In collaboration with Eduardo De La Torre
The process of real estate development in an urban landscape is multifaceted and multidisciplinary in nature for a variety of reasons. Although there is often the misconception that real estate development is an endeavor pursued and managed purely by the private interests of firms and actors, this couldn’t be further from the truth. If this were the case, profit-maximizing principles would dictate the development and layouts of our cities, natural resources would be exploited whenever net economic benefit could be extracted, urban landscapes would not take into account the welfare of its populace, and vulnerable communities would be subject to the predatory nature of the free market.
Although real estate development does respond to market forces of supply and demand, it is subject to certain restrictions imposed by government actors who act in the interest of creating sustainable cities that both encourage productivity, mobility, and economic growth, but that also consider the benefits of creating communities that are walkable, enjoyable, and safe. The goal is to create a prudent development strategy that encompasses interests that benefit the private and public sectors.
An important aspect of this strategy is compact development that repurposes land within existing infrastructure. This means redeveloping existing land with a current use that no longer meets the goals of both private and public actors with the goal of creating net benefit for both. This concept is beneficial to real estate developers and investors that represent private interests because this reduces the costs for land and infrastructure development. Instead of creating a project beyond the limits of the city, and having to start from scratch in terms of infrastructure, it is cheaper to develop within the city and revitalize land and structures. This concept is also beneficial to the private interests of businesses because the increased economic activity that ensues attracts additional investment and spending power. It is also in the best interest of public interests such as local governments because it reduces their costs of providing public services such as fire and police protection, utilities such as electricity, sewage, and water, as well as a variety of other public amenities.
Another goal of this strategy is creating cities that encourage walkability. Real estate developers and investors benefit from this strategy because it increases sales. Creating more walkable access to storefronts encourages more spending, which naturally increases sales prices. This increased economic activity naturally benefits the individual business owners as well. It is also in the interest of local governments to adopt policy encouraging walkable spaces because property and sales tax revenue increases, which allows these governments to more effectively provide resources to its constituents.
The last example of smart development strategy encompasses the creation of a diverse range of choices and land uses, building types, transportation models, housing types, and commercial spaces. This diverse land use is beneficial to developers and investors because it results in increased sales and investment values within real assets. It benefits businesses because increased mix-use amenities allow them to attract employees as well as customers. Finally, it creates an opportunity for local governments to increase their tax base from higher property taxes and new residents.
Public policy is an essential tool that government actors use to manage development in a way that allows them to meet certain goals within their jurisdictions. Policy is used to shape the regulatory landscape in which real estate developers conduct their business. Policy can shape the kind of development that goes in within an area, what certain land uses are permitted within a specific location, and which land isn’t available for further development. These kinds of regulations help government entities determine the layout and use of city spaces, which, at an aggregate, determine their long-term goals. Different cities have different goals when it comes to public policy. This book explores several aspects of the real estate development process, and how different actors interact within a common framework to create sustainable cities.
We begin our analysis by exploring the relationship between market volatility and irreversible investment in real estate development. This helps us understand the real estate development process from the framework of an investor, which allows us to gain some insight into key decision-making processes. We extend this analysis to explore the concept and tools used in growth management, namely, we explore the different results that followed the implementation of urban growth boundaries within certain cities. This provides important knowledge to urban planners and policy makers in pursuing their development goals moving forward. Through using tools such as Urban Growth Boundaries, cities can concentrate housing development in the areas that they desire, while also removing the allure for landowners outside the boundary to brush off other forms of development in hopes that their parcels may one day attract high-paying residential and multifamily developers.
We also perform a cost–benefit analysis of land use regulation, which we use to construct an overall view of what land regulation entails, as well as setting a framework for the cost–benefit analysis of other public policy options. We introduce concepts such as negative and positive externalities which are key concepts in understanding policy goals. We use the cost–benefit framework to extend our analysis to the costs of habitat conservation. We seek to analyze how preexisting development restrictions affect the cost of habitat protection. As previously mentioned, conserving certain environmental and natural resources is extremely important when creating sustainable cities.
We further our study of the real estate development process by introducing a budgetary framework for housing development. An example of public policy aimed at creating affordable housing are housing assistance programs, which are employed to stimulate new construction or restoration of subsidized price housing for lower-income households. We use this analysis to understand methods of creating affordable cities that serve the interests of the disadvantaged. We also explore the role that public policy has on racial patterns within cities. Eliminating segregation within cities is a goal that public policy seeks to find an answer to. We analyze minority access to new housing developments, as well as the impact on their access to filtered units in moving chains initiated by new housing starts. This can give us some insight on steps we can take to ensure communities create environments where social mobility is possible, and where people aren’t put at a disadvantage based on racial background.
It is evident that the real estate development market plays a huge role in the creation of jobs within a city. This book explores the role that real estate development has on the growth of employment within a city. We also seek to uncover the effects of housing prices on labor migration and analyze how traditional neighborhood development has changed over the years, primarily focusing on the creation of pedestrian and transit-friendly environments, as well as well as the establishment of mixed land uses. These aspects will help the reader learn how vibrant cities attempt to incorporate this into their policy goals for better communities.
We move on to discuss how fiscal policy affects the development process. We explore topics such as impact fees and property taxes, which are used to create incentives for developers. We analyze the role that different taxation methods play in real estate development and the supply and demand side behavior of both developers and consumers. We use this as a foundation to explore the trends in construction, also referred to the construction cycle. We seek to uncover the dynamics of housing supply in urban environments, with the aim of understanding how to create a sustainable level of housing stock that meets certain policy goals.
We finish our analysis by discussing several topics such as environmental contamination risk, the uncertainty of the land price market, the role of affordable housing measures in low-income communities, as well as the development of public infrastructure with the aim of spurring economic growth. We seek to use all the tools presented to create a framework from which to analyze real estate development and make sustainable policy decisions that enable us to meet the dynamic goals of different urban environments.