For three decades the UK has become obsessed with the 'right to buy' and a desire to climb the property ladder upwards, a capitalist proxy for long term saving. For years mortgaged properties have been the largest asset and liability of many UK investors. That dream was accelerated by Thatcherism and fostered by New Labour, a post American ideal of house + garden + car + 2.5 kids. It is an economic philosophy which has seen council housing stock diminished and tower blocks torn down. Now the UK's cities face over-population, overheating property prices, lack of base land supply and unsustainable rental yields. After the tower blocks of the 1940s-1960s were demolished, the U.K. is set to return to mass vertical living in the 2020s in response to an increasing population, urbanisation and mega city concentration. Building towers change the supply-demand curve because they need less land cost to build upon per capita. With a future of Amazonian drones dropping goods, just in time, from the skies, what economic benefits and challenges do Sky Cities provide and how might they change the UK residential property market's supply demand curve.
Agglomeration: 'a mass or collection of things, economies of agglomeration are the benefits that firms obtain by locating near each other ('agglomerating'). The existence of agglomeration economies is central to the explanation of how cities increase in size and population, which places this phenomenon on a larger scale. This concentration of economic activity in cities is the reason for their existence, and they can persist and grow throughout time only if their advantages outweigh the disadvantages.
Growing up I was a huge 2000AD fan, it portrayed a futurist view of society beleaguered by overpopulation and lack of resources. Now we are here, it's nearly 2020. The star character was Judge Dredd who policed the streets of an 800 million Metropolis: MegaCity One. His story traced the infrastructure, civil and sustainability pressures of people leviathans. Within MegaCity One existed towering 200 Floor arcology housing projects. Essentially a self - contained city, each block is home to in excess of 75,000 citizens, renowned for their crime rates, reputation for slums and unemployment at 96%. The crime and despair of massive social engineering set in a postapocalyptic near future. As in the comic, so we to appear to be living in an ever-urbanised world. As a result we appear to be returning into a pseudo 60's social engineering rerun of high rise blocks, albeit privately not state funded this time. As the value of air space is only n o w b e c o m i n g understood, is building up into the air better than creeping further into green field or recycled brown site living? Is vertical a solution to the UK's mass flooding and urbanisation problem? Indeed, as my think tank Long Finance notes: "Cities are faced with the huge challenge of providing infrastructure that meets the needs of a rising urban population, with limited public resources. Decisions and investments in urban infrastructure must be urgently leveraged to achieve sustainable economic growth within the carrying capacity of the planet's systems and resources."
Tower blocks were built extensively in the UK after the Second World War. The first residential tower block, "The Lawn" was constructed in Harlow, Essex in 1951; it is now a Grade II listed building. In many cases tower blocks were seen as a permanent response to infrastructure problems caused by crumbling and unsanitary 19th-century dwellings or to replace buildings destroyed by the WW2 Blitz. Post war many people found themselves in supposedly temporary pre-fabricated (pre-fabs). As James Miller, Director, and Tom Shaw, Residential Project Director, Ramboll wrote for the Public Sector Build Journal in September 2015:
The vision was that towers could provide better quality of life and population density than traditional housing, offering larger rooms and improved views whilst being cheaper to build. Initially, they were welcomed, and their excellent views made them popular living places. Later, as the buildings themselves deteriorated due to lack of funding, crime no poor maintenance then they became undesirable low cost housing. Many tower blocks saw rising crime levels, increasing their undesirability. Initial responses included an increase in council housing estates, which in turn brought their own problems. In the UK, tower blocks also suffered poor publicity following the partial collapse of Ronan Point (in east London in 1968). Glasgow was believed to contain the highest concentration of tower blocks in the UK: examples include the Hutchesontown C blocks in the Gorbals and the 20-storey blocks in Sighthill. However, on the whole, London has the largest number of high-rise residential buildings in the UK.
Post-war Britain was the stage for a tower block "building boom"; from the 1950s to the late 1970s there was a dramatic increase in tower block construction. During this time, local authorities desired to impress their voters by building futuristic and imposing tower blocks, which would signify post-war progress. Architects and planners were influenced by Le Corbusier’s promotion of highrise architecture. The modern tower blocks were to include features that would foster desired forms of resident interaction, an example being the inclusion of Le Corbusier’s streets in the sky in some estates. The first and most famous of these buildings, also known as Cité radieuse (Radiant City) and, informally, as La Maison du Fada ("The Nutter's House"), is located in Marseille and built between 1947 and 1952. It proved enormously influential and is often cited as the initial inspiration of the Brutalist architectural style and philosophy.
