Why density matters

This summer I left central London and lived for a month in suburban Austin, Texas. It was an adjustment.

In London, I was used to having a coffee shop close, a convenience store closer and a pub closest of all. In Austin, things are different. 

Like many of the rapidly growing cities in the south of the United States, housing is low density and life is very car-dependent. I quickly learned that “nearby” did not mean a short walk and was more likely to mean a 10-minute drive.

Getting into your car to go to work, school, shops and eating out is not what I am used to. Every part of your day is punctuated by a drive. It is a very different way of interacting with the urban environment. It’s city life, but not as we know it.

History and policy shape different urban forms

Walkability was a necessity rather than a fashionable option when much of central London’s development took place. 

London’s most rapid growth during the era of industrialisation pre-dated automobiles and many of the transit options we take for granted today. People had to walk to work, so cities had to be compact and dense.

In many US cities, significant growth occurred much later in relatively prosperous times, when people owned cars. The post-World War II growth of cities was driven by suburban growth, with people commuting by car to their place of work downtown. The cost of energy has made a big difference too. Lower costs in the US have made commuting by car and suburban living more viable for more people.

And higher-density living is also a policy choice. In some European countries, like France, agricultural subsidies artificially inflate the cost of farmland, making the economics of developing suburban housing less appealing. In contrast, many of the fast-growing US cities are surrounded by plentiful, cheap land.

More directly and deliberately, policymakers have sought to limit the footprint of urban areas. Some European countries have done this more strictly and more successfully than others.

Potentially, the lack of developable land where there is demand damages housing supply and therefore reduces affordability in countries like the UK. But policymakers have prioritised protecting the surrounding countryside and the vibrancy of their town centres.

So, the very models of urban life have evolved. There is a big difference between city life in younger US cities and the historic cities of Europe.

Suburban living is as popular as ever

Suburban living suits many people. People aspire to own more spacious homes with gardens. Suburban dwellers struggle to understand why city folk incur high housing costs and deny themselves personal living space. Indeed, preferences for suburban living seem stronger than ever. For example, there has been a flow of people out of the urban cores of the largest cities in the US. Large urban areas have seen the biggest negative effects on population, with studies suggesting a key driver of this is remote workers seeking out less dense places.

It is understandable, therefore, that real estate investors may be becoming cautious about high-density locations. But density does bring benefits that can be under-appreciated. Long-term investors need to understand why high-density locations are more productive, sustainable and resilient.

Higher density locations are more productive

In urban regions with twice the job density, there are 20% more patents per capita.

Density supercharges the effect of clusters, lowering transport costs, deepening a pool of specialised labour and increasing knowledge spillovers between firms. The flow of ideas that leads to innovation and growth is significantly influenced by the densest areas of the country.

So, creating dense clusters of people is a highly effective approach to promoting innovation. 

For real estate investors, increased density leads to higher productivity for occupiers, increasing their capacity to pay higher rents.

Higher density locations are more sustainable

Every building requires services, like roads, water and sewers. And most services get more expensive the more dispersed they are. This extends beyond physical infrastructure to education and health services too. Density, therefore, aids financial sustainability.

Indeed, in the US, where the density of development in a given area is low, the level of taxes collected generally will be too. As a result, higher density development puts significantly less strain on a city’s finances.

Public transport provision is easier in denser urban environments too. Centre for Cities has compared London and Paris, and found that only 22% of London’s population can reach the city centre by public transport in 30 minutes or less, whereas in Paris it’s 34%. This is explained by urban form.  London is not as dense in its core, where the public transport network is particularly good.

By facilitating greater use of public transport and using physical infrastructure more efficiently, higher-density cities can help decarbonisation efforts.

Higher density locations are more resilient

Density helps create a sense of place. As William Fulton argues, a successful community needs both place plus prosperity. For him, the key question for city leaders is not “what businesses you are attracting, but what do you have left the day the businesses leave”. 

Cities need to provide lasting reasons for people to be there. Fulton points to natural and urban amenities and a genuine sense of community. A form of urbanism that prioritises shared spaces will generate social capital, tying people to a location.

Tax advantages wane, subsidies expire and companies move on. When they do, locations with such intrinsic qualities will continue to retain and attract talent. Long-term real estate investors should focus where talent is sticky even if employers are footloose.

Density matters

Currently, investors with exposure to low-density markets may be benefiting from positive population flows. But long-term investors should consider that in the past it is higher density locations that have driven innovation. In the future, more compact urban forms will help us face financial and environmental challenges. And through the ages, those cities with shared spaces, deep community ties and a sense of place are likely to prove more durable.

A version of this article originally appeared in The Property Chronicle. To read other articles I have written for The Property Chronicle, please click here.