Geography 2460F/G Chapter Notes - Chapter 8: Product Differentiation, Political Machine, Federal Housing Administration
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Chapter 8 The Urban Development Process
Thursday, April 2, 2015
•It is useful to think of urban development as a process that involves people as decision
makers, each with rather different goals and motivations
•These frameworks have been called "structures of building provision" and it is through
them that the built environment is created and modified
•City makers: landowners, financiers, developers, builders, politicians, and bureaucrats
as well as members of design professions
•Identify key people, their motivations and objectives, and their interpretations of market
demand, and their relationships with one another
PROPERTY, LOCATION, RENT, AND INVESTMENT
•Investment in the built environment depends on:
oEfficiently managing capital: mediating financial institutions, responding to
prevailing rates of return in the different circuits of capital investment flows
oGovernment intervention: action on principles of Keynesian economic
management and principles of social welfare and conflict resolution or neoliberal
ideologies and principles of competition and the free market
•Investment depends in part on the broader context of other investment opportunities…
1. Circuits of capital investment flows that maintain the circulation of the
•Response to the occasional overaccumulation crises of capitalism
•At such time capital seems to "switch" from the primary circuit (investment in
manufacturing production) into the secondary circuit (fixed capital assets such as
buildings) or the tertiary circuit (science, technology, and social infrastructure like
education), to alleviate consequences of underconsumption
•Investment in the built environment is critical at times of overaccumulation but
also that it is consistently important as a precondition for successful capital
2. Overall relationship between the supply of property, prevailing interest rates, and
current rates of profit from investment in property
•Four main ways in which rent interacts with market condition to affect the flow of
capital into the built environment…
•If interest rates were high relative to profits from house building, there will be a
financial disincentive for capital to go into new construction, even if there is a
shortage of housing.
Continued housing shortage will push rents higher; vacant land; higher profits from
construction; renewed investment.
•If interest rates are high relative to profits from house building but housing space
is plentiful, rents will be depressed and there will be a tendency for disinvestment.
Supply of housing reduces; rents rise; upturn in investment.
•With low interest rates relative to profits from house building and a shortage of
housing space, land acquisition and construction will boom until the backlog in
demand is met.
Construction overshoots; high vacancy; lower profits; lower rents.
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•When interest rates are low relative to profits from house building, there will be a
speculative boom even if there is plenty of housing space.
Upward revaluation of existing investment in housing.
2. Intrametropolitan scale; involved the existence of localized property submarkets.
•Demand for certain types of residential, commercial, retail, or industrial space
varies sharply from one part of the metropolis to another
•Overall process of uneven development that is a fundamental characteristic of
capitalistic development at any scale
•Investment always flows to locations with relative advantages in terms of cost
and revenues where, other things being equal, rates of return will be highest.
•There is a constant restlessness to the built environment, as both simultaneous
and sequential processes of investment, disinvestment, and reinvestment take place
•Historically, real estate development in U.S. cities was a predominantly local
•Stabilization of the mortgage market and the setting of national minimum
standards for housing financed by the Federal Housing Administration in the 1930s
allowed more and more builders to become what marc Weiss calls "community
builders"--developers who design, engineer, finance, construct, and sell buildings on
extensive new subdivision.
•"Democratic utopia" of post-WWII suburban development
•High levels of demand, plenty of land, relatively cheap capital, weak
environmental regulations, and little opposition to development in NIMBYism
•More recently: mergers and acquisitions, vertical and horizontal integration,
product diversification, deployment of new technologies, just-in-time delivery, and
•Greater market dominance of big, publicly traded companies
•Economies of scale
•Neoliberal reforms have weakened trade unions, radically altered the system of
housing finance, loosened capital markets, and weakened corporate tax law
•For larger firms, it is still a developers' utopia
•Leading edges of metropolitan regions, in particular, are the product of the
decisions of independent developers with a "supply-side aesthetic" that is heavily
influenced by the market research and production decisions of the largest firms in the
home building industry
Patterns of Investment in Land and Property
•Some property owners do not behave "rationally" especially when it comes to their
•Investment in land and property varies in terms of both the purpose of the investment
and the time horizon in which the investment decision is made
•Purpose: exchange, annual rent, capital gain
•Time horizon: present, future
Property as a Financial Asset
•For many observers, contemporary urban development processes are dominated by
speculators who try to anticipate the change of prices and to sell and buy in favourable
•Several trends that have been important in consolidating the tendency to treat property
as a financial asset:
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