As well as inspiring residents, local authority planners believed that the way tower blocks were constructed would save money. Generally, the tower blocks were built on cheap greenfield land skirting established cities. Although the property prices for these periphery sites were markedly cheaper than their inner city counterparts, they often had little access to public amenities, such as public transport. It was thought that the implementation of industrialised building techniques would lower costs too, as similar tower blocks would be replicated over many sites. Uniform and standardised parts, such as toilet fittings and door handles, would be fitted throughout many tower blocks; planners deemed that buying in bulk would reduce overall costs. Another key aspect of the tower block vision was the Brutalist architectural method, popular with architects and planners at the time. The Brutalist emphasis led to the construction of stark and striking tower blocks with large sections of exposed concrete. Concrete was to be an integral part of the tower block designs; it could be poured on site, offering boundless flexibility to the building designers. To the planners, concrete was a silver bullet for the construction process – it was economical, and "was vaunted as being long-lasting, if not indestructible".
However the vision for sky cities had crumbled (literally) by the 1980s. The collapse of Ronan Point marked a U-turn in public attitude towards the tower-block, as well as a significant shift in design and building regulations (including against disproportionate collapse). Finally, the 1972 oil crisis led to a further change in building regulation and the thermal regulation of tower-blocks. Concrete cladding now also had to insulate and tower facades created to essentially wrap the buildings and regulate heat loss. The towers of the 60s quickly became out-dated and ill favoured, plagued as they were by cold, damp, and draughts. Consequently a lack of desirability led to tower blocks being used among lower social classes. This is turn meant a concentration of unemployment, social issues and crime.
Thatcher brought in a new direction, a pseudo-US focus on home ownership and the right to buy one's council house. Privatisation was in full effect and the old council towers tumbled. After Margaret Thatcher became Prime Minister in May 1979, the legislation to implement the Right to Buy was passed in the Housing Act 1980. Some six million people were affected; about one in three actually purchased their unit. Heseltine noted that, "no single piece of legislation has enabled the transfer of so much capital wealth from the state to the people." He said the right to buy had two main objectives: to give people what they wanted, and to reverse the trend of ever increasing dominance of the state over the life of the individual. 200,000 council houses were sold to their tenants in 1982, and by 1987, more than 1,000,000 council houses in Britain had been sold to their tenants, although the number of council houses purchased by tenants declined during the 1990s. There is also a Right to Acquire for assured tenants of housing association homes built with public subsidy after 1997, at a smaller discount. About 1.5 million homes in the UK have been sold in this manner since 1980. This new Conservative homeowner dream was one of conventional housing not high rise. Tower blocks became targets for demolition and regeneration: a downward cycle. In 2015 the Guardian wrote:
By 2000AD, brutal concrete had given way to even larger structures made from steel and glass. In March 2016 it was reported that over 100 new tall buildings had been proposed for London in the last year alone. We find ourselves again in an upward cycle. A report released by New London Architecture (NLA) reveals that, despite a widely publicised campaign to prevent the proliferation of skyscrapers in London, the number of planned high-rises has significantly increased. A total of 119 buildings of 20 storeys or over have been proposed for the capital since this time last year, and the number of tall buildings under construction has risen from 70 to 89. According to Steve Watts and Neal Kalita of Davis Langdon, most "commercial towers (more than 30 storeys) being developed are in London, perhaps because commercial rents in the regions would not support office towers and land values are lower."
Globally the trend 'up' is also accelerating. The Council on Tall Buildings and Urban Habitat has determined that 106 buildings of 200 meters’ height or greater were completed around the world in 2015 – setting a new record for annual tall building completions. The tallest building to complete in 2015 was Shanghai Tower, now the tallest building in China and the second-tallest in the world at 632 meters. This pushed the 442-meter Willis Tower (once Sears Tower) off the top 10 list for the first time in its 41-year history. Also the average height of skyscrapers is accelerating.
