Funding the Design of Livable Cities

As a burgeoning global population migrates to the world's urban centers, it's crucial to design livable cities that function with scarce natural resources. John Macomber discusses the critical connection between real estate financing and innovative design in the built environment.
by Lisa Chase

Editor's note: This article originally appeared on Harvard University's Real Estate Academic Initiative website.

If Harvard Business School and the Graduate School of Design seem miles apart both literally and culturally, John Macomber is determined to bridge the divide through his work in urban sustainability.

“Private investors will need to fund not only real estate development, but also the supporting urban infrastructure systems”

In his multiple roles as a member of the HBS faculty teaching courses in Real Estate Development and Executive Education courses on campus and in India, his active engagement with the Real Estate Academic Initiative (REAI) at the GSD, and his appointment at the GSD teaching the jointly listed course "Sustainable Cities: Urbanization, Infrastructure, and Finance," Macomber is keenly focused on the critical connection between real estate financing and innovative design in the built environment.

To create an environmentally sustainable built environment, design that focuses on maximizing natural resource efficiency, planning that fosters public health, business models that attract the capital to fund it, and public policy that enables the adoption of all three, are crucial elements. For a burgeoning global population that is increasingly migrating to the world's urban centers, designing livable cities that can effectively function with scarce natural resources is critical.

In talking about the future of the global built environment, Macomber cites four primary trends driving the development of innovative solutions:

  1. The first is the world's population growth, forecast by the United Nations to reach roughly 9 billion by 2050, and the mass migration from the countryside and agrarian communities to cities across the globe. This rapidly expanding urban population, expected to reach 3 billion over the next four decades, will require housing, places to work, and transportation systems.
  2. Second, the natural resources necessary to support this growing population, including freshwater and land for food production, are increasingly scarce.
  3. Compounding the challenge of supporting this population shift, governments from developing to industrialized countries are limited in their capacity and political will to devise solutions to accommodate expanding urban populations.
  4. Finally, securing capital is paramount for real estate developers to design and build cities to meet the needs of this growing urban populace. Private investors will need to fund not only real estate development, but also the supporting urban infrastructure systems.

In this challenging landscape, Macomber believes Harvard has a unique opportunity to shape a sustainable global urban landscape.

Rethinking Urban Areas

Both environmentally and socially, the world's cities present one of the best opportunities for directly addressing global climate change. With half of the world's population residing in urban areas and contributing to as much as 70 percent of global carbon emissions, restructuring the urban environment can have an enormous positive impact on the global climate.

Within a relatively contained geographic space, a city's "inputs" of water, transportation infrastructure, energy and breathable air and "outputs" of waste, air and water pollution can be planned and managed in a much more efficient and sustainable fashion than in a dispersed population.

Mayors of the world's largest cities agree, with New York City mayor Michael Bloomberg leading a global coalition to craft urban centers that maximize energy and water use efficiency, build and renovate buildings to be more livable and environmentally sustainable, and incorporate low- or no-carbon emitting public transportation systems. Yet while mayors often have greater legislative freedom to shape local energy use and building regulations, private sector engagement is critical, both to fund urban sustainability initiatives and to create highly efficient and livable spaces.

"The challenges of global urban redevelopment are an ideal opportunity for collaboration between the fields of design, finance, public health and government policy”

After all, while renewable energy technologies can reduce greenhouse gas emissions, sophisticated design and engineering that cuts energy use by maximizing natural light and reducing the need for heating and air conditioning services is far more effective. Building designs that incorporate factors of sun and wind, and intelligently designed public transit, can maximize the return on investment by optimizing natural resource use. For cash-strapped cities the private sector can fill the gap in providing critical funds and designing structures, including public housing and municipal spaces, that are both attractive for businesses and residents, and less expensive for cities to maintain in the long-term.

Macomber is putting his commitment to joining the fields of finance and design into practice through his research and HBS case studies, including exploring redevelopment options for the sprawling Mumbai slum of Dharavi, the infamous setting for the movie Slumdog Millionaire. In Mumbai the $3 billion public-private Dharavi Redevelopment Project (DRP) proposes free housing and services for Dharavi's longtime residents to relocate from their ad-hoc dwellings. To fund the relocation, the DRP would develop the previously inhabited land with commercial and residential real estate, considered highly desirable and valuable because of its proximity to Mumbai's city center.

