Urban migration: Rapid growth in the world’s largest cities creates challenges for planners

Globally, the process of urbanisation is undeniable and irreversible, and the phenomenon has had a particularly acute impact on Cairo, Egypt’s capital, as well as on the continent as a whole. According to the UN’s “State of African Cities 2010” report, the number of people in Africa’s urban areas will increase threefold over the next four decades, and by 2050 an estimated 60% of Africans will live in cities – equal to a total of some 1.23bn people.

This trend, however, is by no means confined to Africa. According to an April 2011 report from McKinsey Global Institute, the economics research arm of the international consulting company, the world’s 600 major cities will house an estimated 2bn people by 2025, or some 25% of the global population. These urban centres will comprise 735m households, generating 60% of global GDP, with an average GDP per capita of $32,000.

Not only are more cities sprouting from the soil, but existing cities are also continuing to grow, swallowing their hinterlands in an endless urban sprawl. According to an April 2011 report by Frost & Sullivan, a business research and consulting company “future urbanisation will drive integration of core city centres or downtowns with suburbs and satellite cities, resulting in expanding boundaries from the current average of 25 miles (40 km) to around 40 miles (64 km).” This will translate into the emergence of 30 mega-cities, 15 mega-regions and a minimum of 10 mega-corridors with more than 20m people by 2020, Frost & Sullivan says.

According to McKinsey, some 100 of the 136 new cities that will enter the top 600 cities (as determined by GDP, the number of households and the population) by 2025 will be Chinese. However, cities such as Lagos, Cairo, Jakarta, Istanbul and Doha also feature prominently on the list, either because of their GDP, population or both.

RAPID GROWTH: Like Cairo, Istanbul has undergone rapid population growth in the past several decades, a situation that Turkish Prime Minister Recep Tayyip Erdo ğan drew particular attention to when, in the run-up to the 2011 parliamentary elections, he announced plans to divide the city into two parts, proposing to establish two new urban centres to absorb the growing population. Indeed, since the 1970s, the forested northern regions of Istanbul have been replaced by modern developments.

The city, perched on the edge of Europe, grew at an average annual rate of 4.44% between 1970 and 1990 and 3.37% between 1990 and 2000, according to Plan Bleu, a regional environmental cooperation mechanism involving the EU as well as the 21 countries bordering on the Mediterranean. Istanbul’s population has now swelled to anywhere between 12m and 25m depending on which measure you take and which estimate you believe.

CHALLENGES: According to the UN, some 70% of the world’s population will live in urban areas by 2050, while more than half of the globe already lives in cities. This growth presents a series of challenges for urban planners and policymakers alike. On a strategic level, urbanisation raises a range of questions from food security and resource allocation to economic growth strategies. On the planning level, such outsized growth touches on a number of concerns regarding liveability and viability from transportation networks to real estate markets.

For Joel Kotkin, the author of The City: A Global concentrate poverty but they also represent the best hope of escaping it”.

This followed a 2003 report from the UN Human Settlements Programme (UN-HABITAT), which stated, “Cities are so much more successful in promoting new forms of income generation, and it is so much cheaper to provide services in urban areas, that some experts have actually suggested that the only realistic poverty reduction strategy is to get as many people as possible to move to the city.”

This apparent shift in global thinking was supported by data and other information that showed the wealth generating potential of cities and their green credentials. As such, policymakers have begun to move away from the thankless task of putting the brakes on the ceaseless urban march to concentrating on policies that can improve city living.

This is not to suggest that everyone is comfortable with uncontrolled growth and urban sprawl. Kotkin argues that economically developed and vibrant countries are marked by their urban options. “In the US, Canada and Australia you have several poles of attraction. If things are not working in Montreal, you can go to Calgary,” he said. “You have to ask what a city is for. Why are populations moving from larger cities to smaller cities? Where the economy is declining, populations concentrate in one place. When a country is growing economically in a broader way, you see reverse population movements.”

DIVERSITY OF CITIES: This theory may hold true in the US. The country had 34 cities with a population greater than 500,000 in 2009, according to the US Census Bureau. Furthermore, while the country’s largest city, New York, continues to grow (at a rate of 9.4% between 1990 and 2000), its rate of expansion is dwarfed by that of newer cities. Indeed, the top three cities in the US in terms of population (New York, Los Angeles and Chicago) had single digit growth rates between 1990 and 2000, compared to cities such as Houston, Texas (19.8%), Phoenix, Arizona (34.3%) and San Antonio, Texas (22.3%).