Since the 2000s, mega-cities are cropping up around the world. This time privately funded for the private residential market, often built in conjunction with or appended to commercial offices, as developers again explore the concept of co-habitation working spaces. With population density and scarce land to accommodate it, building up is again the profit-fuelled option of choice. This policy is gradually stripping out populations from less urbanised areas.
Tall buildings 200 meters or taller completed in 2015: By Region.
Tall buildings 200 meters or taller completed in 2015: By Function.
The UN's Department of Economic Social Af fai r s publ ished i t s 2014 Wor ld Urbanisation Prospects report and noted:
Tokyo is the world’s largest city with an agglomeration of 38 million inhabitants, followed by Delhi with 25 million, Shanghai with 23 million, and Mexico City, Mumbai and São Paulo, each with around 21 million inhabitants. By 2030, the world is projected to have 41 mega-cities with more than 10 million inhabitants. Tokyo is projected to re- main the world’s largest city in 2030 with 37 million inhabitants, followed closely by Delhi where the population is projected to rise swiftly to 36 million. Several decades ago most of the world’s largest urban agglomerations were found in the more developed regions, but today’s large cities are concentrated in the global South. The fastest growing urban agglomerations are medium-sized cities and cities with less than 1 million inhabitants located in Asia and Africa.
London faces a huge under-supply in available homes, one reason why the supply-demand curve has been steepening steadily over recent years. However according to the Policy Exchange there is not an under-supply in land, which wrote in February 2016 that:
If there is abundant substitute excess land then does building up create a disinflationary pressure on property prices? Unlikely, given there is a disparity between abundant land supply and a lack of property. Building up is still one solution to building out when there is limited property supply. The experience of Australia may give us some indication of how a 'high rise' boom might change the supply-demand curve for residential property.
Therefore because more land is available as a substitute (subject to local government approval) then building up or out may have similar effects on the supply-demand curve give or take the relative value of locations and cost of land versus the cost of constructing complex and tall towers. Steve Watts and Neal Kalita of Davis Langdon considered the challenges of building towers in London and noted:
Steve Watts and Neal Kalita also noted that, "the “average” above-ground benchmark cost for residential towers in London is considered to be £2,960/m2 with a range of ± £800." With this in mind, the cost to build a 100m2 conventional timber-built 3 bedroom residential home is much lower at £1,751 per m/2 in central London compared to £1,644 for outer London. Certain areas of London (like Westminster, Kensington and Mayfair) prevent or restrict tower builds due to heritage and planning regulations. However where a tower is possible then it is logical that once the cost of build becomes proportionally similar or less than the cost of land then the potential investment return of a residential tower becomes attractive. Here then we can make an easy connection with Glasgow which has some of the country's lowest cost per square metre. Accordingly Glasgow is building more conventional homes to replace old legacy tower blocks while London boroughs are building new tower blocks. Take the following London boroughs:
| Town / Borough | Price Ft2 (£) | Price per M2 (£) | Price of Bedroom 3.5x3m |
|---|---|---|---|
| Kensington and Chelsea | £1,052 | £11,321 | £118,874 |
| Westminster | £950 | £10,552 | £110,872 |
| Camden | £837 | £9,012 | £94,626 |
| Hammersmith and Fulham | £802 | £8,635 | £90,666 |
| Islington | £740 | £7,964 | £83,621 |
| Wandsworth | £647 | £6,959 | £73,074 |
| Hackney | £637 | £6,860 | £72,029 |
| Southwark | £602 | £6,484 | £68,083 |
| Richmond upon Thames | £599 | £6,446 | £67,684 |
| Tower Hamlets | £598 | £6,432 | £67,541 |
As the cost per square metre rises then, all other things being equal, high rise buildings become more attractive versus conventional low storey homes. These numbers are skewed by the utility or premium of owning a conventional home in a desirable inner city area. However in this instance the total value relies on the utility of one owner whereas the cost of a tower can be distributed across many investors or offset by significantly greater rental yield per square metre. Although the costs of building the tower are much greater, the cost of air above the land is effectively free (ignoring any regulatory, construction or architect costs). Given many property investors in London are not necessarily full time residents then the investment premium and objective of profit and rental income will often overtake the investors' personal utility of home ownership. In conclusion, the attraction to build up; versus out, will increase where London prices remain elevated or continue to rise. Demand will remain strong so long as the Metropolis remains a hub for jobs and investment.
