Dr Yawei Chen is an assistant professor in Urban Development Management at Department of Management in the Built Environment, Faculty of Architecture and the Built Environment, Delft University of Technology, the Netherlands. She developed her expertise in understanding the development strategies and governance innovation in cities using urban mega projects to pursue industrial transition towards a knowledge-based economy. Her studies cover urban transition strategies, land policy, financialisation, public-private collaboration, community participation and sustainability of the urban mega project in Chinese cities. She is a regular speaker on governance and planning strategies in Chinese urban transformation and is an active reviewer for more than ten key international journals related to urban studies. She has been involved in various academic research projects that examine the development of sustainable urban mega projects in European-Chinese comparison studies.
1. WHY IT IS IMPORTANT TO FINANCE URBAN REDEVELOPMENT, IN THE NEW CONTEXT OF POST COVID-19 INVENTORY DEVELOPMENT IN OLD URBAN AREAS?
In cities, urban development is carried out to change the nature of a place, often with the intention to improve the built environment and improve the quality of life of the urban area. It contributes to develop a city’s comprehensive vision, improves the physical, economic and social condition of a city therefore enhance the competitiveness of the city. By financing urban development project, we could improve the physical living condition, create opportunities to generate government revenue, create jobs and improve community facilities and amenities. Urban regeneration has been carried out for several decades. Often the earlier urban development regeneration projects targeted urban area that were better located and had less physical, environmental and social challenges. Later we see more and more projects started to address more marginalised urban areas, with various social-economic disadvantages and more risks for investors.
In the new context of post COVID-19, transformation of the old urban areas become even more essential. Because of lockdown and other measures to curb mobility and contain the infection, people are confined mostly to their home and 1500 meters around the neighborhoods. Local governments recognize that there is an amplified effect on social disparity that has the urgency to be addressed, like the quality of living space, easy access to green spaces, public transport, healthcare, access to technology and internet for socially vulnerable groups. Furthermore, many cities currently are facing housing shortage and increasing demand for housing with better housing quality and bigger space. In the Netherlands, government, property developers and policy researchers are all examining the claim of one million home shortage in the domestic market, especially in bigger cities. Despite the constraints, the old urban areas in cities, whether in declining dilapidated urban condition or industrial legacy with serious physical environmental problems, provide possible land for housing and other property construction. That is also the reason why some of the major urban development projects in the Netherlands, like the transformation of industrial Binckhorst area in the Hague, were carried out continuously.
Figure 1. Transformation of industrial Binckhorst area in the Hague (Source: Hague Municipality, Netherlands)
2. WHY THE WATERFRONT LOCATIONS ARE MORE DIFFICULT TO ATTRACT AND SUSTAIN INVESTMENTS? WHAT ARE THE MAIN APPROACHES OF INTERNATIONAL EXPERIENCES?
For most of the waterfront with an industrial function, the territory was isolated from public access. There may be unfavorable conditions or poor structure and facilities because of proximity to water. Furthermore, these areas have mostly faced severe environmental challenges and a lack of infrastructure. In recent years, waterfront redevelopment has involved various measures to deal with emergent challenges not previously focused on, like social integration, social equality and community participation. Beyond these spatial, environmental and social challenges, carrying out waterfront redevelopment remains challenging. Waterfront areas have a fragmented and complex structure of jurisdictional involvement. Different stakeholders may have to deal with a multitude of government regulations and permit requirements. As most waterfront development takes a long period to be implemented, such projects require massive financial investment. The public sector cannot carry out such projects alone, while private investors hesitate to invest in waterfront redevelopment projects due to the high risks. These challenges need to be dealt with in partnership with public authorities, private organizations and community groups.
Most of the waterfront redevelopment practices reflect the result of evolving port-city relationships and associated processes of de-industrialisation and globalization. Waterfront is transformed from industrial to urban function. Many of the waterfront were designed as high-profile, flagship projects with prestigious land and property developments, like CBDs, stadiums, exhibition halls, opera house, luxury shopping malls, high-end hotels or housing development. They often play an influential and catalytic role in the urban transformation of a large-scale waterfront development. Commonly-cited examples include London’s Canary Wharf, Guggenheim Museum in Bilbao and Barcelona Olympic waterfront. In this way, the cities hoped to attract more private investors and investment, especially global investment. These practices have been copied in different locations but also received critics due to greater spatial and social-economic polarization. In recent years, new practices tend to involve more local communities and existing land or property owners in the transformation process. Besides, attempts have been made to upgrade the industry or bring in high-tech or creative industry in the waterfront transformation. In addition, they strive for private investment and public-private partnership, with actors emerging from diversified background from financial actors to community funds.