However, this pattern has not been replicated everywhere. In Turkey, for example, GDP growth has been strong over the past decade, reaching 8.9% in 2010, but Istanbul continues to be a singular pole of attraction for Turks looking for work. According to the Turkish Statistics Institute, Istanbul’s population increased by 341,322 between 2007 and 2009. In percentage terms, this is greater than the growth exhibited by 118 countries during this period. At the same time, in absolute terms, this rise in the number of people in Istanbul is greater than the population of 32 individual provinces within Turkey.

REACHING CRITICAL MASS: It is here that the problem lies. Istanbul’s growth rate (1.72%) may be lower than that of Ankara (2.24%) and Izmir (1.91%), but its critical mass means that in real terms more Turks are migrating to Istanbul than anywhere else in the country – by a large margin. For countries like Turkey much of the damage has already been done. Istanbul’s share of the national population grew from 7% in 1965 to around 18% in 2010, according to a 2011 study done by the Economic Policy Research Foundation of Turkey (TEPAV).

A similar phenomenon can be seen in other developing countries. In Nigeria, the annual GDP growth rate has been above 5% for the whole of the last decade, but Lagos is still expected to add a further 3.5m inhabitants by 2020, marking it as the second-fastest growing city in Africa, according to the “State of African Cities 2010” report by UN-HABITAT.

REAL ESTATE PRICES: Rapidly expanding cities face common challenges, from clogged roadways to inadequate housing provision. Indeed, high population densities place a significant stress on public services. Equally as important, they also have a tendency to drive up real estate and living costs. According to Kotkin, “The concentration and density around Seoul, for example, leads to incredibly high real estate prices. In this case, city living comes at an enormous price financially and health-wise.”

This is evident in a city such as Cairo. According to a July 2010 article by GRMC Advisory Services, a consultancy based in Dubai, demand for housing in the greater Cairo area stood at 4.9m units in 2010 and is expected to increase by 143,000 annually. This places pressure on land and real estate prices. With developers continuing to focus on the upper segments of the market, city living has become more difficult for the vast majority of greater Cairo’s inhabitants. According to a 2009 report on the Cairo real estate market by Jones Lang LaSalle, a US-based property consultancy, “The housing market in greater Cairo has been constrained by relatively low affordability in recent years, resulting in less than 10% of households having moved over the last five years.”

From a wider perspective, this price pressure has had a sizeable impact on the nature of development in the city. According to a 2008 World Bank report, in the year 2000, almost 60% of inhabitants in greater Cairo lived in informal settlements built since 1950. Furthermore, the population of these areas was growing at a rate of 3.2% per annum against an increase of less than 1% in “formal” areas of the city. This uneven rate of development makes urban planning increasingly difficult.

The phenomenon is not quite the same in Gulf cities such as Doha and Abu Dhabi. However, in these urban areas, there has also been significant pressure placed on real estate markets as a consequence of an influx of people and capital. Abu Dhabi’s population grew at a rate of about 4% per annum between 2001 and 2009, before the full effects of the global financial crisis were felt. Likewise, the emirate’s economy, largely fuelled by the capital city itself, grew at a rate of 9% in real terms between 2001 and 2009. This put significant pressure on the city’s housing supply and led to a steep rise in real estate prices.

According to the Abu Dhabi Urban Planning Council, the city had a housing shortage of about 48,400 units in 2009, which was expected to decline to around 26,300 units by 2013.

AFFORDABLE HOUSING: This is likely to be good news for developers, who will see bigger margins as the result of the strong demand. On the other hand, rising prices have generated questions about affordability. However, it is not necessarily the case that there will always be a tension between private sector developers looking for maximum returns and government institutions trying to ensure an adequate living standard for its inhabitants.

As Geoffrey Payne, an independent consultant for the Washington, DC-based World Bank, told OBG, “Obviously developers want to make money with minimum risk, but there are many examples of public-private partnerships around the world that have been profitable and at the same time aided development. There is not necessarily a conflict between the private sector and planners.”

NEW APPROACH: As an example, Payne cites the first London Plan, released in 2004 by Ken Livingstone, then mayor of London, which mandated that 50% of all new housing had to be affordable.

Such measures not only have the explicit benefit of supporting affordable accommodation for the majority of middle- and lower-class city dwellers, but they can also act as a means of cooling real estate markets that may be overheating.

