One of the most recurrent complains in western countries is how rents are skyrocketing. And raising they are. The question is, who is at fault? Who is pushing thousands to the brink of homelessness? AirBnB of course!
This narrative fits, and so it keeps reverberating. We adore our villains, and we love to simplify the complex. The clearer cut the enemy is, the bigger the resistance against them. That’s precisely what’s happening to AirBnB at a global scale. But I have issues with such an explanation. I don’t believe it.
AirBnB is indeed a factor that increases rents, but it’s, if anything, one of the consequences of a much larger trend. Simplification is excellent for children, but not for adults.
Megacities
By focusing on the AirBnB effect, we’re obviating a much more devastating trend, the rise of the megacities. According to the United Nations Department of Economic and Social Affairs, Megacities are urban agglomerations that surpass 10 million inhabitants.
As of 2017 there where 47 Megacities in the world with 55% of the global population living in cities. By 2050, the UN expects this to grow to 68% with China, India, and Nigeria accounting for 35 % of the growth.
The rise of such urban agglomerations is increasing the pressure around specific dimensions, including affordable housing. The consequences of unplanned fast-growing urban areas are devastating. The faster people flee to the city, the harder it is to accommodate them with the current housing offer. This imbalance between supply and demand diminishes affordable housing and the city’s density. This pushes people to the sprawl and fosters the creation of slums. Within these slums, homelessness, crime and diseases run amok. In turn, the lack of urban planning puts tremendous pressure on the already precarious municipal transport system.
Nonetheless, a rapid growth of urban dwellers is precisely what we’re experiencing. And the worst is, it’s going to get a lot worse, especially in developing countries.
The question is, why is the population accumulating around the Megacity? There are several causes for it, and AirBnB is not one of them. If anything, AirBnB is augmenting pre-existing trends. The significant growth factor in most cities, though, is a drastic increase in rural to urban migration ratios. The effect has been more pronounced in rural-heavy regions like Asia and India, which hold 90% of the world’s rural population. That said, the effect is felt everywhere.
This migration is coupled with the natural growth of the population in the city. Most developed countries are experiencing slow growth due to aging populations. However, this deceleration isn’t the case in less developed countries.
One final factor that’s accelerating the rise of the Megacity is migration due to climate change. It’s getting harder to make a living in certain regions due to capricious weather patterns. To survive, people are emigrating to the perceived security of the city.
The sprawl and the AirBnB effect
The convergence of all these factors is fuelling the expansion of most world cities. An expansion that’s speeding up dramatically. Current studies estimate that when “the population of a city doubles, the urban extent triples.“
“During the 24-year period between 1990 and 2014, the total population of the universe of cities grew by 53%—from 1.6 billion to 2.5 billion—while the area occupied by these cities grew by 105%—from 275,000 km2 to 570,000 km2. There is no doubt that cities are now expanding at a faster rate than their population growth rate. At current rates, when the population of a city doubles, its urban extent triples. Interestingly enough, the growth rates of both the population and area of cities were found to be statistically independent of city size.”
The New Urban Peripheries, 1990-2014: Selected Findings from a Global Sample of Cities. Shlomo Angel, June 2018.
These numbers unearth a truth few people want to acknowledge. The only way to fit the newcomers is to either increase the built-up area density (people living within a particular area) or expand the urban area.
There are three ways to achieve higher urban density. Increase the built-up saturation (how much of the urban area is actually built-up), reduce the size of the home unit (think Japan) or the construction of higher buildings. This last option requires a tore-down of the previous structure, rebuilding it with increased hight. All this while retaining the same surface area.
The reality though is that most of these options aren’t feasible. Most cities have high levels of built-up saturation. Increasing them would mean removing parks and green areas. This is not an option in most places.
Splitting the family unit, reducing the floor per person is one option. The practice, though, is unacceptable in most developed cities. If you’re, culturally, used to a specific space, it will be hard to convince you to pay the same for housing half the size.
The last choice, rebuilding with more hight is also quite impractical in many cities. Not only it would require to evict the building, but it would probably need new land-use regulations. Besides, it’s a long and slow process, one that can’t cope with rapid growth.
“Indeed, community resistance to densification, or the inability to reform planning regulations that prohibit it, may limit densification and accelerate expansion. Expansion is typically the preferred course for those concerned with overcrowding or with land supply bottlenecks that may lead to unaffordable housing.”
The New Urban Peripheries, 1990-2014: Selected Findings from a Global Sample of Cities. Shlomo Angel, June 2018.
The inability to increase density and the need to fit a larger population is having the opposite effect. As housing becomes less affordable in the city center, families move to the outskirts, expanding the urban area and developing the sprawl.
