In recent decades, urban economies and populations have exploded, and this upward trajectory only looks set to continue. Today, cities generate about 85% of the world’s GDP, while the urban population is likely to hit 6 billion by 2045, according to the World Bank.
German engineering group Bosch reports that every 16 months a megacity is born, as another city passes the 10 million population mark. This rapid urbanisation is creating challenges that must be overcome if high standards of living are to be maintained – the solution to which appears to lie in good urban planning. This is further highlighted by the UN’s 17 Sustainable Development Goals, which include achieving “inclusive, safe, resilient and sustainable” cities by 2030.
At time of writing, as many of the world’s major cities enter lockdown to reduce the spread of Covid-19, intelligent urban planning will be key to ensuring cities are fit for purpose in a volatile and rapidly changing world. A long-term sustainable outlook, smart-city tech and public-private collaboration – especially in the areas of real estate, infrastructure and transport – are all necessary to protect cities from the major threats of the 2020s and beyond.
Quality is key
As cities grow increasingly competitive for talent, investment and tech, the right sort of urban planning – often referred to as ‘smart cities’ or ‘intelligent urbanism’ – is fundamental to ensuring the high quality of life demanded by their citizens and businesses.
“Good urban planning is about being thoughtful, taking a holistic and comprehensive approach to understanding complexity, and building individuality and distinctiveness in the city environment,” says Dan Dowling, director of cities and urbanisation at PwC.
An intelligent city is one that promotes a high-quality environment in which its citizens can live, work and play. This can include planning development in areas that are struggling in economical and social terms.
Medellín in Colombia, for example, has done this effectively by planning and constructing public infrastructure projects in the poor and marginalised neighbourhood of Comuna 13. The new San Javier Library and outdoor escalators were built in Comuna 13, providing new opportunities for residents and revitalising a formerly troubled area with a history of violence and poverty.
Technology is also an important tool that can aid processes designed to streamline cities and give them an individuality. The implementation of technology into cities however, such as the use of sensors and data for effective management of resources and services, tends not to have lasting impact on people’s impressions of urban environments.
“It is often the cultural and experiential aspects that people remember about their favourite cities,” says Mr Dowling. Aspects of a city that are commonly deemed to make it attractive include having networks of winding streets, green open spaces and a good retail experience or nightlife.
In most major cities, physical space is a limited and valuable commodity so authorities tend to manage and utilise it carefully, in an attempt to prevent poorly designed or managed developments that result in urban sprawl and congestion. The ineffective use of land can have a high cost on an economic, social and environmental level, perpetuating problems, rather than solving them.
Compact cities – simply defined as urban land that is densely and efficiently utilised for mixed uses – is one urban planning concept that is widely recognised as successful. Given the need to conserve urban land resources, the OECD recommends that city and municipal governments engage with investors to foster compact city growth.
Compact cities are conducive to liveable, efficient and sustainable urban environments. They support essential features of intelligent cities, such as efficient public transportation and mass transit. Much compact city planning is about rebuilding and renovating empty areas to increase vitality and security without having to expand cities further out into rural areas.
Retail and street environments are supported by compact city planning due to its focus on factors such as walkability. This helps the business case for shops and restaurants, enabling them to thrive and cluster, and reduces the use of cars within city centres.
“Compact cities have a productivity dividend, a climate dividend and a social dividend. That's why lots of European cities are thought of as wonderful places. It is not just because there are pretty buildings, but because they’re navigable and walkable,” says Mr Dowling.
While many major European cities, such as London, Paris and Madrid, are lauded as good examples of compact cities, the concept has also been successfully applied in smaller cities. One such example is Bilbao, a city of some 350,000 people in the Basque region of Spain, which adopted the concept during its regeneration programme of the 1990s.
By taking a holistic planning approach, which included the establishment of public authorities that took ownership and transformed former disused industrial land, Bilbao was able to reap dividends far beyond the main project, the construction of a new Guggenheim museum. In implementing compact city principles across areas such as transport and urban and social environment planning, Bilbao opened itself to investment, and boosted the city’s development.
Policy drives investment
Municipal and city governments can foster compact city growth through the right policies and land-use planning regulations, affording foreign investors significant opportunities in the process.
When it comes to development financing, one highly under-utilised tool and policy is land value capture. Public investments, especially in infrastructure, tend to increase adjacent land values, thereby generating unearned profits for private landowners. This unearned value may be ‘captured’ (that is, taxed) to convert it back into public revenue.
“Value capture is the sort of urban financing mechanism that we need to responsibly expand the use of. It can raise and share funds from the increases in land and other assets that are stimulated by public investment. Furthermore, these instruments can promote good density, pay for public infrastructure and help to tackle climate change,” says Mr Dowling.
Increased collaboration between the public and private sectors is also important for good urban planning since joint ventures between the land assets of a local government and the capital and skills of the private sector can ensure both social and economic returns.
