Following the announcement of the Apple Watch, I read two newspaper articles today that said basically the same thing: the device is a sort of blank platform without (as of now) the “killer app” that will make it an indispensable accessory, like the smartphones we have all become so attached to. The writers note this is Apple’s genius – create a platform with an elegant user interface and just enough basic capabilities and leave the “what do you do with it?” question to be answered by app developers. However, those app developers aren’t necessarily Apple employees, and that is where the business model differs from conventional product development.
It is a principle real estate developers need to heed.
Chistopher Mims writes in The Wall Street Journal, “When a company like Google or Apple deliberately creates a place for other companies to sell their own, complementary wares, it is called a platform.” That’s what a city is: a platform. It is also, specifically, what a suburb almost never is. And suburbs are pretty much the only form of new real estate built these days, even when they're designed to look like towns.
A city, with its grid of streets, is a place for private entities (companies, institutions and homeowners) to create and sell their own complementary wares, which we call buildings. The structure of a city is expansive and open-ended, both literally and figuratively. It is the physical armature into which individual buildings, homes and businesses fit, and it is endlessly adaptable for different building types, sizes and functions. The city infrastructure provides the basic capabilities to make those buildings, and the activities they house, function, just like the accelerometers, wifi, gps, buttons and screen on your smartphone. In cities, individual business models and financial decisions, whether a neighborhood market, a tech startup, or an individual home purchase, follow the structure of the city.
Suburbs, on the other hand, are not structured this way. Unlike traditional cities, the design and creation of suburbs is largely done by real estate development companies, which try (following business logic) to control the largest chunks of land they can and then build (or control) everything within it on a more-or-less speculative basis. The result is limited and closed in both physical scale and in its outcome. Every building is type-cast, and permanently locked into its role by zoning regulations and deed restrictions. Infrastructure is chopped up into discrete chunks (making it very inefficient, by the way). The structure of suburbs follows business models and financial decisions by a relatively small number of enterprises. It is the inverse of cities.
And like Ma Bell, that business model is outdated. The product it creates is inferior. Ed Glaeser, Richard Florida, Christopher Leinberger and others have written much in recent years about how cities embarrassingly outperform suburbs economically. Cities thrive, they point out, because they are dense, open-ended, adaptable webs of human interactions, and this grows directly from their physical character as expansive “open-platform” places that allow for an endless variety of building types, sizes, ages and uses all mixed together at a very fine grain. Suburbs, are the polar opposite on all those counts. Market researchers are now confirming that “buyers” agree, and preferences are shifting toward city living.
But, while the formal advantages of cities over suburbs are well understood, particularly by New Urbanists, no one seems to have really cracked the code on how new places can be built that way. It is the business model of real estate development itself, I believe, that drives the form of suburbia (and its large-scale tendencies are even an uncomfortable presence in old cities). Simply telling or expecting developers to redesign their product to look like urbanism does not work because the nature of a city as an open platform like an iPhone is not something real estate developers are equipped to build, even if they want to. And everything about the real estate business model discourages them from wanting to.
On building platforms, Mims continues, “Apple, more than Google, has mastered this art, having worked hard to give developers the tools to make apps for its mobile devices, plus a controlled environment in which to profit from them.” This is what real estate developers need to figure out: how to build a platform, and still make money at it. Continuing the tech analogy, the real estate development industry is like IBM in the 1980s, which was famously unable to foresee the creative destruction about to be unleashed by Microsoft and Apple. Today’s real estate development industry is not only unwilling but utterly incapable of producing true cities. It is not a matter of “retooling” but of rethinking and reorganizing the industry.
Municipal and County jurisdictions need to change, as well, and an impressive number of them dove headlong into that difficult work as a response to the Great Recession. Real estate developers, on the other hand, emerged from the Recession even more entrenched in their old ways, more risk-averse than ever. And, like most businesses, they equate lack of control with risk. The companies that create tech platforms, though, have figured out both how to embrace the openness of the platform and how to make money at it. The time is ripe for real estate developers to figure that out; to give residents and business-owners and institutions the tools to make useful, adaptable buildings in a dynamic and economically robust mix. That way will we begin to get real cities built again.