This essay originally appeared in ‘City, Civility and Capitalism : A Historical Perspective‘ published by Bokförlaget Stolpe, in collaboration with the Axel and Margaret Ax:son Johnson Foundation, 2020.

In this essay, I want to establish a link between the physical form cities take and the nature of the financial capital that funds them. I intend to show there is a universal concept of ‘city’ across generations and continents, overlain by a host of topological, cultural and technological differences, which produce local variation. My key argument here is that cities have evolved in four ages.

In the late-twentieth century, the interaction between people and land in cities was subverted by global capital and investment to shape the built environment to the needs of a particular group of investors at a particular (and peculiar) point in time. Changing technology, climate change, and transformations in global finance mean another new era for cities is dawning: the fifth, or digital, age. My theory is that this fifth age will look far more like the first age than the fourth age cities we have built in the last fifty years. Once again, it will be proximity to other people that matters, and the scale and quality of human interactions that will determine city success.

There are many drivers of city form, but foremost is the city as human habitat. From earliest times, cities have facilitated the gathering and interaction of human beings for a variety of cultural purposes: religious, social, political, aesthetic, commercial, and so on. Examples like Jericho date from pre-agrarian times (9,000 BCE) but served much the same function then that the contemporary (and temporary) streets of the Burning Man festival in the Nevada desert do today. Human beings gather together to be with other human beings. Across millennia, they have recognised and responded to what a city is. The form and characteristics of pre-industrial cities are remarkably similar across continents: citizens from ancient Rome, old Benin City or a modern-day Brazilian favela would recognise and be able to navigate and understand the rules of each other’s city.

The local characteristics and ‘flavour’ of individual cities arise not from the function they fulfil which, at their heart, is simply to facilitate universal human needs, including a wide variety of interactions. Rather, local character comes from a range of physical attributes (climate, topology, natural materials and so on) interwoven with the attributes of local culture, particularly city governance. This interaction and interweaving of the physical and human gives us an urban form or ‘terroir’ which enables us to instantly distinguish between Amsterdam and Athens, London and Lima, San Francisco and Shanghai. Or at least it did.

I believe the late-twentieth century has been an aberration in the centuries-long history of the world’s cities. A combination of new technology, the emergence of a global culture and, in particular, the nature of worldwide financial capital, have produced a ubiquitous urban form and architecture unlike anything before. This combination has given us concrete, steel and glass buildings in new cities largely indistinguishable between continents, let alone countries. New, edge of town strip malls and suburban housing differ little between Fresno and Frankfurt, Seattle and Shenzhen or Mumbai and Manilla.

But first, in order to unpack the characteristics of the late-twentieth century and these contemporary urban forms, I want to frame my argument inside a construct I call the five ages of city. These are based on the precept that the form and function of cities arise from a combination of three changes in three areas: technology, culture, and capital.

Consider that the first age of cities is pre-industrial. This form prevailed for centuries – even millennia – before the Industrial Revolution. Cities in this age were characterised by building techniques powered by humans and animals, and were reliant on natural materials. They grew up as gathering places on routeways like rivers and tracks. These were travelled by people with ideas, religious practices, and goods and services they wanted to exchange with others. Cities grew not where these routes ended but where they intersected. These are the building blocks of cities: cities exist where people arrive and meet, even if there are no permanent buildings there.

These routeways – a street network – in turn create the sites for buildings and spaces in which specific functions of the city flourish. Then, more streets are created along desire lines between these spaces, and between other towns and cities, and so the network grows. Land use is an in-depth mix, with many different types of people living and working in close proximity. This enables more serendipitous encounters and enter–prises to flourish and grow – so a virtuous growth cycle is created, resources are optimised, and land use intensified. In the first age of the agrarian city, a sustainable place is created which can be, and has been,
repurposed many times in many subsequent ages.

The second age of cities is different and occurs with industrialisation. New cities are located not where people meet, but where they work. They form not at crossroads but around new factories. They are not about proximity to people, but to raw materials. At this time, an urban working class emerges, land uses become separated and people no longer work in their homes or workshops, but in designated spaces such as mines, foundries and factories. Newly wealthy industrialists escape the noise and pollution by building country estates.

Closely linked to the second age industrial city is the third age: the mercantile city, located for their proximity to markets rather than materials. The emerging middle classes of newly industrialised nations become consumers. The third age cities are import, export, and consumption centres for the newly manufactured goods of the second age. Their proximity to markets may be international, in the case of shipping ports, or domestic. New types of land use emerge around storage, wholesale trading, and retailing, again separate from other workplace and manufacturing land uses. Large numbers of newly affluent middle classes increasingly aspire to suburban lifestyles, and the era of mass suburbanisation of housing begins. Cities become extensive, even sprawling, aided first by public transport and then cars. Energy usage soars; inner cities depopulate and hollow out, particularly as old industrial areas become derelict.

The fourth age of city is the age of capital, when financial power, created by industry in the second age and trading in the third age, becomes concentrated in certain (but not all) locations. The financial city is all about proximity to capital. Cities that haven’t managed to attract this capital compete to do so: those that can’t attract it decline.

Cities become centres of local, regional, national and even global banking and financial services. Land uses orientate around the provision of these, and associated services like law, real estate and consultancy. Giant monuments to the gods of banking appear on city skylines. In advanced economies, this age of cities has often been associated with urban renaissance as urban lifestyles and twenty-four hour access to financial markets bring affluent workers back to the city. Most particularly, late-twentieth century cities are characterised by an urban form distinctly different to those of previous centuries.