While the project presents numerous financial, cultural, legal and social challenges, the case also explores the multiple intersecting opportunities inherent in urban redevelopment of this scale. In addition to the complementary interests of finance and urban design, the DRP project highlights the multiple humanitarian and environmental implications of large-scale urban transformation.

While addressing the environmental effects of water and land use, waste and pollution, the redevelopment promises enormous health and social welfare improvements by providing sanitation, safe drinking water, and basic services to Dharavi's residents. Realizing these benefits will depend on first rate design that maximizes energy and resource efficiency, but that also makes the compact, vertically oriented scheme desirable and livable for more than one million people.

Macomber sees the challenges of global urban redevelopment as an ideal opportunity for collaboration between the fields of design, finance, public health and government policy. At Harvard, this presents almost unlimited potential for the university's schools, including HBS and the GSD, to work together researching and devising practical, replicable solutions for an environmentally and economically sustainable global built environment.

Harvard's Opportunity

"I believe Harvard can address the major problems of the world by using the combined skills and reach of its schools, working across disciplines," Macomber says. "Focusing on sustainability and the built environment is one great way to do this. Our overarching mutual task should be to help citizens, investors, businesses, planners, NGOs and governments to fund, design, and accomplish new cities all over the world that are economically competitive, that use water and energy effectively, and which are healthy for their citizens."

With the support of REAI's recently launched Sustainability and the Built Environment initiative, Macomber has taken the first steps in leading the charge toward crafting collaborative and innovative solutions for the global urban landscape.

About the Author

Lisa Chase is a staff writer and editor for the Real Estate Academic Initiative at Harvard's Graduate School of Design.

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    • Anonymous
    How would Harvard Graduate School of Design integrate all aspects of design thinking into technology, finance, HBS and etc? Does this entail mainly architectural design talents or do you have more sophisticated to address interactive and network design.. which educates/trains and integrates cyber ICT in terms of moving the whole body of citizens with a newly evolved way of consuming/living/contributing.. because we'd be asking how can we innovate ways of managing people and money.. by integrating technology and design of the physical and the virtual world?
    • Ravindra Edirisooriya
    • Accountant 11/26/12, Midwestern Small Business
    Professor Macomber's urban sustainability initiative to bridge the gap between urban (and regional) design and urban (and regional) development finance is important for current dwellers, their offspring (growth) and future migrants to urban (and regional) spaces. However, some urban sustainability approaches needed for existing (currently inhabited), redevelopment of destroyed (renewal due to extreme weather events such as super storm Sandy), and new (planned for the future) urban (and regional) spaces are different. Urban sustainability approaches for existing and destroyed urban (and regional) spaces assume the additional political dimension: the idiosyncrasies (short term cultural biases), lack of appreciation of new ideas of sustainability, lack of information and trust on long term sustainable systems for urban (and regional) spaces by the dwellers (users/inhabitants) and the need for possible relocation of some dwellers.

    In the past, when the urban spaces (cities) lost its appeal, the influential, the educated and the wealthy dwellers moved to the suburbs: essentially, the inner cities were abandoned because the inner city residents could not afford redevelopment and little money came from the real estate developers. The developers did not see a means to profitably extract economic rent from utilizing urban land. Only small community development block grants from the federal government funded the limited redevelopment of inner cities. (Given the current federal budgetary constraints, community development block grants may not be available in the future.) Another reason for the development of suburbs was the automobile, which offered a cheap mode of transportation between the suburbs and the urban spaces. The elite (influential, educated and wealthy) had moved further into satellite/gated communities: designed (not organically developed) and specialized built environments suited for their life

    Assuming that all urban dwellers can be turned into well informed citizens who are ready for action on environmental sustainability of urban (and regional) spaces, Professor Macomber's question is how to attract real estate developers to invest in environmentally sustainable urban spaces and environmentally sustainable urban infrastructure. One idea already in place is to sell community shares to raise capital for environmentally sustainable urban renewal (urban space and urban infrastructure development) projects. Another idea is to lease some of the urban land to real estate developers in exchange for their capital investment in environmentally feasible urban renewal projects. In order to realize maximum economic rent, the developers will house the urban dwellers in "environmentally sustainable" high rise buildings or relocate them to marginal urban or regional lands. The high rise buildings could become the new "housing projects" of the past, which did
    not match with the dwellers cultural norms.