Figure 2. London’s Canary Wharf (by Yawei Chen)
Figure 3. Guggenheim Museum in Bilbao as a catalyst for the waterfront transformation
Figure 4. Olympic Event as catalyst for Barcelona waterfront redevelopement
3. WHAT ARE THE PROS AND CONS OF LAND-BASED CAPITAL ACCUMULATION BEING CENTRAL IN THE FINANCIALISATION OF URBAN REDEVELOPMENT PROJECTS?
The condition for the land-based capital accumulation is that land belongs to the state, as is the land tenure system in Chinese context or the four bigger cities in the Netherlands (namely Amsterdam, Rotterdam, the Hague and Utrecht). Financialisation has gradually come to play an important role in China’s urbanisation because that most cities are facing capital shortage when carrying out urban development projects. The pro is that the cities in China, while being in shortage of budget to invest in transforming urban environment, have the possibility to accumulate the capital needed for further urban transformation in the city. Land leasing is an important revenue for the local state and an important source of investment in public space and infrastructure projects.
On the other hand, because the state has a vested interest in dominating land development, land-based capital accumulation may push cities to excessively convert arable land to construction land for extra revenue and sell them in an unconstrained manner. This could lead to a conduct that may not take into account of the Cities’ long-term sustainability development. In fact, some cities have already faced the scarcity of land resources in future urban development which will greatly affect public treasury. Furthermore, rules need to be set to allow land to be conveyed in an open and fair market and prevent the misallocation of land revenue to individual officials and work units (using the land or having special network).
4. DO YOU THINK THAT CONVERSION OF LAND USE TYPES WILL BE MORE WIDELY USED IN CHINESE CITIES? WHAT ARE THE INSTITUTIONAL CONDITIONS AND RESTRAINTS THAT IT NEEDS TO COPE WITH?
If you mean the conversion of land use types is the practice of changing land use from rural to urban functions or changing from industrial to commercial and residential functions, yes you will see such practice more widely applied in the coming years in Chinese cities, as you see the same practice in European cities in the last several decades. With China’s urbanization continues at a rapid speed in the last 50 years, there is a growing urgency for Chinese cities to take care of the land resources at central and local levels. One reason is that the rapid loss of cultivated land resources due to rapid expanding of urban construction land and the increasingly concern of food security and other environmental consequences. Such concern has driven China to adopt stricter and more effective arable land protection policy by the central government to cherish land resources, ensure rational use of land and effective protection of farmland. At the same time, there are still large land parcels in existing urban areas that can be mobilized to capture land value by selling or leasing land development rights. In the Netherlands, the so-called ‘SER ladder’ (the Ladder for sustainable urbanization) is used to promote the optimal allocation of land. It means that the need for the new development must be examined. Further, if the development is foreseen outside the existing urban area, it must first be examined whether the development could (partially) be accommodated within the existing urban area. Dutch municipalities apply the SER ladders in the spatial planning of, for example, business parks, living or retail area, taking into account the possibilities of restructuring and intensive use of space.
Development-based land value capturing has certain advantages: it can generate massive capital to finance capital-intensive transformation without significant fiscal distortion or public objection to additional tax or fees. It may increase both one time and long-term revenue from high-transit ridership. The accommodation of new unban function of retail, office, housing and higher-quality public space or improved built environment can help generate sustainable income for local government, reimage existing areas often with bad stereotype images, create job opportunities and attract new users. In my paper Financialising urban redevelopment: transforming Shanghai’s waterfront, I examined four waterfront redevelopment projects in Shanghai during a period of thirty years (1990-2020): the Lujiazui Financial District, the 2010 World Expo site development, Xuhui West Bund and Yangpu waterfront redevelopment. What can be concluded from the research is that value capture came through the change of land-use from industrial to high-end commercial/residential function.
