COVID-19, Cities and Urban Development

In May this year, the Institute of Town Planners (Sri Lanka) invited me to speak at an international forum organized on the theme ‘Planning for the New Normal: Learning from Other Perspectives’, and provide an economist’s perspective of what COVID-19 would mean for cities and urban development. Other Sri Lankan researchers have done a lot more work on Sri Lanka’s urban development issues, for instance this study and this study by researcher Iromi Perera. Yet, there seems to be little by way of economists’ perspective, and it was encouraging to note the interest of the folks at the Institute of Town Planners (Sri Lanka) to hear from other perspectives – as explicitly mentioned in the forum’s title. I agreed to share a few thoughts at this online forum, to generate some thinking on the topic and bounce off the ideas from an economics discipline with folks from a planning and urban design discipline, of course with the caveat that they are by no means definitive and expert views. The video of the presentation is available on their Youtube channel, embedded below.

For folks keener to get a shorter recap, below is a summary of the remarks, in short notes.

Economic Impacts of COVID-19 and Implications for Cities and Urban Development

Today’s presentation will provide an economist’s perspective on the economic impacts of COVID-19 on cities and urban development, with a focus on people, economic activity, investment, and revenue.  While physical distancing is a vital response to Covid-19, physical proximity is also what makes cities engines of economic growth. So, the way in which this pandemic influences the evolution and competitiveness of cities is an important issue for planners to think about.

The presentation will discuss some ideas on the way forward post-COVID, including the need to change existing financial models on the investment returns of urban retail; to finding new approaches in public housing projects; or the need to strengthen considerations of worker informality and household vulnerability.

I’ll be looking at it from an economists point of view, specifically from the perspective of someone who works on trade, investment, economic competitiveness and innovation. This physical distancing is a vital response to Covid-19. Yet physical proximity is also what makes cities great. As urban economists love to say, it makes cities ‘engines of economic growth’. The theory is that density boosts productivity through three forms of ‘agglomeration economies’: ideas and new technologies spread much more quickly (learning); workers and companies have more choice, so they are more likely to do things they are good at (matching); and we can use resources more efficiently (sharing). I don’t think that the pandemic will reverse this – the gains are too high. But perhaps as Dr Jim Morrow said, there may be changes in the size of agglomeration – more nodes, perhaps.

ECONOMIC IMPACTS – FOUR KEY ASPECTS

1. Sectors

  • Growth model being highly reliant on domestic non-tradable sector – mixed property development, real estate, leisure  – this is now severely affected due to lockdown and the collapse in retail and leisure.

2. People

  • Informal workers – clear and obvious impacts, dealt with more fully by researchers like Iromi Perera, among others
  • Housing issues – Most households live in one or two rooms.  Work is largely informal and social safety nets such as sick-pay, unemployment benefits or medical insurance, may not exist. Social distancing may be unfeasible. Remote work will be an option for only a minority.
  • Pressure on rural job creation due to some not wanting to return soon (or ever) to urban locations to their old jobs. 

3. Economic Activities

  • In the opening line of a seminal paper, Edward Glaeser and others state that the “future of the city depends on demand for density”.
  • This demand, the authors argue, does not only come from jobs. People are also attracted to the range of goods – commercial, aesthetic, public – that cities can provide. 
  • Will Covid-19 change this? Worries about our health could impact our leisure choices – shopping, cinemas, food courts, Shangri-La mall? Entertainment rinks like Excel World with its bowling alley? Galle Face green? Vihara maha devi park? Think of how these may change, or may not. And there would be differentiated decisions by demography (especially by age – older people less keen to engage in these activities for some time)

4. Public Finance and Private Investment

  • Public finances: Impact on the exchequer and what that means for publicly-funded urban improvement programmes – prospects for further debt?; Looking for innovative financing options to meet urban investment needs (PPPs for public housing, waste management, etc rather than national budget); Erosion of local authorities tax base and impact that has on local services provision
  • Private investment: temporary fall in real estate prices and subdued returns to urban real estate projects. This also affects the banking and finance sector since real estate is a key form of collateral. Since property cannot be easily liquidated under these circumstances, actions could be taken to ease mechanisms for trading of real estate by eliminating stamp duty and other charges associated with transactions. Foreign ownership laws for real estate could be re-evaluated for the next 2-3 years, particularly in the hotels sector.  

IDEAS FOR MOVING FORWARD: FIVE AREAS FOR RE-THINKING

1. Re-thinking ‘vulnerability’ in cities

  • We need to hugely rethink vulnerability and cities – we clearly saw how inequalities in housing, for instance, for magnified during COVID, curfew – no possibility of social distancing; poor design of housing projects by the UDA totally unfit for living at the best of times, made worse by COVID.
  • Urban communities are disproportionately affected by the pandemic as against rural populations. 
  • When one part of the city is vulnerable we are all vulnerable. When one part of the city has poor access to safety, water sanitation and hygiene we are all unsafe
  • Space has become a luxury more than ever. We need more free public open spaces for recreation. – more Neighborhood parks. Not just large public spaces but more of them.

2. Re-thinking city design due to sectoral shifts

  • Thoughts on design of cities: 2 examples – IT and retail
  • One example is the focus on large campuses and parks for the IT sector – totally flipped on its head – many companies have realized they can deploy more than 50% permanent WFH – big implications for real estate investment obviously, but big implications on planners too – what does agglomeration mean? which sectors will actually need it? that is being debated now.
  • Similarly, retail storefronts – Online shopping through companies like Amazon is booming as high-street shops close. Same is true of all our local vendors and merchants suddenly coming online and we are seeing some likely permanent shifts beyond the immediate. This presents a public policy challenge, since high-street shops anchor public spaces and thus have considerable social value

3. Re-thinking the metrics for ‘competitiveness’ of cities

  • Indices and indicators of economic competitiveness of cities will need to be re-thought and adjusted – necessarily must now consider issues of health, ability and responsiveness to disease outbreaks (for instance, I found it very interesting that city of New York has a full-time epidemiologist in the key staff).

4. Re-thinking the role of innovation in planning

  • Need for innovation in the planning practice as COVID cannot be seen in isolation.
  • • Part of this innovation will have to be better capabilities for data-driven decision making – know the demography, economic activities, occupations, household income and expenditure and poverty patterns – and be able to overlay these with disease vulnerability metrics in order to be prepared with risk maps  
  • • Going beyond the obsession with ‘smart cities’ being all about technology – in my mind a ‘smart city’ is a city that has balanced the economics and commercial dynamism of a city, with the needs for social, environmental and individual well-being.

5. Re-thinking investment modalities

  • Mobilizing private sector investment for urban development will be challenging due to COVID, given the low returns. 
  • So we need to look at new instruments for building up infrastructure – PPPs – and for real estate projects – Real Estate Investment Trusts (REIT)
  • Regulators need to look at this favorably – acquire real estate assets by pooling of investment funds. REITs need to carry a practical tax structure and be free from foreign ownership restrictions. 

——-

Other useful reading and resources:

How Will COVID-19 Affect Urban Planning?

https://www.us.jll.com/en/trends-and-insights/research/covid-19-global-real-estate-implications

https://www2.deloitte.com/us/en/insights/economy/covid-19/covid-19-implications-for-commercial-real-estate-cre.html

https://hbr.org/podcast/2020/05/building-better-cities-after-covid-19

https://blogs.worldbank.org/sustainablecities/functional-citys-response-covid-19-pandemic

https://www.economist.com/books-and-arts/2020/04/25/covid-19-might-not-change-cities-as-much-as-previous-pandemics

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