Development of new communities: history and principles

New ways of living

24 June 2015

Sandy Apgar examines the history and principles behind the development of new communities and the lessons for real estate theory and practice


New communities are a hallmark of urbanisation. Wherever they are built, these novel forms of human settlement achieve a range of social and economic objectives, from improved housing and job choices to resilient, sustainable living environments, to strong, diversified local economies and, more recently, integrated transportation networks to reduce car dependence and energy usage.

In a unique collaboration between RICS and the Urban Land Institute (ULI), a guide and appendix entitled Placemaking: innovations in new communities was published in December 2014. Writing in the preface, RICS President, Louise Brooke-Smith and ULI Chairman Lynn Thurber say: 'While each organisation has a unique mission and emphasises different areas of study and practice, we share the commitment to close cooperation in addressing the challenges of rapid global urbanisation. In this context, deep understanding of new communities and their contributions to real estate theory and practice is essential for developers, policymakers and planners.'

The guide profiles new communities and their major innovations, including a unique business model, the evolving mix of land uses and demographics, and initiatives to adapt the concept to new, unfolding conditions (see panel).

It is steeped in my personal experience with new communities (NCs), and draws on findings from a survey of more than 700 UK and US professionals, in-depth interviews with 25 executives and thought-leaders, and 3 workshops of staff and advisers.

Concept defined

NCs are planned, residentially based, mixed use, urban and suburban settlements, located in semi-rural greenfields with low residential densities and little or no prior development, and in compact, high-density developed neighbourhoods that exemplify the 'urban renaissance'.

They include a range of income groups, housing types and employment opportunities, community and recreational facilities, retail and commercial services, schools, healthcare and other public services and productive, as well as active and passive open spaces.

In the US, NCs are primarily private sector ventures known as master-planned communities such as Columbia, Maryland. In the UK, they are primarily public sector new towns, such as Milton Keynes. In both countries, such developments increasingly are organised through public-private partnerships (PPP), such as the urban regeneration project at London's King's Cross, and the military housing community at Fort Belvoir, Virginia.

NCs differ from conventional single-use property developments in major respects:

  • large-scale and comprehensive scope to enable economies, efficiencies and tradeoffs that elude smaller, single-purpose projects;
  • multiple land uses and financing sources to ensure that sufficient funds are available at each stage of development and that asset performance is monitored throughout the NC’s life;
  • segmented housing and commercial product types to attract a complementary range of residents, industries and retailers;
  • unitary organisations, with the focus and expertise to manage complex projects;
  • partnership structures, spirit and style, enabling them to solve ongoing problems in a collaborative, constructive manner.

Origins of innovation NCs owe their roots to 19th-century entrepreneurs, who created 'company towns' for ideological and practical reasons. In the 1880s, US industrialist George Pullman built his eponymous community in Chicago as workforce housing for low-wage, primarily black employees, with attractive terraces and 'futuristic' amenities such as indoor plumbing, gas, and sewers.

UK chocolatier George Cadbury, appalled by employee housing conditions in Birmingham, established the suburban Bournville in 1893, a far-reaching model of community design, building quality and social integration. Ebenezer Howard originated the Garden Cities model in the 1920s, executed in Welwyn and Letchworth.

In the mid-1960s, American mortgage banker James Rouse conceived the two-tier neighbourhood hierarchy of Columbia, Maryland, and, contemporaneously with resort developer Charles Fraser, pioneered NC business innovations that are still in use:

  • positioning projects as 'products', subject to the same marketing rules as major manufacturers
  • basing economic models on sales of pre-serviced lots, both to builders and to individuals
  • replicating successful NC product concepts to drive strategic momentum, leverage team talents, and redeploy asset value from one project to the next
  • infusing the mantra of social responsibility long before it became mainstream in business strategies.
  • Rouse declared: 'Our companies proceed on the assumption that profit, properly understood, is a reward for service well-rendered, not the legitimate purpose of business in its own right.'

In praise of pioneers

Innovation signifies improvements to the built environment and/or the processes for planning, financing, developing, and operating it. These run the gamut from simple physical changes, such as greener building materials and dedicated bike paths, to complex organisational reforms, such as residents' engagement in community planning and management’s oversight of joint public-private partnerships. Innovations embrace the qualities, capabilities and tools applied in creating transformational changes and in enabling new ways for people to live and work.

These are management innovations because they are born of the NCs' unique management characteristics: exceptionally large, complex projects requiring creative vision, business acumen, massive investment, portfolio financing, sophisticated organisation, technical expertise, and collaboration between business and government over extended periods. To achieve results, each stage of development , from inception to completion and ongoing operations, requires policymakers and professionals to innovate.

The aim of the RICS/ULI project is to highlight innovations pioneered by British and US practitioners. NC innovators use the broad scope and purposeful discipline of the planning process to produce livable communities. They address unique fundamentals of each project: what they intend to achieve (objectives), who is to be served, now and in future (clients), which client needs are not met (gaps), which products and services will the innovators provide – and how (delivery), and which indicators will they use to judge the results (metrics).

NC organisations thus go beyond conventional management practice to exemplify interlocking economic, environmental, and social objectives.

