• The answer to our problems lies with buildings. Do you actually believe you can separate buildings out from the infrastructure of cities and mobility of transit and the expectations and incentives of people? Buildings and property developments are in certain stages derivatives of transportation system and infrastructure. The example of London: the creation of Cross Rail (still in progress)- a fast ling into central london from western and eastern suburbs, lead to increased development in the to-be connected areas, such as Acton Town in the West London.
• Why do people tend to believe that what is financially profitable (for developers) is not actually equivalent to economically feasible (positive impacts on social welfare)? The biggest issue with investors and developers fleeing to prime properties is the lack of integration of side-effects and the fact that each individual development does not reflect the full social cost and strain it puts on infrastructure and transportation. The investors may not fully compensate for the negative externalities of ‘shiny’ towers (such as congestion, obstruction of sun, exclusion, widening of the income gap in the area etc.) with benefits provided (e.g. contribution to green spaces). Highest profitability project generally are concentrated on the highest yields. In addition, marginal income and relative measures of profitability are not always the necessary and only driver of development- the volume of investment also matters, as it drives fees for managers, which often translates into expensive prime developments as opposed to e.g. regeneration or secondary properties, which tend to require less capital. The risk associated with sub-prime real estate directly translates into the volume invested in it- as developers flee to quality, which in turn is a less volatile class of assets. This means that the secondary properties enjoy a lesser degree of investment and investment flows, which widens the gap between the prime and sub-prime, as widely observable in commercial properties across europe right now.
• How would you show that this does not necessarily have to be like this (but rather the opposite)? It is virtually impossible to put all the incentives and disincentives in place in order to push for only socially beneficial products on the market. However, there are some carrot and stick instruments the central planners may employ in order to incentives desirable behavior. Examples of such imposed control are zoning, planning obligation to provide on-site affordable housing, green space, contribution to transport budget, guidance for design and use of the building and mixed-use developments. There is a great scope in imposing ‘green building’ requirements for improving social welfare. This however may significantly decrease the profitability of central developments, and shift investor focus to less restricted locations.