, the world’s population is now majority urban. Two, we’ll be living in megacities – places with 10m people or more.

The first of these is very likely true. For urbanists it’s not an especially new fact, first appearing in this 2003 UN-Habitat report.

The second is part true at best. Megacities are telegenic, but most of the world’s population won’t be living in them. 

Sure, the number of megacities is rising – from two in 1950, three in 1975 to 19 in 2007. By 2025, the UN predicts  there’ll be 27. But the number of ‘large cities’ – five to 10m people – is already bigger, and growing faster. In 2007 there were 30: the UN suggests there’ll be at least 48 by 2025. More importantly, half the world’s urban population live in much smaller cities, of around 500,000 people. These may be the most common of all.

In fifteen years’ time, then, we’ll see far more Liverpools (around 400,000 people) and Londons (8m people) than Tokyos (26m people).

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Paradoxically, the biggest urban settlements are now hard to recognise as cities at all. Across the world cities are merging into mega-regions: notably China’s Pearl River Delta, the US Eastern seaboard, even the Greater South East.

Some of the numbers here are difficult to take in. An estimated 120m people live in the Pearl River Delta, the largest urban zone on the planet – China is now planning to merge nine cities in the Delta to create a single sprawl of 42m people. The Tokyo-Nagoya-Osaka-Kyoto-Kobe region may comprise 60m people by 2015, almost the entire population of the UK.

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All this may suggest that urbanisation is accelerating. In fact the opposite is true. Globally, cities grew fastest in the 1950s and early 60s: growth rates have been slowing ever since, from 4.1 percent to 2.5 percent today, and a predicted 1.8 percent by 2030. Developing countries are also on the same downward trend.  

Urbanisation runs in parallel with economic development, and so as developing countries industrialise, their urban systems tend towards steady state. Of course there is a lot of city by city variation. For example, the UN predicts Dhaka will keep growing – from 15.9m in 2007 to 22.8m in 2025. But Lagos, which has grown from less than half a million people in 1950 to over 13m in 2007, is predicted to reach just 16m in the next fifteen years.    

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Megacities makes much of the growth of urban slums. Again, the picture is complex. Over the past decade the share of urban slum dwellers has fallen from 39 to 32 percent, due to economic growth and policy interventions. But as people are flowing into cities faster than infrastructure can keep up, the absolute number of people in informal settlements is growing, and will keep growing.  

Marr stays the night in a Dhaka slum, discovering it’s quite like any other suburban neighbourhood – dirt streets and tin shacks aside. Marr echoes Stewart Brand, celebrating slum dwellers’ entrepreneurialism and inventiveness. Ed Glaeser describes slum neighbourhoods as ‘private energy, public failure’: the development challenges of poor public health, chaotic infrastructure and urbanised poverty remain considerable.

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Finally, we need to factor in the geography of climate change. Many megacities are coastal, and will be threatened by rising sea levels. Many will also be increasingly water-stressed in the years to come.

In his excellent book The New North, Laurence Smith explores the economic rise of the NORCS – cooler, resource-rich regions stretching across Canada, Scandinavia and parts of the US, Russia and China. He predicts new ‘hydrocarbon cities’ appearing across Canada and Russia, and new mega-regions like Cascadia – spanning Portland, Seattle, Vancouver and parts of NorCal.

Megacities are a great symbol of the global urban shift. But our urban future is going to be much richer and more complex than this.

Super-diversity

Worries about multiculturalism go way back: in 883, fearing unrest, King Alfred banished the Danes from London. So when Leeds University researchers suggested that by 2051 a fifth of Britons would be from an ethnic minority, the reactions were predictable. The Daily Express’s full-page headline was ‘One in 5 Britons will be Ethnics’, complete with picture of women in burquas. Daily Mail readers also excelled themselves – ‘the only effective way to combat this situation is to vote BNP at every opportunity’ etc etc.

Let’s try and dig a little deeper. I’ve now read the (long and complex) report [pdf], so here’s a few thoughts. I’m not a demographer, so I’m focusing on the implications rather than the detailed modelling.

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Britain has a long, often hidden history of multiculturalism. And as the report makes clear, Britain is already getting more culturally diverse. Immigration is a major driver, as is ‘natural change’ – variations in birth/death rates across social and cultural groups. The first tends to feed the second, since a share of migrants tends to settle.

British diversity is also heavily urbanised. People mix is greatest in and around cities, especially major urban centres (with big labour markets and good transport links) and ex-industrial places (which had lots of jobs in the past).

