Give Me The Space; Get You The Living

In the realms of human living, space and time are two inexorable points of differentiation. Space is given by destiny, in that the first place of living is not by choice but by birth. Thereafter, of course, it is a huge expedition for an individual or a family to seek space for living wherever appropriate and possible. In that sense, it is destiny's way conferring an initial advantage or disadvantage, and the human being's ability to manage the advantage or disadvantage. Time, on the other hand, differentiates no one, initially or at any point in ones living. It is entirely up to the aptitude, enterprise and will of the individual how he or she manages the finite and priceless resource of time. The place one has the capability to provide certain advantages of time and cost.

Not surprisingly, in the realms of corporate living too, space and time emerge as the two most critical factors of destiny. Depending on where the entrepreneur is borne or where the first enterprise is set up, each company secures certain basic competitive advantage or disadvantage. It is up to the corporation as it grows older to manage its location specific opportunities and constraints. Similarly, the company needs to understand how it utilizes the factor of time to its advantage. For corporations, as much as for individuals, time and timeliness are two sides of the same coin but have completely different impact. Doing things slow is not generally a good thing for corporations in the competitive world of business while doing things fast but at inappropriate times is not necessarily good either!

Space-location-time-cost linkages

Industrial and business society has for long viewed space as the essential asset to start an industry or business. Governments and companies have imbued or sought greater value from space through location (developed or underdeveloped) and location related incentives. Advanced countries as well as emerging countries have traditionally adopted similar strategies for industrial and business development. Central to such strategies has been provision of large tracts of land for setting up industrial plants or business parks, coupled with fiscal and tax subsidies and incentives. Emerging countries, more specifically India, followed a policy of prohibiting major industries in and around cities and inducing them instead to move into backward areas.

In recent years, however, the importance of social infrastructure in attracting talent to industries in backward areas has been recognized. Companies which set up industries in backward areas struggled with the adverse time and cost effects of establishing housing, healthcare and educational infrastructure in such areas. That said, certain industries have to be set up nearer to natural resources and where population levels are thin while information technology and back-office firms are inclined to be nearer cities. However, the distinct preference for larger and larger tracts of land, whether in rural or urban areas seems to be causing significant agrarian and tribal unrest and leading to skews in real estate costs. As a result, even the apparent beneficiaries of modern development are questioning if the development is not inducing also a huge cost push in terms of housing and other social infrastructure costs. This trend does not seem to abate.

GDP-land index

Probably, the time has come to examine the concept of productivity of land. Historically, there has been no correlation at the country level between the land area and the gross domestic product. An analysis of the top 20 countries ranked by GDP shows that the index of GDP to land area shows a scattered pattern. Japan, despite being a very small country, has an index of 15 while the US has an index of only 1.5, China 0.61, Australia 0.16 and Russia 0.09. Even India has a higher index of 5.5. Several European countries such as the UK, France, Italy and Germany as well as South Korea approximate the axiom of lower land mass positively correlating with higher GDP. Clearly, having a large land mass or even being home to natural resources (eg., Australia or Russia) provides no assurance that such countries would automatically be wealthy or rank higher in GDP.

A review of countries with favorable GDP-land index shows that factors other than land area play a major role in the GDP levels. Firstly, it is technology that enables a country derive its true and optimal gross product from industrial or business investments. Secondly, it is the ability of the country to manage its import-export flows that determines the level and sustainability of its gross product. Thirdly, it is the talent stock of the people that enables the nation to generate value and wealth. In all these cases, smaller countries such as Japan and South Korea as well as Israel and Germany have demonstrated that the above three factors, rather than the size of the nation determine the national productivity and competitiveness. The keenness shown by the industries and governments to seek and provide hundreds and thousands of acres for industrial and business activity needs some discussion and debate, given the opportunity cost of the finite resource that land is.