“The building and infrastructure costs are relatively fixed so this regulation restricts what can be bid for the land price, meaning that land prices are being regulated indirectly by the government. This flexible, innovative, market-sensitive approach is not being followed nearly enough. Rather than restrict land uses, authorities should have flexibility over land uses and be flexible in plot sizes. They need to get the public sector to see the value of the land and to see the social benefit,” Payne said.

This move towards regulating social and affordable housing through partnerships with the private sector is rare in developing countries. Cities from Lagos to Jakarta are dependent on government-led nationwide affordable housing drives. According to a 2007 Africa Independent Television report on the Nigerian housing sector, the Federal Housing Authority built only 30,000 homes between 1973 and 2006, leading to a housing deficit of 12m homes in 2007.

URBAN PLANS: Some city administrators are addressing these issues. Abu Dhabi, for example, announced a scheme in 2008 to donate government-owned land to a private developer, Al Rayan, to build affordable housing units on a 93,000-sq-metre plot on the outskirts of Abu Dhabi City.

Such measures are undoubtedly easier for a relatively wealthy city with a population estimated at around 930,000 in 2007, land availability, and an unclear line between private and government-owned real estate developers. Nonetheless, the authorities are using their position to safeguard the future development of the UAE’s capital, as evidenced by the comprehensive city master plan.

Plan Abu Dhabi 2030 introduces guiding principles for new development, addressing issues such as land use, transportation, the environment and open space. Authorities in Kuala Lumpur have also prepared a similar document, Kuala Lumpur Structure Plan 2020, which presents an inventory of current land use and a strategy for future sustainable development. The preparation of this kind of development framework has become popular in recent years, as emerging cities try to impose transparency and rationality on real estate markets.

While such plans may be welcomed by investors for bringing clarity to a market, they can also erect some barriers to investment and development. For example, in Istanbul, the municipality recently approved a development roadmap for the central district that was poorly received by developers because of height restrictions and certain zoning regulations. Indeed, urban specialists have pointed to the importance of creating specific regulations and policies that establish incentives for the private sector rather than generating sweeping blueprints.

Gerd Zerhusen, founder and CEO of City Center Invest, a real estate investment firm, uses, as an example, policies in post-war European cities, where height densities were increased, allowing developers to maximise returns from the increased number of units while still allowing the original tenants to remain in the building.

TRANSPORT NETWORK: Payne also believes that transport planning can be used as a tool to support economic growth. He told OBG, “Public transport is an effective means of regulating land prices, opening up new areas and commercial markets. If you open up areas in the periphery through transport, you will generate substantial increases in land values and demand, which if done properly can have large returns for the public. New Mumbai is a good example where they recovered the costs of the infrastructure by selling the rights around railway stations. The linking up of public bus and train hubs also generated significant commercial potential, providing many opportunities for investors and the poor.”

Such policies are particularly important in a place like Cairo, which has continued to grow outwards with little improvement in its public transport infrastructure. According to a 2006 World Bank report, if no action is taken to improve the city’s transport solutions by 2022, there will be a 50% reduction in the average travel speed from the 21 km per hour figure recorded in 2001. The report also suggests that economic losses to pollution and congestion, which were estimated at LE3bn ($523m), or 4% of local GDP, in 2001, would also increase in the coming years.

Commentators like David Sims, author of Understanding Cairo: The Logic of a City Out of Control and a World Bank consultant, have emphasised the importance of building a rapid transit system quickly. “Build a metro, fast!” he said when asked of the challenges facing the city’s ongoing development.

For places like Cairo, however, the issue is funding and planning. The key infrastructural and housing concerns weigh heavily in mega-cities, such as Cairo, in ways that are more pronounced than in smaller, wealthier cities such as Abu Dhabi. While the latter is plotting a detailed course towards its future, the former faces uncertainty encumbered by decades of little planning, a critical population mass, sprawl and comparatively small public budgets.

Urbanisation, therefore, will present significant challenges over the coming decades. The process itself, however, is no longer considered the primary issue. Instead, it is how individual authorities meet the challenge that will define the success or failure of the first fully urban century. For cities such as Lagos or Cairo, the problems may be daunting, but for many experts, showpiece policies, such as Erdo ğan’s Istanbul dissection, are not the way forward. Instead, management and regulation will be crucial.

Authorities need to find innovative ways to align the instincts of private developers with the needs of the public. This may be a delicate task, but it is one about which Payne is cautiously optimistic. “There are lots of win-win situations, but not enough of them in enough places or rolled out quickly enough.”

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The Report: Egypt 2012

Construction & Real Estate chapter from The Report: Egypt 2012

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