The redevelopment of urban areas with existing properties and functions and the development-based land value capture is designed and developed around the intensive collaboration of all involved stakeholders like the different organizations of the government at different scales, land owners, various property developers, current industries, enterprises and residents. Increasingly, new actors emerged in the transformation process, like pension funds or energy companies. For example, a series of studies have shown that pension fund has been found in urban revitalization project, infrastructure development and housing projects in Australia, Canada and EU countries. With so many stakeholders with diverse interests, it is important that local institutional framework and legal context provide flexibilities to experiment for collaboration in some form between the public and private sector. In the development of Lujiazui Financial District, the use of special economic zone status provided institutional context to accommodate global investors and global investment. For example, tax exemptions and deduction were widely applied. Bonds were allowed to be issued to raise fund for infrastructure development. Various institutional reform allowed the use of development instruments like the public-private partnership in various development projects. Besides, it is increasingly essential to involve the existing communities, be it business sector and local residents, in the decision-making process to co-create the future vision of the urban area. In this way, a consensus can be reached without dramatic negative social consequence. Consequently, the redevelopment process takes time and mass investment to realize its goal and may face various unexpected obstacles. Planners and project managers working in the public sector need to consider themselves more as place-makers, as Adam and Tiesdell (2013) suggested. They need to improve their understanding of the market and the dynamic of real estate development, and develop their market-shaping mindsets and learn various skills in developing network with other market parties.
5. WHAT ARE THE EMERGING INNOVATIVE FINANCIAL INSTRUMENTS (E.G. BONDS, FUNDS, PARTNERSHIPS) AND THE NEW PROBLEMS ARISING FROM THE INCREASING COMPLEXITY OF MULTIPLE PARTICIPANTS (INSTITUTIONAL AND INDIVIDUAL INVESTORS, BANKS, AND COMPANIES AS END USERS) IN URBAN REDEVELOPMENT PROJECTS?
The European Union (EU) states the development financing as measures that provide financial support to address policy objectives through the use of loans, guarantees, equity or quasi-equity investment, or other risk-bearing tools. These financial instruments can be combined with grants and involve risk-sharing with financial institutions, or a blending of loans and grants, or can be in the form of development charges or land value finance. Theurillat et al (2017) suggested tracing the bank and direct financial circuits (e.g. development loans, housing mortgage loans and own funds) as well as the financialized circuits (e.g., special purpose vehicles like trust and funds or financial platform and capital market) to understand the financialisaton of the property development industry in China. As Chinese cities started their ambitious urban (re)development process since the 1980s, most municipalities faced a serious budget shortage. In the development of Chinese large-scale urban development projects, we have seen a continuous increase in the amount of investment from domestic and international sources that are injected into the region, as well as the arrival of multinational corporations, the banking and financial sector, property developers and global pension funds.
In urban projects, capitals can come from real estate developers, construction companies and increasingly financial institutions, financial markets and financial élites. The innovative financial instruments help filling the gap in which public finance used to function but not able to do so in new context. The increasing dependence on financial instruments also means that the urban development projects are more sensible to the fluctuations in the financial market and the risks associated with the financial instruments.
6. HOW TO EVALUATE THE ADAPTABILITY OF DIFFERENT FINANCIAL TOOLS AT LOCAL LEVELS? ARE THERE ANY LESSONS THAT WE COULD LEARN FROM OVERSEAS EXPERIENCES SUCH AS NETHERLANDS?
In the paper Financialising urban redevelopment: transforming Shanghai’s waterfront, I examined the innovative financial instruments in four waterfront redevelopment projects in Shanghai. The four cases – the Lujiazui Financial District, the 2010 World Expo site development, Xuhui West Bund and Yangpu waterfront redevelopment – adapted the choice of financial instruments to fit own social-economic context and constraints of the time. Several real estate funding mechanisms were explored, such as the solidarity mechanism (tax-related policy, special economic zone), the public-private partnership mechanism (public-private partnership or private finance initiative), and the loan and bond mechanisms (bonds, loans, trusts) across the four projects. For example, Lujiazui case suffered from the Asian Financial Crisis in the late 1990s. Besides state fund, various innovative financial instruments were explored in the Lujiazui case, such as issuing bonds to obtain extra capital, borrowing loans from domestic banks and international corporations, and public–private partnership. Various policies used in the special economic zones were explored in the Lujiazui case, like tax deduction or exemption policy or a one-stop approval procedure to reduce red tape, to attract investment from domestic companies or focused financial sectors.