Conversely if values per square metre fall below an invisible threshold, relative to the cost of build, then it's likely that the pipeline for new towers will slow. This is especially so given the fragile nature of funding for towers via Acquisition, Development and Construction ('ADAC') loans. These loans are often supplied by non UK banks and financial institutions. Therefore, based on the above figures, vertical living can and has been changing the supply-demand equilibrium in central London property but does so within a fairly narrow bound of supportive prices, easy ADAC borrowing and healthy foreign investment. We were able to see from the Brexit referendum that the foreign market is sensitive to both any political changes and currency. For example Singapore-based United Overseas Bank, Southeast Asia’s third-largest bank by assets, suspended loan applications for London residential properties. The London market relies heavily on overseas investment and funding, especially among the more expensive developments. Overseas banks’ share of new lending reached 42 per cent of the market in 2015 (slightly above 2007 levels) according to a De Montfort University survey, wrote the FT. According to FT, from the same article, some "overseas banks with portfolios of UK real estate loans have been asked to stress test them before making new loans, according to three people involved in the new loans market."
Thinking back to Judge Dredd and real-world contemporary observations, we know that vertical living and high population density can lead to social disorder. An obvious and inconvenient challenge to agglomeration is the rising crime, social-media fuelled terrorism that deliberately focuses on concentrated conurbations. A number of research studies, globally, are finding empirical evidence to suggest that the interconnections between transport networks, land use, and population density can contribute to crime rates. The lessons of the tower blocks from the 1960s related to falling desirability, socio-economic imbalances such as unemployment. Modern high rise developments, with careful marketing, actively target desirable and convenient living. However desirability and obsolescence are closely related and can shift over time, as new developments may put pressure on older developments. Clearly high rise will continue to have a high sensitivity to perceived lifestyle and over-demand that typifies central London. As in the 1970s and 1980s, the perception of modern high rise is sensitive to a number of factors, as noted by James Miller for the Public Sector Build Journal.
Judith Evans at the FT published an article:
Yet the debate over their value as living spaces still rages. A petition signed by a host of luminaries, including architect David Adjaye, sculptor Antony Gormley and hedge fund financier Sir Michael Hintze, argues that towers are “neither essential to meeting housing needs, nor the best way to achieve greater densities. Their purpose is more to create investments than homes or cohesive communities.”
Researching designs for high-rise living, Madelin visited London’s Barbican, a postwar estate designed for the middle classes that houses 4,000 people and an arts centre, and is increasingly in demand as a place to live. After falling out of favour in the 1980s, the Barbican’s return to popularity has mirrored the renaissance of inner cities; prices for its apartments now average almost £1m. It is one of the few residential areas in the City of London, drawing some part-time residents seeking a bolthole close to their offices, but also attracts families and retired people. The Pinnacle@Duxton, an award-winning 50-storey public housing development in Singapore, took a different approach: the seven towers are linked by “sky bridges” at the 26th and 50th floors which house a children’s playground, open-air gym and running track. Similarly, the property developer Harry Handelsman plans to incorporate three “sky gardens” in the design of his Manhattan Loft Gardens — a residential tower in Stratford, east London — the highest being 400ft above ground. Social engineering may actually work economically and sustainably if we can learn from previous mistakes.
Agglomeration? London continues to change rapidly towards vertical living, even outgoing Mayor Boris Johnson controversially proposed a scheme for building on existing low rise buildings. However the main change for London has been the growth in new high rise residential developments. Tall will get taller given the lack of cost for airspace and falling technology cost. However, the towers themselves still carry an intensive cost of development and thus most likely to be sensitive to the supply-demand equilibrium in higher cost boroughs. As housing demand continues to outstrip supply then the attraction of towers will spread outward from central into outer London. This relies on foreign investment and funding attracted by higher rental yields, accommodative currency and rising prices per square metre. Whether such agglomeration will have a sustainable economic effect for the capital, as a whole, is reliant on desirability, civil, environmental and social factors. Social dis-order is the risk. As we head furlong towards MegaCity London, where are the Judges? Dredd the thought.