How does AirBnB fit in this picture? The rise of short-term rentals at scale is accelerating the move to the sprawl. Let’s remember that the trend is towards lower urban density. AirBnB is increasing the speed at which this is happening by removing long-term rental and turning them into short-term ones.
“Short-term rentals have a long history in many countries, often unregulated and in the form of informal exchanges. Companies like HomeAway and Airbnb have paved the way for the short-term rental market to move online, and have given homeowners an easier entry into the business of hosting.”
Why Short-Term Rentals Are Mainstream and Booming. Skift. Jul. 2018.
The bottom line: Is AirBnB evil? Not really. They’re just adding speed to a natural and known process. That said, the extra acceleration is turning an inherent problem into a dramatic one. This is the reason why an increasing number of city councils are trying to limit the number of short-rentals in the city.
I’ve said it many times, speed, when coupled with increased acceleration, like what the new generation of startups is providing, is becoming lethal for our social fabric. Our brain has a limit as to how many stimuli it can take. As much as it pains many, human beings aren’t all-powerful (yet).
Why it matters: The speed of de-densification is hitting the limits at which most families can scale their income. Such an effect is artificially pushing the population to the sprawl at an even faster rate than before. This leaves the city center powered by both, leisure and business tourism. As tourism is highly sensitive to economic downturns, I wonder what will happen to such short-term rentals when we hit the next crisis. A crisis that many are predicting for 2019 or 2020.
New city models
Bigger sprawls entail many problems. The most obvious one is that of transportation. By definition, the sprawl is less densely populated than the central districts. The lack of density makes it hard to justify the extension of public transportation so far from the center. Hence, most people will choose to ride to their job in their car. The result is an increase in the commuting time and widespread traffic congestion.
Beyond the obvious environmental impact and wasteful time consumption, long commutes have essential repercussions for talent retention.
“Urban and metropolitan labor markets thrive when all workers have access to all jobs because that ensures that firms can hire the best workers and workers can find the best jobs. Labor markets are integrated when all locations are connected by inter-city arterial roads that allow workers to reach their workplaces all over the urban area rapidly and efficiently. The presence of an arterial road, preferably one that carries public transport, within walking distance of a residence greatly facilitates access to jobs throughout the urban area.”
The New Urban Peripheries, 1990-2014: Selected Findings from a Global Sample of Cities. Shlomo Angel, June 2018.
These commuting problems are changing the physiognomy of many cities too. The traditional city model entails a Central Business District (CBD) and people commuting to and from it. This structure is known as the Monocentric City model, and it’s been a reality for most cities until now.
However, as we accelerate the rise of megacities, the city model is beginning to shift. The Central Business District is losing its job attractor capacity, and new business areas are popping around the city. This loosening of the CBD gives rise to the Constrained Dispersal City model.
It might be time to rethink the role of co-working and co-living spaces. The increasing use of co-working spaces by corporations is a sure sign of change. Co-working is already dispersing the location of business centers. Will Co-living marry both, affordable housing and jobs, all within an acceptable commuting range?
Be smart: The surge of the megacity will most definitely accelerate the changes around the future of work. Remote work will drastically increase, and so will co-living and co-working spaces on the outskirts. The combination of work and living will alleviate the need for long commutes, reducing traffic congestion and increasing talent retention.
Are startups really helping?
Despite the rise of startups in the urban vertical, it’s still early to say they have a real impact. We’ve gone from developing entertainment apps to try to tackle those pains we, urbanites, suffer every day. And while I’ve been vocal about having startups tackle hard-problems, the approach most startups are taking towards urban-related issues is, to be gentle, entirely misguided.
Beyond the fact that most startups pee all over the existing regulations, it’s their engineering approach to problem-solving that’s misplaced.
“The tech industry also thrives by working in ways that can be incompatible with public-sector city building. It’s hard to “move fast and break things” in government, and public funds don’t allow for the failure rates that venture capital does. New tech products are often targeted to early adopters, and they spread to the rest of us later. But you can’t do that with innovations in public service; if the tech savvy get the nicer bus routes or the new Wi-Fi kiosks first, that raises equity issues for the rest of the city.”
Google’s Founders Wanted to Shape a City. Toronto Is Their Chance. The New York Times. Oct. 2017.
A city is a complex dynamic system. Like all dynamic systems, it strives for an equilibrium point, and it’s inherently inefficient. When we apply simplistic optimization logic to a city, we do fix a variable, but we unbalance other subsystems. Gentrification, marginalization or income inequality are real things. While we ignore these effects online, we can’t disdain them in a city.
Does this mean that their technology isn’t solving real issues in cities? Not at all. We not only need to apply technology but much more than we’re doing now. Then, should we blindly follow the regulations even when utilizing cutting-edge technology? No, we should push the rules and bend them whenever necessary.