For long, a strong public land development strategy has dominated Dutch urban development practices for land value capture, giving the fact that major Dutch municipalities like Amsterdam and Rotterdam own the land in the cities. The practice is gradually evolved to involve more private investor through public-private partnership to reduce the cost in land development. However, in current urban development practice, both public and private sector are reluctant to enter the joint venture. There is a need for alternative financial sources to fill in the gap of higher development cost and diminishing municipal budget. For example, a new research by my colleagues Heurkens et al (2020) described the use of revolving funds in financing urban redevelopment projects. A revolving fund is filled with various sources of public funding (municipal funds, grants or loans). The public funds are used for public area investments, such as infrastructure, public space or sustainability ambitions. Private parties in the area pay area contribution to the fund. Parties can appeal to the revolving fund if their project fits in the Fund’s stated socio-economic policy objectives and repay the fund after the implementation of the projects. Furthermore, we have observed a number of new players in the urban redevelopment practice, like institutional investors (e.g., pension funds), energy, water health or tech companies or social enterprises.
7. WHAT WILL BE THE IMPLICATIONS ON THE EDUCATION OF FUTURE URBAN PLANNING AND REAL ESTATE TALENTS?
The nature of the urban and regional challenges we are facing is complex while planning practitioners are encountering a changing urban environment full of uncertainty in the workplace. We have seen great opportunities in the process of urbanization and urban growth, while at the same time, we also find cities developing into future-proof ones need to address various social-economic and environmental challenges to build sustainable, eco-resilient and circular urban areas and regions. We need both specialists and generalists in academia and practice. Traditionally, specialists appear to be more highly valued. For next generation designers and managers, we are in need of the capabilities of the generalist – seeing beyond the silos of particular specialism, and with the courage and creativity to make connections and integrate knowledge across fields of expertise and uncertainty (according to Campbell 2014).
To understand and deal with real urban development problems, urban planners, designers and managers need to understand the interrelations among science, technology, society and design, be able to combine and synthesize a variety of academic and professional knowledge. For educators, this means teaching students how to work in interdisciplinary settings, i.e. how to jointly discover the different disciplinary dimensions of an urban problem, and how to reflectively design courses of action. Students of today need to possess professional skills of tomorrow, among which cooperation and intercultural communication skills are essential.
It is important to develop analytical competencies, technical competencies and socio-political competencies. The training of these skills need to be addressed in the design of the education of future urban planning and real estate talents, by studying real-life situation, and integrating practice and practitioners in education program. One education course we provide to master students here in the Department of Management in the Build Environment in the Faculty of Architecture and the Built Environment in TU Delft is such a course. The Urban Redevelopment Game: Integrating Urban Planning, Design, and Property Development is an educational effort to combine the interdisciplinary, experiential learning, role-simulation and group work together (Chen et al 2019). Students are asked to draw up an urban development plan in a real urban setting by means of role simulation. They are grouped into different roles based on parties as they appear in reality: municipality, real estate developer, housing association, etc. Student who play with different roles are assigned to a working group, coordinated by their own process manager (student), and guided by both role assistants (Lecturers with in-depth knowledge on specific knowledge domain) and group supervisors (lecturers with broad knowledge on urban development). The final urban development plan goes beyond the traditional plan, requesting students not only provide a program and set of strategies for future urban development, but also take into account of the process of land expropriation, cost-benefit analysis, project phasing and possible collaboration model.
Reference:
Adams, D. and Tiesdell. S. (2012). Shaping Places: Urban Planning, Design and Development. London: Routledge. Ch.14 (pp. 286-295) Campbell, H. (2014). Specialists and generalists: Are there too many hedgehogs and not enough foxes? Planning Theory & Practice, 15(3), 287–290.
Chen, Y. (2020). Financialising urban redevelopment: Transforming Shanghai’s waterfront, Land use policy.
Chen, Y., Daamen, T., Heurkens, E.W.T.M., Verheul, W.J. (2019) Interdisciplinary Learning and Practice-Theory Integration: Experiences from Urban Development Management Education in The Netherlands, in Journal of Technology and Design Education, 30 (5), 919-936, DOI: 10.1007/s10798-019-09541-5
Heurkens, E., Hobma, F., Verheul, W.J. and Daamen, T. (2020) Essay Financiering van gebiedstransformatie: Strategieën voor het toepassen van verschillende financieringsvormen bij binnenstedelijke gebiedsontwikkeling.
Theurillat, T. (2017). The role of money in China’s urban production: The local property industry in Qujing, a fourth-tier city. Urban Geography: 38(6): 834–860.
