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.
