In pursuit of financing a sustainable urban future for all
This year, the day seeks to observe how we can unlock transformative investment in urban planning and achieve adequate financing to do so against the backdrop of international cooperation to tackle urbanisation challenges in the next two decades.
In TRUUD I’m leading work to help mobilise government institutions in engaging with opportunities for real estate investment to finance a sustainable health and wellbeing future for city populations. Here I outline what real estate industry experts believe needs to change for their role to be fully realised in creating healthier places.
Urban planning is undoubtably required to guide and regulate the development of cities to mitigate not only communicable but prevalent non-communicable diseases (NCDs) such as obesity, hypertension, diabetes and mental depression.
But as the World Cities Day mission highlights, governments cannot do this in isolation. Against the backdrop of contemporary real estate internationalization, financialization and investment vehicle innovation which took off in the late twentieth century, governments today need an understanding of how cities are co-produced, regenerated, redeveloped, and funded by the private and public sectors.
To leverage real estate finance support in delivering urban built form that fosters healthier, socially sustainable cities for all, therefore requires government institutions worldwide to have a sound understanding of contemporary real estate investment and development commercial drivers.
Here’s what we’ve found about these drivers, with some surprising results, from our in-depth conversations with senior international real estate industry actors in the urbanized UK context.
Urban health and wellbeing – a surprising commercial priority
Contradicting a common perception of investment in urban land and property as solely motivated by profit-making, our research findings reveal that investors in real estate want to act on healthier, socially sustainable cities.
Evidence from our interviews and meetings with senior professionals in leading international investment banks, funds, trusts and consultancies, makes clear that improving the social wellbeing dimension of urban sustainability has become a real estate commercial priority. Real estate investment is ready to be harnessed to bring about change.
For funders of real estate projects, a major driver is shareholder scrutiny. A senior figure in an international financial services company explained:
“when your shareholders and your bond holders are asking you ‘What are you doing about wellness and sustainability?’, it quickly jumps up the agenda”.
Those working in real estate real estate investment trusts (REITs) and consultancies agreed that shareholder scrutiny is increasing:
“the REITs definitely, you know they’re all over this kind of stuff. The London developers and the sort of sophisticated operators in the market, they get this, and they understand that. … The big leasing transactions, the big weight of interest is on better quality stock and therefore that’s how you need to go really”.
A REIT explained:
“our clients, … will be the shareholders [which include investors i.e., investment funds, fund managers, etc.]. You know, ultimately, we’re accountable to them but also, our tenants as well, who occupy our assets”.
A consultancy confirmed the pro-health influence of property tenants:
“I always think it’s dictated by the end user and it’s always gonna be dictated by who’s buying the end products”.
The research made clear the strong shareholder, investor, property owner and tenant pressure for socially responsible urban real estate investment and development.
An international financial services and asset management company reinforced:
“it’s not just good enough to make [the] required return criteria out of an asset. If the asset or the development or whatever doesn’t contribute at the same time to the good of society or the good of the local community … they don’t want to put their name on the hoarding”.
An underlying motivation of investors is cash flow, capital return security and minimized long-term urban sustainability risk over a property asset’s holding period as opposed to short-term profit.
Barriers to pro-health development outcomes – debunking the myth
Real estate could be a force for good on public health. But when asked to what extent there is compatibility of public and private sector urban development decision-making aims and objectives in a UK context and to what extent they are aligned with health and wellbeing, alarm bells were rung.
A REIT senior figure said:
“often it comes down to very individual personalities within the council that can be major blockers and it’s a big frustration … it’s easy to knock the developer … some individuals might have been voted in on a very sort of anti-development kind of vote”.
Negative planning preconceptions about what could be achievable through good public-private sector collaboration are reported to be a cause of suboptimal development outcomes:
“I’ve been around sites where quite honestly the social housing, the whole thing is horrific … we’ve gotta deliver value to our shareholders … but we know through other schemes that we can balance both if you’ve got an open and co-operative council … because of politics, you get blocked in wanting to try and make this better”.
The UK was the pioneer of town and country planning ‘social city’ principles encapsulated in Ebenezer Howard’s late nineteenth century ‘Garden City’ movement. However, we conclude that the narrative needs to change around public sector perceptions of property investment interest in urban societal wellbeing and human health, and this needs to be reflected in joined up collaborative approaches to securing healthy places.
There’s a need for urban decision-making system change
Coordinated public sector healthy place delivery objectives are needed. A senior real estate consultant highlighted a need to ensure that:
“what we are providing looks at things in the round as opposed to all of those decisions make us do things in isolation”. “The government talks about being aligned, but often it isn’t necessarily with its departments … the Department of Health [needs] to engage more effectively with social services and the local authorities … central departments to be better aligned and thinking of things in a more holistic way”.
But crucially we found there’s a lack of robust evidence for the evaluation of the health and social benefits of urban projects:
“At the moment I think the decision-makers, it’s not always clear that they do have health expertise. A lot of the time it’s planners and local authorities. Sometimes it’s the planning inspectorate but the actual involvement of, for example the NHS and the bodies within the NHS, then obviously I’d go to a body that we would ask about these things but actually the information you get back is sometimes very well-meaning but it’s not very helpful in development terms”
Public-private action on healthier urban development requires genuine cross-sector collaboration and coordination
We find there is:
- A current lack of recognition of the compatibility of public and private sector interests in securing urban development health and wellbeing;
- a need for a more coordinated vertical and horizontal public sector approach to decision-making for planned healthy development action, and
- a need to fill a void in robust health and well-being data to guide real estate investment decision-making, government policies and planning development plans.
Our research highlights that…
- The effectiveness of urban real estate investment and planning in acting together to reduce the future social burden of non-communicable diseases remains a decision-making challenge.
- Urban planning can have a key influence on planetary sustainability, but despite its traditional concern with social issues, it’s influence on the creation of cities that are socially sustainable with respect to health and welling has proved limited thus far.
- Governance and planning interact in complex ways with commercial financial investment that’s required to create sustainable city form. But the public-private institutional relations necessary to shape a healthier, more sustainable future, have not been well understood or tackled.
- Planning and governance to fund and deliver healthy urban form requires focused consideration in the context of the financial power of changing commercial drivers.
- Genuine government engagement with the reality of the powers of real estate investment to finance healthier urban environments is needed. It’s time to put negative preconceptions about real estate investment priorities aside and harness the untapped potential for change.
In the next phase of our research
During the next few months we are consulting with major property companies and consultancies providing services worldwide, to test the efficacy of pilot health cost-benefit modelling developed within the programme and identify any further data resources required to support investment appraisal.
We will help to provide the tools to encourage public-private sector collaboration for optimal urban health outcomes to unlock transformative investment in the urban environment with adequate financing and put health and well-being centre stage in real estate private-public decision-making.
We will publicise the learning from our collaborative work with the aim of promoting wide recognition of mutual private-public sector interests in the pursuit of healthier urban societies and future-proof built environment improved health outcomes for urban populations.
About the author
Professor Kathy Pain is leading research on real estate investment in the Tackling Root causes upstream of Unhealthy Urban Development (TRUUD) project. She is the Professor of Real Estate Development in the Department of Real Estate and Planning at the University of Reading Henley Business School. She is a Corporate Member of the Royal Town Planning Institute, a Fellow of the Royal Geographical Society/Institute of British Geographers and a Fellow of the Academy of Social Sciences. Her research focuses on sustainable city and regional development, governance and planning under conditions of contemporary globalization. She is a Co-Director of the Globalization & World Cities (GaWC) Research Network.