GUEST
DR. YAWEI CHEN
Dr Yawei Chen is an assistant professor in Urban Development Management at Department of Management in the Built Environment, Faculty of Architecture and the Built Environment, Delft University of Technology, the Netherlands. She developed her expertise in understanding the development strategies and governance innovation in cities using urban mega projects to pursue industrial transition towards a knowledge-based economy. Her studies cover urban transition strategies, land policy, financialisation, public-private collaboration, community participation and sustainability of the urban mega project in Chinese cities. She is a regular speaker on governance and planning strategies in Chinese urban transformation and is an active reviewer for more than ten key international journals related to urban studies. She has been involved in various academic research projects that examine the development of sustainable urban mega projects in European-Chinese comparison studies.
1. WHY IT IS IMPORTANT TO FINANCE URBAN REDEVELOPMENT, IN THE NEW CONTEXT OF POST COVID-19 INVENTORY DEVELOPMENT IN OLD URBAN AREAS?
In cities, urban development is carried out to change the nature of a place, often with the intention to improve the built environment and improve the quality of life of the urban area. It contributes to develop a city’s comprehensive vision, improves the physical, economic and social condition of a city therefore enhance the competitiveness of the city. By financing urban development project, we could improve the physical living condition, create opportunities to generate government revenue, create jobs and improve community facilities and amenities. Urban regeneration has been carried out for several decades. Often the earlier urban development regeneration projects targeted urban area that were better located and had less physical, environmental and social challenges. Later we see more and more projects started to address more marginalised urban areas, with various social-economic disadvantages and more risks for investors.
In the new context of post COVID-19, transformation of the old urban areas become even more essential. Because of lockdown and other measures to curb mobility and contain the infection, people are confined mostly to their home and 1500 meters around the neighborhoods. Local governments recognize that there is an amplified effect on social disparity that has the urgency to be addressed, like the quality of living space, easy access to green spaces, public transport, healthcare, access to technology and internet for socially vulnerable groups. Furthermore, many cities currently are facing housing shortage and increasing demand for housing with better housing quality and bigger space. In the Netherlands, government, property developers and policy researchers are all examining the claim of one million home shortage in the domestic market, especially in bigger cities. Despite the constraints, the old urban areas in cities, whether in declining dilapidated urban condition or industrial legacy with serious physical environmental problems, provide possible land for housing and other property construction. That is also the reason why some of the major urban development projects in the Netherlands, like the transformation of industrial Binckhorst area in the Hague, were carried out continuously.
Figure 1. Transformation of industrial Binckhorst area in the Hague (Source: Hague Municipality, Netherlands)
2. WHY THE WATERFRONT LOCATIONS ARE MORE DIFFICULT TO ATTRACT AND SUSTAIN INVESTMENTS? WHAT ARE THE MAIN APPROACHES OF INTERNATIONAL EXPERIENCES?
For most of the waterfront with an industrial function, the territory was isolated from public access. There may be unfavorable conditions or poor structure and facilities because of proximity to water. Furthermore, these areas have mostly faced severe environmental challenges and a lack of infrastructure. In recent years, waterfront redevelopment has involved various measures to deal with emergent challenges not previously focused on, like social integration, social equality and community participation. Beyond these spatial, environmental and social challenges, carrying out waterfront redevelopment remains challenging. Waterfront areas have a fragmented and complex structure of jurisdictional involvement. Different stakeholders may have to deal with a multitude of government regulations and permit requirements. As most waterfront development takes a long period to be implemented, such projects require massive financial investment. The public sector cannot carry out such projects alone, while private investors hesitate to invest in waterfront redevelopment projects due to the high risks. These challenges need to be dealt with in partnership with public authorities, private organizations and community groups.
Most of the waterfront redevelopment practices reflect the result of evolving port-city relationships and associated processes of de-industrialisation and globalization. Waterfront is transformed from industrial to urban function. Many of the waterfront were designed as high-profile, flagship projects with prestigious land and property developments, like CBDs, stadiums, exhibition halls, opera house, luxury shopping malls, high-end hotels or housing development. They often play an influential and catalytic role in the urban transformation of a large-scale waterfront development. Commonly-cited examples include London’s Canary Wharf, Guggenheim Museum in Bilbao and Barcelona Olympic waterfront. In this way, the cities hoped to attract more private investors and investment, especially global investment. These practices have been copied in different locations but also received critics due to greater spatial and social-economic polarization. In recent years, new practices tend to involve more local communities and existing land or property owners in the transformation process. Besides, attempts have been made to upgrade the industry or bring in high-tech or creative industry in the waterfront transformation. In addition, they strive for private investment and public-private partnership, with actors emerging from diversified background from financial actors to community funds.
