“… radical new means of producing and organizing inhabited space, and of appropriating it for our multifarious human purposes,” (e-topia p.29). This line grabbed me. It’s from Bill Mitchell, an early Internet-era optimist and godfather of city science at MIT. He was writing about technology, specifically digital systems, and he was optimistic about it would mean for cities. He imagined that we would use tech to “create e-topias — lean, green cities that work smarter, not harder,” (p.147).
Technologies do enable radical new means of producing and organizing space. Throughout history (long before digital systems) technologies have multiplied the net value that can be generated from land. But the appropriation for multifarious human purposes bit hasn't panned out well, in retrospect. We may or may not be living in cities that work smarter not harder, but we certainly haven’t distributed the benefits of technology equitably or sustainably.
That doesn’t mean we can’t. I’ve been looking for examples of technologies that enable radical new means of producing and organizing inhabited space, and thinking about how the newly available value has been appropriated for multifarious human purposes.
I’ve started many different versions of Note 2, focused on different technologies (elevators, telecommunication, co-working), and each time I got dragged one layer deeper. At some point I stopped looking at technology and just started digging.
Scraping the bedrock of first principles is a useful first step for building up a strong foundation of ideas without biases, preconceptions and assumptions. It’s the first step, I think, in reimagining how we can approach land and technology in the public interest, and in a way that is economically, socially, and environmentally sustainable — which is what I want to get to in later Notes.
Dividing up land into property.
The concept of a parcel is so fundamental that it’s easily confused with land itself. But you can think of a parcel as a legal innovation designed to solve problems of negotiating transactions and managing the current and future value of land.
In a 1967 paper titled “Toward a Theory of Property Rights,” Harold Demsetz — an economist who used anthropology more than numbers — describes the emergence of property rights with an anecdote (its historical accuracy is less important than its explanatory power).
Up until the 18th century, First Nations people in Labrador hunted in open wilderness. There was no reason to own land; each took as much as was needed, game was apparently abundant, and no individual’s hunting negatively affected any other’s. Fur was valuable insofar as it could be used for warmth.
When Europeans arrived, fur became a high-value commodity for trade. The rate of hunting increased significantly, and the depletion of animals was a serious risk.
One option to prevent over-hunting would be to manage the actual hunting patterns (each hunter allowed a ration, for example). Another would be to set a limit of total animals that could be killed, pool the revenue from them, and distribute funds proportionally among hunters. These strategies would demand extremely high transaction costs — the effort of coordinating and managing.
A third option would be to divide the land. Each hunter would have their own parcel, each bearing the risks and rewards of their own land use. Policing would only be necessary to prohibit severe malfeasance, like poaching from neighbors.
In Demsetz view, the emergence of property rights “results from changes in economic values, changes which stem from the development of new technology and the opening of new markets,” (p.350) (he went on to generalize this idea to other kinds of rights, like intellectual property). The European fur trade caused a step-change in the available value. Parcellisation ‘unlocked’ more value than the net transaction cost of defining and maintaining the new system of parcels, but not more than the transaction cost of coordinating a pool of shared value or policing individual hunting patterns.
The anecdote introduces two threads that braid together throughout the history of land. (1) Changes in available value (often emerging from new technology) spark new approaches to land use. (2) The cost of coordinating transactions or mitigating the negative effects of value-capture defines the new approach to land use.
The City as a Growth Machine.
Parcels aren’t all the same. One that’s poor for grazing, but near a river, should be used differently. A bit of land can be farmed, or one person can live on it, or many people can live on it. Each of these uses carries a different kind and amount of value. When someone owns a parcel, they (very rationally) work to maximize its value, and because each is owned, it can be traded or sold. If someone does a good job of maximizing the value, they can sell the land for more than they paid. Ah! A market.
This is, in itself, a way of multiplying the value of land. Each parcel (on a market) has a use value and an exchange value. Land is still useful in and of itself, but it can also be an investment that generates passive income… so long as the market, as a whole, goes up. Everyone who owns land has a vested interest in prices increasing. Growth becomes an imperative that “so permeates the life of localities that cities become organized as enterprises devoted to the increase of aggregate rent levels through the intensification of land use. The city becomes, in effect, a growth machine,” (p.13).
New York City is a beautiful illustration. In the 1600s, the island of Manhattan was purchased for $24. In 1811, the land was divided into 2,028 blocks, to enable “buying, selling and improving of real estate,” (Commissioner’s Proposal for Manhattan Grid, 1811, quoted in Koolhaas p.18). It was a pure grid, each little 1:1 unit ready to play out like a board game.
Early on, land was farmed (yes, farms on Manhattan!) With the introduction of manufacturing and global shipping, value shifted. Parcel owners who could afford to build a factory or an apartment block for workers could passively generate income. This was a very lucrative proposition. In 1845, 5th Ave at 39th went for $3,000, and in 1921, for $932,000. In 1854, 64th and Broadway was sold for $3,000, in 1921, for $388,000 (see the table below). In 1900, the average price per square foot of an apartment was $8 and the average rent was $40 per month.
The population of New York City doubled every decade between 1800 and 1880. By the end of the century, 2.3 million people were crammed into low-rise tenement housing, without plumbing and ventilation. Land use had intensified to the point that it was causing significant negative effects. A growing social movement led to the New York State Tenement House Act of 1901, which required windows, ventilation, indoor bathrooms, and fire safety measures. Those laws brought a slight increase in wellbeing, insofar as the rules could be enforced — which increased the transaction cost of building design review and enforcement of conditions as-built.
