With urbanisation rapidly increasing, the city plays an ever more integral role in Australian society. It is therefore important that those in charge of shaping our cities do so in a way that is not only economically viable, but beneficial to both the humans that inhabit them and the planet they are built on. This article aims to apply principles Good Economics in the context of property development and city building. It will outline how property development should be undertaken in light of modern economic principles with reference to case examples.
Learning from the mistakes of the 20th century, modern economic theory is beginning to eschew the goal of short term profit above all else and integrate the idea of long term, sustainable profit. An example of this is the notion of Good Economics.
Good Economics is a concept articulated by philosopher Alain De Botton and his School of Life. This branch of economic theory looks at how demand, work, profit and wealth can be organised so as to promote individual and collective flourishing. It aims to create a society that serves humanity whilst turning a profit. For example, in an economy that applied this theory, the profits derived from a wind farm would be held in higher esteem than those derived from pokie machines.
How does this apply to the real estate industry?
To understand how this relates to the property industry and in particular development, the question must be asked: what is the purpose of development? The answer can be summed up in a single word — improvement. Property developers should improve our cities. Old house blocks are knocked down to make way for new apartment buildings. One would hope that these apartments are, in some way, better than what they replaced.
Applying Good Economics, it would be preferable to build an apartment building that achieved strong capital growth over a long period of time, was more energy efficient than the building that was there before it and provided tenants with an affordable yet livable home than to build an apartment building that earnt the developer huge initial profits, but left investors with a low quality asset that was harmful to the environment and of such poor quality that tenants were left unsatisfied. This second building is likely to be profitable in the short term for the developer and investors, but in the long term it would diminish the overall value of the area it is in and the lives of the residents inside it. Another important goal of property development should be to provide benefit to the local community.
Case Study A: The Commons
Situated along the train line in the Inner Melbourne suburb of Brunswick, The Commons by Breathe Architecture is, without question, one of Australia’s most forward thinking apartment buildings. The project consists of 24 apartments over five levels and was intended to push the boundaries of sustainability and create a local community within the building. Affordability was also a key consideration in the delivery of The Commons. The building has definitely achieved these goals. Features such as solar panels, rainwater tanks and a shared rooftop garden all ensure that the sustainability element is met, whilst shared laundry facilities and a lack of car parking keep prices low as well as promoting sustainability. The developers also capped the amount of profit that they would make from The Commons in order to ensure affordability and value for buyers.
Many would argue that not every developer can sell apartments that have no car park and shared laundry facilities, and that is true. The Commons is unique and could only be a reality in a suburb such as Brunswick. Inner Melbourne is truly walkable and many of those that live there are known as being environmentally conscious. People may further argue that a developer who caps their profit will not be able to operate as a business long term. This could not be further from the truth. The developers of The Commons were able to deliver a quality, in-demand product at such an ideal price point that they ended up with a waiting list of buyers for their next building. This means that the developers had no marketing costs for this project and a high sale rate. That is good business.
Case Study B: The Bull Street Project
The Bull Street Project is a boutique infill development in Castlemaine that will see a standard house block with an existing dwelling developed into four two-storey two-bedroom townhouses, while retaining and renovating the existing home and adding a second detached dwelling. It has been designed to achieve a nine star NAThers rating, so it is extremely efficient and sustainable. What is most impressive about this development, however, is the way that The Bull Street Project has been designed with the local surroundings and community in mind.
One way that this development utilises the local community to its benefit is its commitment to sourcing as much of the building materials as possible locally. A large majority of the materials used for The Bull Street Project were sourced from within 200kms of Castlemaine. This had a positive impact on the local economy and its importance should not be understated. As entrepreneurs, property developers have the ability to create jobs in their local community.
Local labour and knowledge also played a key part in the design and construction of this project. A great example of this is the rammed earth walls that serve to increase the acoustic insulation and fire safety of the townhouses. The choice of this building element was influenced by local aesthetics, sustainability benefits and the fact there is a firm in the town that builds rammed earth buildings. The ability to develop region-appropriate solutions to design problems is extremely important in order to develop properties that will be suitable to their location.
It is clear that as the 21st Century progresses, the key issues that city builders are going to face are sustainability, affordability and ballooning urban populations. This paper acknowledges that those in charge of delivering residential dwellings to the market will play a vital role in addressing these issues. Here, it is put forward that the new direction for property developers will involve striving for long term, sustainable growth in housing and operating in way that is mindful of the people that inhabit their products and the planet that they are built on. I believe that this change will need to be consumer driven. As Australians become more educated about their impact on the planet and the need to house more people in less space they will demand housing product that minimises their footprint and, most importantly, a legislative framework that encourages this.
Realistically, only widespread ideological change regarding how we live will encourage a shift from seeking short term profits to something that could be considered a little more “Good.”
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FYI this article was originally published in 2015 on https://www.therealestateconversation.com.au