Successful innovators not only incorporate the preferences of current residents but also allow flexibility for future needs. Typically, consumers favour traditional residential designs with which they are comfortable – a governing mantra for US and UK NCs. But innovators also create subtle design changes in public spaces – e.g. child-friendly water features, artist-decorated pocket parks, coffee nooks in bookstores c that encourage residents' engagement while increasing profitability.

Unique business model

NCs spearheaded a unique PPP business model to integrate the projects' income mix and long time horizons. Using long-term partnership structures, NC developers welcome – and can afford – innovation. They receive more funding than conventional developers for improving the NC's product range and project scope.

While return on equity is a measure of the developer’s success, it is less important for many US firms than profits from fee-based services, including planning and development, investment origination, construction management, asset management, property management, and oversight of income-producing properties. Developers also receive lease or rent payments from existing tenants to help fund the first phase of renovation and redevelopment. Thus, front-end fees and payments substantially reduce the PPP’s risks.

The NCs' long time horizon — up to 50 years or more — enables higher upfront spending with longer payback periods, whereas the typical developer is focused on short-term returns and preoccupied with bank lending requirements and procedures.

A multi-decade capital structure removes refinancing risks and may even offer refinancing potential to increase funds flows if interest rates and terms improve. Investments in sustainable building products and systems (such as photovoltaics and recyclable materials) are not limited by expectations of immediate paybacks.

Finally, multiple economic, social, and environmental objectives enable innovative developers to address community needs even if the short-term economics may be at best break even.

shows metric table

Combining new and old

The NCs' land use mix is a key to survival as well as success. Because of their scale and scope, NCs have the potential to provide a full spectrum of housing types and tenures for owners and renters to trade up as they, and their communities, mature.

From the Millennials’ entry into studio apartments and starter-homes, to the Generation X relocation in single family homes, to the baby boomers’ occupancy of condos and townhomes as they age, US and UK residents reflect the strong traditions and clear preferences to remain in or near their home communities.

From the 1960s onward, major US companies, spearheaded by giants AT&T, GE, and IBM, decanted from cities to neighbourhood-scale suburban complexes on 80ha or more with a broad range of amenities. By the 2000s, budget constraints and new technologies led corporate owners to repurpose these sites for mixed-use greenfield NCs with luxury condominiums. Similarly, Britain’s National Health Service sold off large, surplus hospital sites within range of core cities which could accommodate multiuse developments.

Even dormant alleyways and decaying plant sites can become vibrant marketplaces. Micro-unit apartments are the latest incremental urban innovations. In dense, high-rent, transit-oriented US cities such as New York and San Francisco, micros range from 250 to 400 square feet. They are especially popular with 18- to 34-year-olds, now 75 million strong and growing, who trade off smaller, sometimes shared, spaces for centrally located settings.

Lessons learned

New community innovators seek to improve our built environment. Hence, their innovations change what we see around us and how we plan, finance, develop and operate it. What may be unconventional uses today may become mainstream NCs tomorrow. Innovation speeds up and solidifies that process.

New community development is not performed by formula, any more than the communities, their residents, and their stakeholders are formulaic. But the management principles can be codified and decision-makers can apply some or all of them in addressing the challenges of urbanisation. Above all, innovation is not a choice for NC developers, public or private – it is a must.

Although the guide and supporting research are not encyclopedic, they Illuminate societal and market forces and professional practices that shape NCs. In a field so often driven by transactional and technical details, NCs bring significant innovations and initiatives that decision-makers can use in tackling real-world problems.


Guide summary

Innovations

Innovations emerge from practical experience in new communities development organisations and research among NC professionals.

Comprehensive plans

NCs meet a range of needs and opportunities in their development strategies, set short- and long-term priorities, and marshal the financial and organisational resources for massive projects over long periods.

Portfolio economics

NCs use 'portfolio economics' to manage the large size, heavy investments and long time horizons that NCs entail, across and among numerous discrete projects.

Integrative business models

 NCs integrate returns on invested capital with fees from organising and operating large, complex projects in 'total profitability' business models.

Public-private partnerships

NCs realise public purposes through private enterprise, leveraging government and business assets with experience and ingenuity in collaborative, strategic teams.

Resident-driven services

NCs reframe traditional responsibilities of local government – e.g. schools, parks, safety, sanitation – by engaging private for-profit and non-profit organisations.

Initiatives

Initiatives extend NCs to new geographies, product types, and processes; and spawn further innovations in NC principles and practices.

Prime movers

Promote NCs as generators and organisers of responsible, responsive urban growth through partnerships with business entrepreneurs, knowledge-based institutions, and natural resource-based sponsors.

Information and analytics

Elevate management information and deep analytics to the strategic agendas of decision-makers in NC development and management organisations.

Unconventional uses

Advocate NCs as venues in which to test, evaluate and apply urban policy solutions, targeting new and underserved markets and investment opportunities.

Community designs

Provide platforms for urbanists and architects to create the 'sense of place' and to experiment with novel community-level and individual building designs.

Investment fund

Seed a private NC Investment Fund with sovereign wealth investors, pension funds, urban-oriented philanthropies, public venture funds, and other opportunistic sources.

Sandy Apgar FRICS is the author of Placemaking: innovations in new communities and an international authority on housing, real estate and infrastructure

Further information