How Neighbourhoods Scale (Part I) – Unintended Consequences
Why do some places scale successfully, whereas others struggle...and, what are some of the unintended consequences of scaling? This post discusses different approaches to scaling urban neighbourhoods and downtowns. We explore the experimental methods employed by John List, chief economist with Walmart, formerly with Uber and Lyft. This is a two-part post.
photo credit: "Ciudad Valdeluz 02" by RinzeWind is licensed under CC BY 2.0.
Regeneration of existing urban areas is difficult, costly and messy. It is often much simpler and less expensive to redirect attention (and investment) to ripe opportunities elsewhere. However, the inner-city is a key component of a city’s economic vitality. With seemingly, ever-present demand for housing alternatives and the need for convenient services, cities seem to struggle with how to scale sustainably.
The Scale Dilemma
The best intentions can pave the way for a myriad of unintended consequences. Places respond differently. Many cities, like London or New York for instance, developed more organically on the outskirts, where outer-lying communities provided an affordable stepping-stone for immigrants and key workers.
Over time these fringe communities became more established and were incorporated into the fabric of the whole city. They provided a stable base and economic support system for newcomers to gain access to the city, its jobs and its services, without turning its back on its working-class residents.
Other cities scale differently. Led by policy, competitive market forces or sheer demand, scale can occur at speed. Many of the world’s cities are now on growth hormones. According to the UN, today 55% of the world’s population lives in urban areas and that is expected to grow to 68% by 2050, largely in Asia and Africa.
Scaling Problems
I first visited Madrid over a decade ago and found a city overcome by speculation and struggling to effectively manage its suburban growth. On the other hand, the city’s centre was buoyant, lively and prosperous.
In the outskirts of Madrid lie ghost towns. Intended as upscale communities for Madrid’s commuter population, places such as Valdeluz were discarded prior to completion due to the housing crash in 2008. Homeowners defaulted on mortgages, real estate companies went bankrupt and construction remained largely unfinished. These places stayed vacant for over a decade.
It left a massive over-supply of land, intended for housing, at the margins of the city. As many as one million houses sat empty, many large-scale projects were left unfinished, significant areas of land were scarred by unfinished infrastructure. Fuelled by speculation, the unleashed property boom left little but discarded dreams and stripped landscapes in its wake.
photo credit: "horche" by egsanchez is licensed under CC BY-SA 2.0.
There is now a resurgence in people finding their way into these communities, renters with families taking advantage of lower costs of living away from the major centre. However, it is a different demographic and a very different rate of uptake compared with those days of supercharged, speculative investment.
Away from the suburbs, Madrid’s city centre is, as it has always been, a noisy, political, active and lively place. There is something to be said for the resilience of historic city centres, where people continuously engage with their environment and manage to carve out and reclaim space as their own.
Underlying Issues of Scale
John List is a prominent economist who has contributed extensively to the field of experimental economics. A long-time professor at the University of Chicago, List has worked as chief economist at Uber, Lyft, and now Walmart. His research focuses on understanding the underlying mechanisms that influence decision-making and behavior in various settings.
“The thread of scaling runs through all parts of life, and the factors that cause ideas not to scale manifest themselves in all settings. Economics is life, and life is economics.”
John List
List has committed to studying the way people behave in the real world, instead of understanding economics as a theory-based field. In his latest book, The Voltage Effect: How to Make Good Ideas and Great Ideas Scale (Currency, February 2022), List argues that the same principle of scaling can be applied to virtually anything. There are some key things to look out for, which determine whether something has sufficient ‘voltage’ to properly scale.
The Inhibitors to Scale
Let’s unpack the factors that are most closely attributed to cities and placemaking:
False positive policies
Political interference or organized stakeholders that sway policy decisions.
List argues that scaling is subject to the “Anna Karenina principle,” which dictates that even if one factor is wrong, the entire endeavor will fail. We see this all the time in urban planning processes, particularly when it is politically-motivated or where human behaviour influences policy.
Interest groups or stakeholders may have more resources or better access to planners and politicians than other groups, giving them additional leverage in the planning and decision-making processes. Public opinion and emotive responses on such issues may sway elected officials to adopt positions that may not be grounded in evidence.