The Danish deal
Copenhagen City and Port Development Corporation (CPDC) is a well-known example of an innovative institutional structure engaging with the private sector in urban planning and development. By transferring public land to CPDC, a publicly owned and privately managed corporation, Denmark’s capital city was able to maximise the value of public land, finance the regeneration of core urban areas and invest in extensive public infrastructure.
The replanning of its old harbour, which entailed allocating areas for both residential and commercial use, enabled Copenhagen to raise significantly more revenue through a commercial yield model than if it had raised taxes. In 2014, Copenhagen’s North Harbour was estimated to be worth $450m more than its original estimate in 2007, when CPDC was founded.
Beyond the intelligent use of municipal development vehicles, optimising the use of critical land in cities can enable value maximisation of public land and foster private sector investment. In the mid-1980s, the Malaysian government decided to repurpose a 40-hectare racecourse in the centre of the capital, Kuala Lumpur, which was notorious for causing road congestion on race days.
The government set out a plan to redevelop the Selango Turf Club as Kuala Lumpur City Centre (KLCC), a new central business district with mixed-use development including offices, hotels, retail, residential lots and open green space. Malaysia’s state-owned oil company, Petronas, decided to build its headquarters in the KLCC named Petronas Twin Towers, which was the world’s tallest building between 1999 and 2004.
By allowing well-planned and mixed-use commercial developments to replace the racecourse and nearby residential lots, central Kuala Lumpar was transformed, boosting land values significantly in the process and promoting further domestic and foreign investment into urban development.
The role of tech
The management of a city’s physical space – which is essential to a high quality of life – is furthered through smart city technologies.
Much has been said about 5G’s transformative power and its application to smart cities. For example, 5G-enabled transport infrastructure will allow real-time data-sharing handshakes (agreements) between all the moving parts of a transport ecosystem, such as citizens, cars and public transport.
In the UK’s West Midlands region, which was chosen in mid-2018 as the UK’s primary testbed for the acceleration of 5G development, smart city applications are being trialled in the areas of mobility and healthcare.
Dave Maclean, founder and CEO of Packt, a tech company that is facilitating 5G pilots in the region, says: “Come to the West Midlands, where you can build your products and services of the future, and then monetise them globally. We’re already starting conversations with global medical device makers and global automakers, so there’s a big foreign investment opportunity.”
The technology investment into smart city initiatives globally is expected to hit $124bn in 2020, an increase of nearly 20% on 2019, according to Statista.
Foreign investment within this area is also growing. For example, greenfield FDI relating to smart city development has grown strongly since 2010, hitting record highs in 2018 following 26 unique projects valued at $2.7bn (see figure 1), according to greenfield investment monitor fDi Markets.
The majority of greenfield foreign investment relating to smart city development has come from investors in the ICT sector, such as Cisco Systems, Huawei Technologies, Ericsson and Hewlett Packard Enterprise. Many of these companies are developing the tech infrastructure behind smart cities, according to fDi Markets.
For example, in 2019, Deutsche Telekom’s T-Systems opened a new UK and Ireland headquarters in London, from which it will develop cloud technologies and Internet of Things capabilities for smart city and smart campus capabilities. Meanwhile, China’s Huawei recently opened a new innovation centre in Belgrade, Serbia, as part of a co-operation programme with the Serbian government's ‘Smart Cities’ project.
A significant amount of smart city FDI has also come from investors in financial services. A slew of accelerators funding start-ups that are developing smart city tech have set up operations around the world, according to data from fDi Markets, one leading example being London-based Startupbootcamp.
The real estate sector has also seen significant FDI relating to smart cities in recent times. For example, Korea Land & Housing Corporation has established a joint venture with Bolivian firm Lafuente Business Group to construct a smart city in Santa Cruz, Bolivia. The joint venture will invest $400m in infrastructure and services for the New Santa Cruz intelligent city project, according to fDi Markets.
“The real estate industry is going through a technological leap and is being transformed by the rise of proptech [property technology]. The industry is now generating vast amounts of data through the digital tracking of buildings in terms of usage, productivity and energy efficiency,” says Jeremy Kelly, lead director of global research programmes at US real estate firm JLL.
By developing networks of truly connected, data-exhausting buildings, proptech can deliver resource efficiency, space optimisation through co-working and co-living, and digital districts that drive economic growth and inclusive community-driven areas, adds Mr Kelly.
With many of the world’s major cities under stringent restriction of movement in order to reduce the infection rate and death toll of Covid-19, urban planning has never been more pressing or in focus. If the role of a city is to serve the needs of its citizens, the efficacy with which densely populated urban centres can manage crises such as pandemics is tantamount to how well they are planned.
While urban density should not be dismissed, it will be scrutinised as a planning goal despite the benefits of compact cities. Public health considerations are likely to be more prominent in the future, and the effective use of data analytics, technology and social sciences will be key within this.
How urban planning adapts to a post-pandemic world could well define the way in which cities develop in the future.
This article first appeared in the April-June edition of fDi Magazine. The full digital version of the magazine is available here.