Since ancient times, humans have lived in communities, and humanity has thrived by grouping. What New York is today for the world — arguably its capital — Rome was for the Roman Empire and Constantinople was for the Ottoman Empire. Cities have been hubs for creativity, economic activity and the evolution of humanity. They symbolize freedom, culture and civilization. Today, cities are evolving faster and faster.
What is the future of urbanism? Today, cities are undeniably deeply touched by the technology revolution. While apps and GPS allowed for the creation of Uber a decade ago, the same fined-tuned technologies are now enabling self-driving cars. They have arrived in New York and debuted in Brooklyn, with six free-to-use cars ready to take passengers to the ferry port.
Technology is also altering the way we use and relate to residential real estate, i.e., our homes. As most individuals became shut out of the wounded mortgage market post-2008 financial crisis, institutions became the prominent buyers of single-family houses and rented them out, essentially turning them into an asset class known as single-family rentals (SFRs). These investors pioneered purchasing real estate via algorithms, often sight unseen. As this trend developed, many became known as iBuyers: companies that make on-the-spot cash offers for a seller’s home, justifying a high fee with claims of certainty and speed of closing. In Phoenix, 7% of real estate transactions involve an iBuyer — no small trend.
Therefore, real estate is becoming increasingly perceived as something to periodically rent, not to permanently own. This mindset is in line with the creation of the shared economy through which individuals live an asset-light life, with less ownership of everything. For example, Rent The Runway is an online service allowing the rental of designer clothing and accessories.
Contrary to popular belief, retail is not dead. Certainly, traditional retailers are challenged by the arrival of online shopping. Nevertheless, this change parallels the creation of big-box stores several decades ago. Malls and brick-and-mortar shops are not disappearing, but evolving. Retailers that can adapt will survive. For instance, Walmart stores are becoming fulfillment hubs equipped to home-deliver goods within 24 hours, all to better compete with Amazon. One largely understated difference is that nowadays, stores increasingly start online prior to leasing physical spaces — and more and more often as temporary, pop-up spaces prior to a long-term lease. In cities, I believe temporary retail space leasing will continue to grow, as it is a more economically viable cure to empty storefronts than often-discussed commercial rent control.
While some malls are bound to fail, however, many others are being readapted to new uses like co-working spaces, residential property or lifestyle/gym uses. In 2019 America, fitness facilities have become extensions of our homes. We don’t merely work out there. We eat, have coffee, work and socialize there. Increasingly, these gyms feel like high-end hotels — in fact, Equinox recently branded its first hotel in New York.
The public sector’s role in shaping our cities will never cease to be of utmost importance. Policymakers have the power to direct how towns look and feel, and they can support or hinder economic activity through obvious and less obvious vectors.
Public policies must allow for cities to remain affordable in order to reach their full economic potential. They have not been so in recently history in the Western world. Research has positively linked urban GDP growth to the ability of a city to remain cheap enough to attract not only high-level executives, but all levels of professionals who can support local businesses. The answer to affordability lays in the supply-versus-demand equation: build more housing, and rents increase less abruptly.
The current American rent control movement defeats its purpose. New York recently made rent stabilization permanent for one-third of its 3 million apartment units that are subject to it. As landlords no longer have incentives to invest into such properties, these now run the risk of falling into disrepair. Blackstone, owner of an 11,000-unit Manhattan apartment complex, announced it was discontinuing improvements in light of the law. Entire middle- and working-class neighborhoods run the risk of being frozen into time. And with the supply of newly renovated apartments coming to market having been cut by over half, New York City runs the risk of becoming more expensive and segregated than San Francisco. This could make it the most unaffordable city on earth. Furthermore, any consequent decrease in property value or volume of real estate transactions means less property or transfer tax revenues for City Hall — not to mention the decrease in construction jobs that fewer investments into rehabilitating apartments leads to.
The city of the future is also one that stays open to immigration. Our success as a nation is proof that immigrants are net-positive contributors to economic activity. Studies have shown immigrants’ high likelihood to become successful entrepreneurs and, hence, creators of jobs. Google was co-created by a Russian-born founder and is today run by an Indian-born CEO. Historically, significant cities have been open-minded hubs that allow diversity and all forms of influences. This in turns allows creativity to flow into all domains from education to business to arts, fostering excellence.
So, what is the city of the future?
Given the structural changes our societies are undergoing, it will be the one that can smoothly manage all of the aforementioned developments. The public and private sectors have an urgent need to work together to overcome upcoming urban challenges. Increasingly, real estate executives and public policymakers must work together over a long-term vision for the built environment. This will enable sustainable real estate investments, technology, urban progress and social cohesion. Solely, that is the city of the future.