The Elevator.
Then a technological innovation “recovers the uncounted planes that have been floating in the thin air.” The elevator, according to Rem Koolhaas, meant that “any given site can now be multiplied ad infinitum to produce the proliferation of floor space called Skyscraper,” (p.82). By enabling land to multiply upward in a third dimension, the elevator not only solved problems of over-crowding, but also shattered the upper threshold of value available from a parcel.
It was a step change on the growth curve. Multiplying land upward became the only logical thing to do with a parcel. As the city bristled up with skyscrapers, the quality of life degraded. Manhattan Borough President McAneny stated in 1913 that there was “a growing sentiment in the community that the time has come when an effort should be made to regulate the height, size and arrangement of buildings... in order to arrest the seriously increasing evil of shutting off light and air... to prevent unwholesome and dangerous congestion... and to reduce the hazards of fire and peril to life,” (p.7). Or, more poetically:
“The elevator is the ultimate self-fulfilling prophecy: the further it goes up, the more undesirable the circumstances it leaves behind,” (p.82).
Zoning was introduced in 1916 to restrict building masses and create setbacks that allowed more light and air (p.61). Regulations marginally limited the negative effect that any building could have on adjacent parcels.
The Co-Working Space
Parcels have been traded laterally and multiplied vertically. The only remaining dimension to exploit is time.
Until 2015, the floor plate of a New York skyscraper was typically locked in a 10+ year lease to a single tenant, like a bank or law firm. A new class of company — one that does want to be on Manhattan, has venture capital dollars to burn, and has no certainty beyond the next 6 months — introduced a step change in value.
Companies like WeWork created a financial innovation: take one of those cheap long leases, carve up the floor plate into little boxes (add a beer tap), rent them out to hundreds of tenants on 1-month leases. The dollar-per-square-foot multiplies by tens or hundreds.
WeWork assumes the risk of finding tenants (minimal, during the hype-y IPO era of massive VC injections) and the transaction cost of managing all those leases (minimal, using digital tools like the building information model shown above). The company’s value-add is primarily an intangible asset (to use Stian Westlake and Jonathan Haskell’s term). The value is the vibe, the flexibility and the simplicity.
It was real estate magic. WeWork reached a valuation of $47 billion, at its peak, and became the second largest commercial office manager in Manhattan. But, just like the overcrowding of tenements and the air-and-light issues that came with too many skyscrapers, too much WeWork generated negative externalities. The company became synonymous with monocultural and gentrified downtowns, tech-bland design, the disappearance of independent retail and dining. Westlake and Haskell put it well:
“The particularly divisive forms of inequality that the intangible economy appears to give rise to in fact threaten the social institutions on which a thriving intangible economy depends… an effective intangible economy seems to exacerbate all of those problems, creating particularly socially charged forms of inequality, threatening social capital, and creating powerful firms with a strong interest in protecting their contested intangible assets,” (p.237).
Back to the parcel…
Each of these technical innovations has fragmented and recombined urban space to mine value from new seams. Each generated negative externalities that weren’t directly resolved (in technical language, the effects weren’t internalized to the property right). The impact was only mitigated, using high transaction-cost regulations, and the pressure of negative effects was relieved as a new technology made additional value available. Essentially, sidestepping the problem.
The COVID-19 pandemic flipped real estate upside down and backward. The WeWork-set has fled from downtowns and started telecommuting (there are so. many. stock. photos). Digital nomadism promises a new kind of technology-enabled means of maximizing land value — connecting to Zoom and Slack as-needed, from some remote mountaintop or beach on Bali. And it’s not hard to imagine what kinds of negative impacts might come with that: social enclavization, the environmental impact of travel and new real estate development, psychological isolation, workplace culture breakdowns, tax auditing, migrant populations of service workers…
COVID-19 saved us from actually dealing with the underlying issues. We never really came up with a new method of dealing with negative effects of millennial tech approaches to land, even one with high transaction cost (you could imagine a social, ecological, economic impact model that gets evaluated by a neighborhood council with the responsibility to deliberate every change in hyper-local land use, for example).
We are about to dive into a new cycle of ratcheting up land value; this time, the peri-urban land that tech-nomads are decamping to. There is a risk of focusing on new technologies, like camper vans with satellite connectivity or eco-villages (neither of which are inherently or necessarily bad). But we have an opportunity to think carefully about the underlying value dynamics; about the premise of property ownership.
We should get back to the original land-value technology: the parcel.
Commons models are an appealing alternative approach to land management, and they’re very on-trend right now. Eric Posner and Glen Weyl’s “radical market” concept moves so far in the other direction – in the direction of tech-enabled free markets, without cooperative democracy – that it almost comes out the other side, looking commons-y. Almost. Or, using a bundle of (very actionable) legal and financial interventions, Alastair Parvin and his colleagues at the Open Systems Lab have shown that housing doesn’t have to be a subsidy- or mortgage-trap. Land can become a platform for generating value.
I’ll spend more time with each of these ideas in future Notes. They deserve it.
… and this newsletter deserves a bit more lightness and joyful discovery. I’ll spend this week experiencing land subjectively. I promise that Note 3 will feature fewer mid-century political theorists and economists, and more images. For now, please share the link, and send me any comments or ideas.