Figure 2. London’s Canary Wharf (by Yawei Chen)
Figure 3. Guggenheim Museum in Bilbao as a catalyst for the waterfront transformation
Figure 4. Olympic Event as catalyst for Barcelona waterfront redevelopement
3. WHAT ARE THE PROS AND CONS OF LAND-BASED CAPITAL ACCUMULATION BEING CENTRAL IN THE FINANCIALISATION OF URBAN REDEVELOPMENT PROJECTS?
The condition for the land-based capital accumulation is that land belongs to the state, as is the land tenure system in Chinese context or the four bigger cities in the Netherlands (namely Amsterdam, Rotterdam, the Hague and Utrecht). Financialisation has gradually come to play an important role in China’s urbanisation because that most cities are facing capital shortage when carrying out urban development projects. The pro is that the cities in China, while being in shortage of budget to invest in transforming urban environment, have the possibility to accumulate the capital needed for further urban transformation in the city. Land leasing is an important revenue for the local state and an important source of investment in public space and infrastructure projects.
On the other hand, because the state has a vested interest in dominating land development, land-based capital accumulation may push cities to excessively convert arable land to construction land for extra revenue and sell them in an unconstrained manner. This could lead to a conduct that may not take into account of the Cities’ long-term sustainability development. In fact, some cities have already faced the scarcity of land resources in future urban development which will greatly affect public treasury. Furthermore, rules need to be set to allow land to be conveyed in an open and fair market and prevent the misallocation of land revenue to individual officials and work units (using the land or having special network).
4. DO YOU THINK THAT CONVERSION OF LAND USE TYPES WILL BE MORE WIDELY USED IN CHINESE CITIES? WHAT ARE THE INSTITUTIONAL CONDITIONS AND RESTRAINTS THAT IT NEEDS TO COPE WITH?
If you mean the conversion of land use types is the practice of changing land use from rural to urban functions or changing from industrial to commercial and residential functions, yes you will see such practice more widely applied in the coming years in Chinese cities, as you see the same practice in European cities in the last several decades. With China’s urbanization continues at a rapid speed in the last 50 years, there is a growing urgency for Chinese cities to take care of the land resources at central and local levels. One reason is that the rapid loss of cultivated land resources due to rapid expanding of urban construction land and the increasingly concern of food security and other environmental consequences. Such concern has driven China to adopt stricter and more effective arable land protection policy by the central government to cherish land resources, ensure rational use of land and effective protection of farmland. At the same time, there are still large land parcels in existing urban areas that can be mobilized to capture land value by selling or leasing land development rights. In the Netherlands, the so-called ‘SER ladder’ (the Ladder for sustainable urbanization) is used to promote the optimal allocation of land. It means that the need for the new development must be examined. Further, if the development is foreseen outside the existing urban area, it must first be examined whether the development could (partially) be accommodated within the existing urban area. Dutch municipalities apply the SER ladders in the spatial planning of, for example, business parks, living or retail area, taking into account the possibilities of restructuring and intensive use of space.
Development-based land value capturing has certain advantages: it can generate massive capital to finance capital-intensive transformation without significant fiscal distortion or public objection to additional tax or fees. It may increase both one time and long-term revenue from high-transit ridership. The accommodation of new unban function of retail, office, housing and higher-quality public space or improved built environment can help generate sustainable income for local government, reimage existing areas often with bad stereotype images, create job opportunities and attract new users. In my paper Financialising urban redevelopment: transforming Shanghai’s waterfront, I examined four waterfront redevelopment projects in Shanghai during a period of thirty years (1990-2020): the Lujiazui Financial District, the 2010 World Expo site development, Xuhui West Bund and Yangpu waterfront redevelopment. What can be concluded from the research is that value capture came through the change of land-use from industrial to high-end commercial/residential function.