In some urban neighbourhoods we’re seeing ‘super-diversity’ appearing – with dozens of new communities alongside established minority groups. Conversely, recent migration from Eastern Europe was less urban [pdf] – partly because many people were doing agricultural work.

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The researchers make three major predictions about Britain in 2051.

First, the UK will be both bigger and more diverse. Under their favoured model, the population grows to 77.1m, from around 60m today. Black and minority ethnic populations rise from 8% to 21%.

Second, diversity looks different. Essentially, super-diversity will be more common. The ‘other ethnic’ population will be 350% higher, with various mixed ethnic groups increasing by 148% to 249%. Chinese communities will over 200% larger, ‘Black African’ communities  179% larger, and the main South Asian groups 95-153% bigger. The model’s held back a bit here because UK Census categories are so crude.

Third, diversity will be more spread out. The researchers predict that people in minority groups will shift from more to less deprived areas, which (very roughly speaking) will take them from inner city to more suburban locations, and from larger cities to smaller towns and rural areas. That continues a long term historical trend – London neighbourhoods like Spitalfields have historically housed new migrants, who progressively shift to outer London suburbs as they become established in the UK.

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The bigger question is what the economic and social impacts of a bigger, more diverse Britain will be. There’s some evidence, particularly from sub-Saharan Africa, that fragmented countries are prone to conflict and poor governance. Conversely, diverse societies may be more inventive and productive. Given ‘where the diversity is’, a lot of the action will be happening in urban areas.

My academic work is looking at these questions in detail, focusing on British cities.  Here’s a recent working paper which fills two major gaps. First, with help from UCL’s Pablo Mateos, I’ve developed some new descriptive analysis, including a ‘Super-diversity Index’ which is more powerful than the categories used in the Leeds model.

Second, I’ve looked at the links between people mix, wages and employment in urban areas. I find some positive connections between super-diversity and my economic performance measures, suggesting higher diversity might be an economic good for British cities. Other papers and current research take a closer look at what’s behind this – more on those in the coming months.

Charter Cities

To Prospect last Monday morning for a breakfast seminar with economists Paul Romer and Paul Collier. We were there to discuss Romer’s idea of ‘charter cities’: a new form of aid in which a poor country invites a rich country to set up a city-size development zone, which it runs according to rich-country rules.

This might sound slightly eccentric – what’s wrong with just giving money? But both Romer and charter cities are worth taking seriously. In the 1990s, Romer was one of the originators of endogenous growth theory, which is now the basic framework for thinking about how economies evolve. He’d spent the past week in Davos, pushing the charter cities idea around. And during breakfast Paul Collier, one of the best development economists in the world, also gave it a qualified thumbs up.

Romer’s basic idea is simple. Strong rules and institutions help economic growth; so do cities. The world is urbanising: but in the global south, most people are packed into chaotic cities, often in slum neighbourhoods, which lack good governance and basic infrastructure. So poor countries need to set up new, city-size special economic zones with robust rules and institutions. Charter cities would allow partner countries to come in and run these cities for the common good, in theory accelerating economic growth and providing the basic housing and infrstructure citizens in poor countries need.

Collier gave the idea cautious support, although he warned it was ‘three leaps in one’ – running against development orthodoxy, and not easy to implement. Most people will live in cities in the future. In the south, coastal megacities will thrive because they have both scale and physical access to the global economy. Equally, good governance is critical to long term growth. There is already an international market in rules: in African partner countries, China typically uses dispute resolution agreements that refer to English law.

Much of the discussion focused on politics, and the need to set rules and local buy-in. I made three more urban points. First, if successful charter cities are coastal (like Hong Kong or Shenzhen Special Economic Zone), what can landlocked countries do? Romer suggested that a third country could as a ‘host’ – which works in theory but makes implementation very complex.

Second, would extending existing cities be a better solution? We know that agglomeration economies are basically non-linear. So if we accelerate the growth of successful cities, we get bigger economic returns than growing new ones from scratch. Romer thought both options would work: Lagos is currently masterplanning a new city alongside the existing one, potentially doubling its population.

Third, how long would it take for new cities to grow? Brasilia was founded in the mid-Sixties and is still under-developed, with big tracts of empty space. There was some discussion about this: Paul Collier pointing to very rapid urbanisation in the UK and US during the late 19th century.

I left feeling at least partly convinced the charter cities idea could work. Chinese cities like Shenzhen or (in theory) Dongtan show what might be achieved within a single country with top-down (and non-democratic) government. However, in the rest of the world implementation is probably going to be a lot messier, and the results less clear cut. However, it’s probably worth a shot. As Haiti begins post-earthquake reconstruction, Dominican Republic (or French)-sponsored charter cities might be a useful tool in the box.