Yes But: The way we do both needs to change fundamentally. Simplistic problem optimization doesn’t work when you deploy it at a city level. Startups need to start thinking in systemic ways and aid with urban planning challenges.
Take the Uber-like wars in most cities. Did Uber solve a real problem? Not so far. Issues between supply and demand of cabs have existed for decades. The reason why cities started to limiting taxi licenses was precisely because of imbalances between both. Too many taxis on the roads and most will be empty, with occupancy rates below 30%.
Nevertheless, if you limit the number too much, then the waiting time for passengers is unbearable. The optimum solution is to strive for a fair balance, an equilibrium point. The problem is hard because, as the population and the urban area grows, the equilibrium and deployment patterns shift.
Here is where technology can make a real impact. One of the endemic problems in urban planning is the lack of data. Without real-time and historical data series, it’s hard to predict how the city is behaving.
“San Francisco notoriously never got this balance right (by the dawn of the Uber era, it had about 1,700 licensed cabs). “It is no accident that Uber and Lyft began in San Francisco,” Mr. Schaller said. “It wasn’t just because it was Silicon Valley. It was because they had seriously too few taxicabs.””
What’s the Right Number of Taxis (or Uber or Lyft Cars) in a City? The New York Times. Aug. 2018.
Companies like Uber, Lyft, Google or AirBnB posses such information troves. If correctly exploited, Uber or Lyft’s systems can provide invaluable data to predict when, where and how many cars are needed in the city.
Go deeper: The question though is, how aligned are these companies’ growth objectives with the cities they operate in. Uber’s business model demands a maximization of trips. What happens when supply saturates an area? Will they stop at that or will they try to profit with other schemes that go against the equilibrium point of the city system?
Startups like Uber are already putting their technology in the service of urban planners. So is Alphabet through their Sidewalk Labs spinoff and their first product Replica.
One of the companies missing this trend is, surprisingly, AirBnB. While their design lab (Samara) did some first experiments with communal housing in Japan, it seems they’ve been discontinued. If we want to criticize the company for something, this would be it. It’s shocking that, after proving they’re a catalyzer for the destruction of long-term rent in many cities, they aren’t putting their data to the service of the cities.
Technology companies though, still struggle with their involvement in public matters. Alphabet’s Sidewalk Labs keeps getting into trouble with their Sidewalk Toronto project. Their sporadic arrogance, privacy issues and lack of stakeholder cohesion act as a significant roadblock for the development of the plan.
“[…] According to Bianca Wylie, co-founder of Tech Reset Canada and one of the lead organizers of the opposition to Sidewalk Toronto. “The process Sidewalk Toronto has started has been so anti-democratic that the only way to participate is to be proactive in framing the topic,” Wylie continued.”
Google’s “Smart City of surveillance” faces new resistance in Toronto. The Intercept. Nov. 2018.
Where are the opportunities?
Technology is proving instrumental in the rise of megacities. Problems with technology though, arose from the lack of understanding of how the irrational city model works. After all, cities are powered-by-humans, and we are the epitome of irrational.
To achieve a better understanding, we need more data and better models. This is a space several companies are exploring, but it’s still a minuscule niche. So far, the best crop of startups that I’ve seen working in this area is coming out of the Urban-X accelerator. Urban-x is a joint venture between the Urban US fund and Mini by BMW. I have to give these guys kudos because some of their portfolio companies are very impressive.
With better IoT deployments, we’ll be able to create real-time models of how the city behaves. Empowered by these models, other startups will be able to solve the myriad challenges that befall megacities.
Lastly, it’s worth noting that the most significant challenges won’t happen in developed countries. As I stated at the beginning of the article, the fastest growing cities will be located in Africa, India, and China. Their trials and tribulations are already major, but so are the opportunities.
“Focusing on the new urban peripheries of the future will mean focusing more and more on the peripheries of cities in less developed countries. And the challenge here, it should be noted, is quite different: Preparing new urban peripheries for occupation will often take place in cities with weaker rule of law, weaker adherence to land use and land subdivision regulations, smaller municipal infrastructure budgets and reduced access to infrastructure finance, higher levels of corruption and greater control of private developers over the planning process.”
The New Urban Peripheries, 1990-2014: Selected Findings from a Global Sample of Cities. Shlomo Angel, June 2018.
The next generation of startups will come out of those that help tame in the megacity beast in developing countries. No wonder Chinese startups are very well positioned to take the lead here.
The big picture: It’s also worth reflecting what extremes will developed countries startups go to exploit the opportunity. Will they partner up with local startups, elevating the regional inequality or will they perpetuate the plutocracy and drain the local resources?
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