The redevelopment of urban areas with existing properties and functions and the development-based land value capture is designed and developed around the intensive collaboration of all involved stakeholders like the different organizations of the government at different scales, land owners, various property developers, current industries, enterprises and residents. Increasingly, new actors emerged in the transformation process, like pension funds or energy companies. For example, a series of studies have shown that pension fund has been found in urban revitalization project, infrastructure development and housing projects in Australia, Canada and EU countries. With so many stakeholders with diverse interests, it is important that local institutional framework and legal context provide flexibilities to experiment for collaboration in some form between the public and private sector. In the development of Lujiazui Financial District, the use of special economic zone status provided institutional context to accommodate global investors and global investment. For example, tax exemptions and deduction were widely applied. Bonds were allowed to be issued to raise fund for infrastructure development. Various institutional reform allowed the use of development instruments like the public-private partnership in various development projects. Besides, it is increasingly essential to involve the existing communities, be it business sector and local residents, in the decision-making process to co-create the future vision of the urban area. In this way, a consensus can be reached without dramatic negative social consequence. Consequently, the redevelopment process takes time and mass investment to realize its goal and may face various unexpected obstacles. Planners and project managers working in the public sector need to consider themselves more as place-makers, as Adam and Tiesdell (2013) suggested. They need to improve their understanding of the market and the dynamic of real estate development, and develop their market-shaping mindsets and learn various skills in developing network with other market parties.
5. WHAT ARE THE EMERGING INNOVATIVE FINANCIAL INSTRUMENTS (E.G. BONDS, FUNDS, PARTNERSHIPS) AND THE NEW PROBLEMS ARISING FROM THE INCREASING COMPLEXITY OF MULTIPLE PARTICIPANTS (INSTITUTIONAL AND INDIVIDUAL INVESTORS, BANKS, AND COMPANIES AS END USERS) IN URBAN REDEVELOPMENT PROJECTS?
The European Union (EU) states the development financing as measures that provide financial support to address policy objectives through the use of loans, guarantees, equity or quasi-equity investment, or other risk-bearing tools. These financial instruments can be combined with grants and involve risk-sharing with financial institutions, or a blending of loans and grants, or can be in the form of development charges or land value finance. Theurillat et al (2017) suggested tracing the bank and direct financial circuits (e.g. development loans, housing mortgage loans and own funds) as well as the financialized circuits (e.g., special purpose vehicles like trust and funds or financial platform and capital market) to understand the financialisaton of the property development industry in China. As Chinese cities started their ambitious urban (re)development process since the 1980s, most municipalities faced a serious budget shortage. In the development of Chinese large-scale urban development projects, we have seen a continuous increase in the amount of investment from domestic and international sources that are injected into the region, as well as the arrival of multinational corporations, the banking and financial sector, property developers and global pension funds.
In urban projects, capitals can come from real estate developers, construction companies and increasingly financial institutions, financial markets and financial élites. The innovative financial instruments help filling the gap in which public finance used to function but not able to do so in new context. The increasing dependence on financial instruments also means that the urban development projects are more sensible to the fluctuations in the financial market and the risks associated with the financial instruments.
6. HOW TO EVALUATE THE ADAPTABILITY OF DIFFERENT FINANCIAL TOOLS AT LOCAL LEVELS? ARE THERE ANY LESSONS THAT WE COULD LEARN FROM OVERSEAS EXPERIENCES SUCH AS NETHERLANDS?
In the paper Financialising urban redevelopment: transforming Shanghai’s waterfront, I examined the innovative financial instruments in four waterfront redevelopment projects in Shanghai. The four cases – the Lujiazui Financial District, the 2010 World Expo site development, Xuhui West Bund and Yangpu waterfront redevelopment – adapted the choice of financial instruments to fit own social-economic context and constraints of the time. Several real estate funding mechanisms were explored, such as the solidarity mechanism (tax-related policy, special economic zone), the public-private partnership mechanism (public-private partnership or private finance initiative), and the loan and bond mechanisms (bonds, loans, trusts) across the four projects. For example, Lujiazui case suffered from the Asian Financial Crisis in the late 1990s. Besides state fund, various innovative financial instruments were explored in the Lujiazui case, such as issuing bonds to obtain extra capital, borrowing loans from domestic banks and international corporations, and public–private partnership. Various policies used in the special economic zones were explored in the Lujiazui case, like tax deduction or exemption policy or a one-stop approval procedure to reduce red tape, to attract investment from domestic companies or focused financial sectors.