Sometimes assumptions that inform policy are just plain wrong. List advocates for ‘policy-based evidence’, such as piloting through real world conditions before implementing at scale.
“If you have jumped over the first hurdle and your idea has voltage, for how many people will that voltage be real? In other words, what is the size of the total addressable market?”
John List
Over-estimating the market
The assumption that if a strategy works in one place, in theory it should work everywhere.
Another potential hurdle to scaling is overestimating the market. Sometimes this occurs if a strategy works in one place, and the same theory is that it should work here. Like the new park that nobody uses can be an obstacle to scaling and can have the opposite effect (e.g. security risk, ongoing maintenance costs etc.)
Places need to have stickiness. This is something that is not achieved just by creating more of something. We need better places, in the right locations serviced by the right level of amenity, not necessarily more of them. For instance, rather than just looking at open space as a function of the size of the population it serves, or as a holding site for future development, it should create a long-term benefit, serving the community as a whole as it scales.
Un-scalable ingredients
Tying the brand of a place to a specific institution, retail concept or user group that may not be sustainable if they leave down the road.
Just as with luxury products, the allure of the inaccessible or unattainable can drive demand for a place for a select few. To really have impact at scale, however, you need to provide opportunities at different levels of the spectrum. Places that rely on a specific anchor institution or brand to be successful, may be unable to sustain their success when the operator or visionary behind the organization leaves. See the HBR article by John Butman on the subject of ‘artisan brands’.
Places need to be people magnets in their own right, and not rely too much on branding or association to prop them up. The same is true when we talk about too much of a good thing. Too many of the same kind of restaurant, for instance, built too quickly in the wrong locations can lead to disaster, no matter how great the offering is (remember Jamie Oliver’s Italian?).
“If the initial success was based on a unique human, it will never scale because unique humans don’t scale.”
John List
Unintended consequences
Policies that cast a broad net over a larger radius in an attempt to incentivize more rapid growth across all areas, may compromise the ability for any one area to achieve scale.
Sometimes, conditions that are designed to lead to scale create consequences that run counter to these efforts. List refers to some of these as general equilibrium effects (i.e. economic systems returning to equilibrium). For instance, policies that cast a broad net over a larger radius in an attempt to incentivize more rapid growth across all areas, may compromise the ability for any one area to achieve scale.
The concentration of economic activity around a distinct place or urban neighbourhood can improve access for a local or regional customer base and create economies of scale due to sharing of knowledge and resources. Conversely, the dispersal or sprinkling of these benefits over a large area can result in negative impacts, such as higher costs to operate and lack of scalability.
Scaling costs
Creates uncertainty across the marketplace, as inflation and construction pricing impact the likelihood that projects will be viable enough to move forward.
Scaling communities and creating new places is capital intensive. We are currently facing a large degree of uncertainty across the marketplace. The costs of new infrastructure, buildings, labour costs, environmental mitigation and regulatory costs are just some of the more significant scaling costs.
Unlike other sectors, construction projects are often one-off, bespoke endeavors, making it challenging to achieve the economies of scale that are typical of manufacturing or technology. Each project requires a different set of skills, tools, and materials, which can be costly and time-consuming to source and manage. This leads to a lack of standardization and efficiency. Added to this, are supply chain challenges and the availability of suitable labour, which can impact the timing of projects and has an impact on overall costs. On the flip side, once able to build at scale, projects attract greater investment and do eventually become cheaper as processes & people are reused.
How Neighbourhoods Scale (Part II) - Achieving Catalytic Scale
Now we have a basic understanding of the scalability of neighbourhoods, and the potential inhibitors, in Part 2 we will examine how to achieve Catalytic Scale. What can places do to scale smartly and sustainably? Find out how we applied these principles of scaling to established communities.
Stay tuned…
The Rise of Small - sensitively, scaling-up urban redevelopment in local urban centres like Cranbrook, BC
Will Craig is a Principal and the global chair of the Lifescape team for architecture and design firm Kasian and founder of Placeonomics.
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