Planned Densification is a process to overcome property-level economic obstacles to accomplishing higher density real estate development. Because of high overall construction costs, decreasing market prices, and troubled municipal finances—higher density development is now getting more difficult to accomplish at a time when density is increasingly important for economic development and environmental preservation.
“Markets Change, Buildings Don’t”
The Problem: In-Place Construction Being Out-of-Sync with Surrounding Markets
Especially in key locations, there is an entire layer economic and environmental value that is now lost because of the value and timing relationship between in-place construction and its surrounding market. (Please see a blog post about Asynchrony for a graphic description.) Most new construction takes place in low-value markets, and the associated low revenue streams to the development proforma preclude high-density development. The problem is that once low density construction occurs, the assets have long functional lives (commonly 40 to 80 or more years), with contractual and other commitments that are barriers to change. Loss occurs because the additional density is not built even though market growth would eventually support it. Loss accrues with each day of suboptimal density. Loss is realized by owners/developers in terms of value not captured, municipalities in the forms of reduced infrastructure ROA/ROI and lost vitality, transit agencies because of lower density around stations, environmental advocates because of lost opportunity to put in place more effective dense urban form, as well as several other process participants.
Every square foot of space built by densification over time decreases the amount of space needed in the form of sprawl, because densification was not planned and enabled.
The Solution: Systematic Pre-Planning of Density in Key Locations
Planned Densification provides four methods to pre-plan density increases for buildings, sites, blocks, and regions. The technique includes both physical design as well as process change to allow density evolution in the short term, commensurate with market changes. Transaction costs are predicted and reduced or eliminated. To the premise "markets change, buildings don't" we now add "they could, and some should."
Thus...“Markets Change, Buildings Don’t -- They Could, and Some Should."
Planned Densification is a market-based initiative that supports policy objectives. It also provides developers and investors financial motivation to build higher density projects. Accomplishing density is of particular importance to government in order for government to recapture some of the value that its infrastructure and other investments make possible, but that are not yet realized. Indeed, government’s need for higher ROA/ROI and greater productivity of existing and future assets gets more acute each day with the financial crisis that we are entering.
Importantly, Planned Densification views densification of buildings, sites, blocks, and regions through the processes and functions of real estate development. Real estate development is the process wherein all urban design, planning, governance, infrastructure, engineering, finance, and marketing disciplines not only converge but must correspond ‘feasibly.’ Thus, this view from the real estate development process provides a required systemic view of required densification. Increasingly, urban betterment programs suggest that accomplishing greater density is an important way to solve multiple problems. But wanting density doesn’t make it happen—systemic process change in the real estate development processes and infrastructure delivery is needed.
The environmental and economic losses of inefficient urban systems are un-affordably large, and they are accruing daily.
Planned Densification has global applications.
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Planned Densification was created in the mid and late 1990s corresponding with Pario’s many years of work analyzing the progression of real estate markets, and combined with work in the field of eco industrial development. A future post will describe the confluence of disciplines and market forces leading to Planned Densification, and current applications.