For long, a strong public land development strategy has dominated Dutch urban development practices for land value capture, giving the fact that major Dutch municipalities like Amsterdam and Rotterdam own the land in the cities. The practice is gradually evolved to involve more private investor through public-private partnership to reduce the cost in land development. However, in current urban development practice, both public and private sector are reluctant to enter the joint venture. There is a need for alternative financial sources to fill in the gap of higher development cost and diminishing municipal budget. For example, a new research by my colleagues Heurkens et al (2020) described the use of revolving funds in financing urban redevelopment projects. A revolving fund is filled with various sources of public funding (municipal funds, grants or loans). The public funds are used for public area investments, such as infrastructure, public space or sustainability ambitions. Private parties in the area pay area contribution to the fund. Parties can appeal to the revolving fund if their project fits in the Fund’s stated socio-economic policy objectives and repay the fund after the implementation of the projects. Furthermore, we have observed a number of new players in the urban redevelopment practice, like institutional investors (e.g., pension funds), energy, water health or tech companies or social enterprises.
7. WHAT WILL BE THE IMPLICATIONS ON THE EDUCATION OF FUTURE URBAN PLANNING AND REAL ESTATE TALENTS?
The nature of the urban and regional challenges we are facing is complex while planning practitioners are encountering a changing urban environment full of uncertainty in the workplace. We have seen great opportunities in the process of urbanization and urban growth, while at the same time, we also find cities developing into future-proof ones need to address various social-economic and environmental challenges to build sustainable, eco-resilient and circular urban areas and regions. We need both specialists and generalists in academia and practice. Traditionally, specialists appear to be more highly valued. For next generation designers and managers, we are in need of the capabilities of the generalist – seeing beyond the silos of particular specialism, and with the courage and creativity to make connections and integrate knowledge across fields of expertise and uncertainty (according to Campbell 2014).
To understand and deal with real urban development problems, urban planners, designers and managers need to understand the interrelations among science, technology, society and design, be able to combine and synthesize a variety of academic and professional knowledge. For educators, this means teaching students how to work in interdisciplinary settings, i.e. how to jointly discover the different disciplinary dimensions of an urban problem, and how to reflectively design courses of action. Students of today need to possess professional skills of tomorrow, among which cooperation and intercultural communication skills are essential.
It is important to develop analytical competencies, technical competencies and socio-political competencies. The training of these skills need to be addressed in the design of the education of future urban planning and real estate talents, by studying real-life situation, and integrating practice and practitioners in education program. One education course we provide to master students here in the Department of Management in the Build Environment in the Faculty of Architecture and the Built Environment in TU Delft is such a course. The Urban Redevelopment Game: Integrating Urban Planning, Design, and Property Development is an educational effort to combine the interdisciplinary, experiential learning, role-simulation and group work together (Chen et al 2019). Students are asked to draw up an urban development plan in a real urban setting by means of role simulation. They are grouped into different roles based on parties as they appear in reality: municipality, real estate developer, housing association, etc. Student who play with different roles are assigned to a working group, coordinated by their own process manager (student), and guided by both role assistants (Lecturers with in-depth knowledge on specific knowledge domain) and group supervisors (lecturers with broad knowledge on urban development). The final urban development plan goes beyond the traditional plan, requesting students not only provide a program and set of strategies for future urban development, but also take into account of the process of land expropriation, cost-benefit analysis, project phasing and possible collaboration model.
Reference:
Adams, D. and Tiesdell. S. (2012). Shaping Places: Urban Planning, Design and Development. London: Routledge. Ch.14 (pp. 286-295) Campbell, H. (2014). Specialists and generalists: Are there too many hedgehogs and not enough foxes? Planning Theory & Practice, 15(3), 287–290.
Chen, Y. (2020). Financialising urban redevelopment: Transforming Shanghai’s waterfront, Land use policy.
Chen, Y., Daamen, T., Heurkens, E.W.T.M., Verheul, W.J. (2019) Interdisciplinary Learning and Practice-Theory Integration: Experiences from Urban Development Management Education in The Netherlands, in Journal of Technology and Design Education, 30 (5), 919-936, DOI: 10.1007/s10798-019-09541-5
Heurkens, E., Hobma, F., Verheul, W.J. and Daamen, T. (2020) Essay Financiering van gebiedstransformatie: Strategieën voor het toepassen van verschillende financieringsvormen bij binnenstedelijke gebiedsontwikkeling.
Theurillat, T. (2017). The role of money in China’s urban production: The local property industry in Qujing, a fourth-tier city. Urban Geography: 38(6): 834–860.