    The attraction of urban spaces (location, location, location) to real estate developers is the urban infrastructure already in place. However, if environmentally sustainable urban infrastructure has to be developed along with the urban spaces, it may not be as attractive as expected to the real estate developers without some development grants and tax incentives from the city/state/federal governments, which may be a throwback to old ways of financing urban renewal.

    From the urban design perspective, sprawling and high rise buildings both consume more energy to make them livable and environmentally sustainable if possible. Hence, the most efficient building form for low energy consumption and environmental sustainability (if possible) may be medium rise building forms. Medium rise buildings may be better suited for dwellers cultural norms if accompanied with a means of livelihood and education.

    With respect to redevelopment of destroyed urban spaces (in NJ and NY), the best option is to convert the urban spaces subject to a storm surge of two feet or above (it was 10 feet 48 hours before the eye of the storm came ashore with 40 foot waves) to a natural habitat, reasonably compensate and relocate residents to safer and environmentally sustainable urban or regional spaces. If it is politically, socially and economically not feasible (very likely), the residents have to be provided with environmentally sustainable architectural and urban design solutions to rebuild in the hostile built environments.

    The community shares could be invested to find an environmentally sustainable architectural form (archetype for the 22nd Century) that could withstand the stresses and strains of extreme wind shears, submersion, extreme temperatures, bear exterior/interior loads, modular, stackable, anthropometric, livable, sanitary (no public health threats), recyclable (reusable/biodegradable construction materials, rain water, waste water, heat, organic waste, inorganic waste), net energy positive (creates and supplies power to the grid), fire retardant, naturally lighted and ventilated, hooked up with wired/wireless communication and internet, constructed with durable materials, esthetic and culturally adaptable. (Some preliminary forms and materials come to mind!) Urban (and regional) spaces and urban (and regional) infrastructure could be master planned and designed using the technology generated by the new archetype(s). They shall create inclusive and cooperative local (and regional) c
    ommunities specially minimizing the use of automobiles with wider bike lanes and pedestrian walkways to address local transportation (and smart vehicles for regional transportation), public health (combined physical exercise and local transportation, and other public health monitoring, preventive and nursing activities), education (mostly students would attend virtual classes and minimal classroom attendance with real/robotic teachers), mostly locally grown food (vegetarian, dairy, meat and fish), and employment (home based self employment, freelance or corporate work and minimal corporate attendance with real/robotic managers). The new master plans and designs for urban (and regional) spaces shall embrace the turbulent weather phenomena and they should not fight the natural elements for survival.

    The urban migration of countryside (rural) populations was ongoing since the industrial revolution in the 17th century in America. Historically, humanoid migration started in the cradle of civilization in Africa: we were in search of food (work in modern times) and we had an exploratory gene in us. The human migration from countryside to urban spaces may be unstoppable by nature.

    We humans should naturally aim (to develop contraptions and methodologies) to launch ourselves into space (other worlds) to satisfy our exploratory gene and seek new sources of food, water, organic and inorganic materials.
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited
    We need to first define the term 'livable'. It will much depend on the level and expectation of those who have to live there. Thus, while the slum dwellers of Dharavi would be content with the minimum basics, the upper echelons of society would not at all consiber it livable despite whatever developments take place there.
    In my view, livable city must provide a healthy living environment which would mean amalgam of all the fundamental requirements and their ready availability.
    Many years back, we had a 'village adoption' scheme implemented by commercial public sector banks and others in India aimed at making the village a self-contained place in order to provide everything there so that there is little need to hunt for needs in surrounding urban areas. Financial needs of each household were met and the income generated from loans and advances was spent for developmental purposes.
    Yes, funding development of cities is an issue. A PPP model could be developed for this purpose. A small levy on the users of the facilities can lead to repayment of the investment by and by.
    This has infact been tried, e.g., by levy of toll tax at various points on the Indian highways. Here, the BOT model has done well.
    This idea could be extended.
    • Fred Cordova
    • Executive Vice President, Colliers International
    John, terrific thoughts and ideas. You might consider including science, technology and investment dynamics in the mix. Capital will flow where there is an appropriate risk adjusted return. This can be facilitated through public policy initiatives that reconstructs the yield profile and facilitates the flow of capital. Best of luck with your initiative. Fred Cordova HBS '83.