New housing floorspace will be the area of the Netherlands by 2025

Rapid urban growth and new business opportunities: Kuala Lumpur

The next generation is going to witness a staggering amount of new urban development as the world’s economic centre of gravity shifts towards Asia. Cities in both developed and rapidly urbanising countries need professional planning if they are to prosper. Companies serving consumer markets should grasp the significance of the growing urban middle class and its diversity. Urban analysis is increasingly necessary for business success. These are the main messages from a dramatic new report from the McKinsey Global Institute (MGI).

The new report “Urban World: Cities and the rise of the Consuming Class” should be a wake-up call for businesses and national and local politicians everywhere. While I have written often in these blogs about rapid urbanisation and its challenges, one of the great strengths of this latest output from the MGI is that it also includes strong messages for those planning and managing cities in the developed world. It also goes into some detail about construction, ports and municipal water.
Staggering statistics

The numbers can be difficult to take it, but they are important. The study identifies 440 “Emerging Cities” that are expected to account for 47% of the growth in global GDP between 2010 and 2025. Of this group, 400 have populations between 200,000 and 10 million. They are spread across 57 countries and include names unfamiliar to many in the West – Cali in Colombia, Kochi in India and Angola’s capital, Luanda.

Over $10 trillion will be needed in annual investments in cities by 2025. The report says that by 2025 cities will build floorspace that is equivalent to 85% of today’s building stock – an area the size of Austria! Three-quarters of this new floorspace will be residential. Two and a half times the existing port infrastructure will be needed to meet the surge in demand from container shipping. We are living through a phase of urbanisation and industrialisation that is occurring at a speed and scale never seen before.

One billion more with money to spend by 2025

In my recent blog on the Rio+20 summit, I alluded to the dramatic growth taking place across urban Africa, Asia and Latin America of an urban middle class that aspires to, and is increasingly able to access, the consumption goods so familiar in the West. The McKinsey report makes this point very strongly – 600 million of these new consumers will live in the 440 Emerging Cities. The economic boost will be huge, but pressure on natural resources will also become more intense.
We have become familiar with China’s dramatic growth, so it is no surprise to find that between 2007 and 2010 three more Chinese cities crossed the 10 million threshold to megacity status. However, China is by no means the whole story. Between 2007 and 2010, the GDP of Latin America’s cities went from 26% of their European equivalents to 37%.

GDP growth is also faster in these emerging cities, so the growth in disposable income of their residents is also likely to be very high. Average household size is already declining in most of these cities, so that the rate of increase in households exceeds the rate of population increase. We can expect that people will opt to have more space about the house, and so the scale and rate of house building will be very high. MGI reckon that Chinese and South Asian cities alone will construct residential floorspace equivalent to the area of The Netherlands by 2025.

We need to recognise that this is not some long-term future scenario. The construction is happening now, in real time and on the ground. The shape and imprint of the urban world by the end of the century is being created today.

Planning for an urban building boom

Cities are well placed to handle this surge in demand, argues the report. That is because dense urban population centres are more resource efficient than dispersed cities and rural areas. Crucially the cities need to plan and manage this investment effectively. Under-investment in essential urban infrastructure will block growth. While MGI see the benefits of urban concentration, the aspiration of many new consumers will be for cars and low density suburban living on land that is cheaper than sites of intensified urban competition.

“The urban planning and infrastructure choices made today will determine how well cities are prepared for sustained growth after the expansive urbanization phase passes” say the MGI authors. No planner would disagree, but how often is the political horizon constrained by the next election and the alluring short-term fix? Also planners with the strategic skills are a scarce commodity in many parts of the rapidly urbanising world – though China is busy exporting its know-how in how to plan and deliver large infrastructure projects.

Planning, governance and fiscal management are factors that impact on the performance of cities. Getting the benefits of agglomeration and urban growth, without the negative impacts remains the essential rationale for urban planning – just as it was for those pioneers a century ago. Yet how often do we make this basic point, and how much research is directed at unravelling just how to do it?

MGI say “Best practice cities consider planning a core function and develop integrated ‘cascaded’ long-term plans that incorporate links between transport, housing and economic development – across different jurisdictions within the metropolitan area and beyond the term of current elected officials. The also combine long-term plans with realistic near-term milestones…. To ensure effective execution and enforcement, planning needs sufficient political clout to make sure that urban plans are the basis of intergovernmental co-ordination. Cities need to engage citizens and othere key stakeholders in the planning process.” Ministers, mayors, planners – are you listening?

What should the slow growth cities be doing?

To many planners in Europe or North America the stories of booming Asian cities or bustling barrios seems far removed from their own world of work. Growth is comparatively slow, even elusive; for some the challenge is to manage shrinking cities. Yet even here, the mitigation of the negative impacts of the economic and financial crisis requires skilled urban management, and a long term view.

MGI argues that cities need to audit their strengths and weaknesses. Chicago is held up as an example of how to go about things. World Business Chicago, a not-for-profit economic development organisation chaired by the Mayor has produced an economic growth plan. It builds an analytical base from which to develop strategies to make the city attractive to businesses and households. More generally, cities need to benchmark themselves internationally.

Connect

Last but not least developed cities need to grasp the significance and opportunities of the urban economic growth in places that may seem far away. Brief local firms about where the growing markets are for what kind of goods. Maximise the connections offered through the diasporas of international migrants. Build the connections and a presence on the ground in the emerging cities that seem to offer the best match and most promising opportunities.

Networks of know-how can connect local universities with built environment expertise to partners in emerging cities. Exchange and support programmes for planning staff in local government could lead to cross-fertilisation of ideas, and help position developed world cities in new networks.

Of course, at a time of cuts and redundancies such visions are quite unrealistic. But how realistic is it to opt out of the new global economic order?

  • Juris Greste

    The frightening prospect of all this is the pursuit of the GOD of growth.

    Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.
    Kenneth Boalding, economist

    “It is not any exaggeration to say that the future of the world depends on what kind of city is chose by the emerging middle classes of China, India, Asia and Africa. If they pick suburbia – a big house, a life built around driving the car – we are screwed, all of us!!!”
    Chris Anderson. TED talk at Sydney’s City Talks.
    Broadcast by ABC RN, By Design, 11.01.12 http://www.abc.net.au/radionational/programs/bydesign/in-the-field—chris-anderson/4083876

    Juris Greste

  • Cliff Hague

    Thanks for this pithy comment, Juris. Maybe we need some research on what you might call “cultures of residence”. What is it that shapes the way people choose for a house – if they are able to afford a choice?