Ease of management versus productivity of land

It is understood that in India information technology companies seek anywhere between 50 and 250 acres for new green-field IT projects while automobile companies seek 1000 and 3000 acres for new green-field automobile projects. These numbers compare with more humble spatial needs that prevail abroad. Managements seek large parcels of land at the initial stage itself to address the expansion needs of the future, to avoid cost escalation impact of incremental land acquisitions, and to retain a common management and technical team for expanding scale of operations. These valid reasons have to be juxtaposed against the broader public good that could accrue by seeking and providing land, just in time for expansion. More often than not, limits on business scale-up keep substantial parts of land unutilized. In several instances, managements themselves desire to move to new sites to reduce operational concentration and single site risk and also facilitate induction of new technologies and new practices.

If land were not to be a finite resource and the cost of land were not proving to be prohibitive, the whole concept of vertical development would not have occurred in real estate field. The government- mandated largesse of land for industrial and business purposes circumvents the market economics and artificially enhances ease of management and reduces productivity of land. If one were to leapfrog into the coming decades, lockup of land by individual corporations could act to the detriment of public good in the decades to come. While industrial units could have some limits in terms of vertical growth, back-offices need to be proactive in terms of land use optimization through high rise offices, with adequate safeguards against any hazards, including earthquake proof construction. It is forecast that urban skew is an inevitable global trend with 75 percent of population living in cities by 2050. Captive retention of thousands of acres of land would only accentuate urban living pressures.

Urban sprawl and vertical leap

Given the inevitable urban sprawl, some governments and corporations have resorted to unprecedented innovations in technology and engineering to build super-skyscrapers. Shard in London Shanghai Tower in China, Burj Khalifa in Dubai, Marina Sands Bay in Singapore and the new WTC blocks in the USA are examples of the new trend. The builders and the sponsors of such super-skyscrapers believe that these new edifices do not merely represent office space but represent ‘vertical villages’ and ‘lifestyle communities’, which are as good as sprawling horizontal urban communities. There are also trends of reclaiming land and rebuilding habitats to create new mini-cities or urban cities. The rebuilding of industrial land into civic residents and urban malls is indicative of the urban churn that could go on.

Urban land use planning requires addressing of the issue of urban slums, which are almost inevitably the first step for the rural migrants. Urban slums are also the first stops for construction and industrial workforce. Unless sustainable and affordable design and construction principles are adopted to enable affordable habitats to replace urban slums (with proportionate land allocation for such projects), the provision of hundreds or thousands of acres of land for projects could worsen the social skew even further. In the horizontal office expansion cum vertical residential growth model currently being deployed in India industrial and business land allocations and residential land allocations are typically made by different governmental agencies. It needs to be debated if this model is the right one going forward or needs to be replaced by an integrated township model where multi-purpose land allocations are made for industrial and business purposes as well as residential and civic purposes.

Fast forward to 2050 AD

If the current trends of industrialization and urbanization continue with locking up of large parcels of land, sustainability of growth could be threatened. Given that global population could reach 9 billion mark by then (from the current 7 billion), there could be significant consequences of continuance of the current land use trends. Governments may, in such a scenario, mandate return of all unused land allocations. Whether by public action or private pressure, struggling industrial facilities could be pulled down, the refurbished industrial areas could face rationalization, and the concept of township development could return to weigh on industrial and business sponsors. There could be a total urban renewal with IT enabled ecologically sensitive cities being built in the place of current haphazardly developed habitats. As the current wave of sponsors face scrutiny on the extent to which they have fulfilled their land utilization promises, additional perspectives could emerge.

The governments, central and state, formulate and implement several policies that impact land use patterns. These include policies to expand the metropolitan cities into megacities, upgrade tier 2 cities into metros, disperse industrial development, dovetail industrial and residential developments, eliminate urban slums, create new industrial corridors, promote special economic zones, establish new manufacturing zones, provide road, rail and air infrastructure, enable urban-rural balance, provide social infrastructure of education and healthcare, and provide access to water and power, among others. These policies impact how the available land is allocated and utilized. Optimal development would occur when an integrated approach is taken at national and state levels covering all the above policies, with the policies individually and collectively being synergistic in terms of value enhancement and cost minimization. Optimization of speed and time of travel would need to be a key goal of the integrated policy so that the society and economy remain productive.

Posted by Dr CB Rao on February 14, 2012