In this fourth age, the interconnected networks of streets are replaced by roads. I make the distinction between roads and streets to identify a new form of routeway, dominated by vehicles with internal combustion engines, with the aim of getting people from A to B as quickly as possible. These are not streets: good street networks are characterised by high levels of connectedness and a choice of through routes. Moreover, streets, unlike roads, do not necessarily exclude motor vehicles, but they do give pedestrians and cyclists priority – or at least equal weight. Wheeled, commercial, and speeding vehicles have always been a source of irritation and conflict to people on foot, as any contemporary account of ancient Rome or London in the age of horse-drawn vehicles will testify. But it is only in the twentieth century that this traffic became separated from pedestrians and gave motorised vehicles priority.

The worst consequences of this segregation are environments almost impossible to traverse on foot; roads that create barriers to human activity rather than facilitating it. A typical multi-lane ring road around a city will create a boundary and limit movement across it just as surely as any medieval city wall. Instead of gates, people are shepherded through a few crossing places. While the Berlin Wall may have fallen, other cities remain divided, and growth constrained by urban motorways, elevated freeways and concrete collars. The environmental, health, and wellbeing consequences of this are dire. By creating an urbanism that can only be negotiated by car, fuel use rockets, exercise levels plummet, and isolation and loneliness increase.

In the fourth age of cities, segregated and separate uses are further reinforced by planning law. Across advanced economies, city planning is characterised by use classes or zoning. These have little to do with spatial planning or local character – as evidenced by the fact they are virtually the same across cities on different continents, even in places with different geographies and economies. On closer examination, these use classes reflect global investment asset classes.

Real estate fund managers across advanced economies allocate investment capital into classes as well as locations in order to manage portfolio risk. The main ones are offices, retail (divided into high street shops, and out-of-town shopping centres), industrial, hospitality, and residential. Planning use classes in global-invested cities reflect this regardless of how their planning systems were first conceived; these systems have been subverted by the demands of capital, and reflect its allocation, rather than the needs of local people and businesses.But this is being disrupted by the changing needs of occupiers: namely, how they want to use their buildings and how they relate to the city. It is being disrupted by new technologies (the impact of internet shopping on high street retailers is just one example). And cities are about to be disrupted further by the changing characteristics of global capital and the changing needs of investors.

In the second part of my essay, I want to look at twenty-first century change. Globally, most big cities are an amalgam of all four ages of city. In Europe, specifically in the UK, the second age of cities began in the eighteenth century, the third in the nineteenth and the fourth in the twentieth century. In other countries the process started later and has progressively become more rapid. In some recently industrialised countries, like China, many new or rapidly expanding cities have experienced second, third and fourth ages almost simultaneously within the last thirty years. It is as if the history of global cities has suddenly speeded up so that a very high proportion of global urbanisation has occurred within just a few decades at the end of the twentieth and the beginning of the twenty-first century.

There is, however, a rising risk of obsolescence. Whilst there is nothing inherently wrong with rapid urbanisation, problems arise if it is the ‘wrong’ type of urbanisation, suited only for a particular period in history. Obsolescence will rapidly become a problem if real estate is ill-suited to changing technology, climate, and social and economic conditions.

This is significant because not only is the early twenty-first century a time of great change and disruption, but the late twentieth century, in which a large amount of global urbanisation took place, looks increasingly like a highly exceptional period in global economics too. This means that many new cities were created at a very particular and peculiar time in the history of real estate.

Most people who work in the real estate industry today do not realise they have grown up in, and most importantly been trained in, a period of time when world finance and investment was unlike any other. We may just have experienced the final throes of that financial era. What we all think of as normal behaviour in finance and investment may be anything but in the near future.

The chart below shows Bank of England interest rates going back to 1694, when the bank was founded. Despite relating to England, it illustrates three phases in the financial history of most advanced economies. The first thing to note is that the initial phase lasted a long time. For two and a half centuries, interest rates averaged four per cent, fluctuating betweeen two and six per cent according to economic conditions, often dictated as much by the state of the harvest as global trade, wars and political events.

Evidence from literary and other sources suggests that investors during this time enjoyed similar returns from a whole host of different ‘speculations’ ranging from nascent stock exchanges and insurance, shipping, trading ventures, property letting, early forms of bank lending, agricultural returns and so on. The finance and creation of new towns, cities and neighbourhoods, including the creation of London’s great estates like the Grosvenor, Great Portland, Howard de Walden and Cadogan (which cover a large part of the most valuable land in central London) as well as the model villages of Bourneville and Port Sunlight, for example, would have taken place under these conditions. In the world of real estate, the expectations would have been for stable long-term income returns, enhanced by ongoing estate management, rather than significant capital growth. Capital returns would come from land speculation and building rather than standing investments.

All this changed with the second phase in the long running interest rate story: the great inflation after the Second World War. Growing demand from more affluent populations for goods and services was not met by global supply, so prices rose rapidly – and with them interest rates. By 1979, Bank of England base rates reached 17 per cent while inflation was over 20 per cent. The largest generation the world had ever seen, the post-war baby boomers, grew up thinking that double digit investment returns were normal, expecting high inflation to rapidly deflate debt while simultaneously adding to the value of assets. It was a logical response to borrow heavily and acquire real estate. This era of mortgage borrowing facilitated a massive transfer of assets from landlords to erstwhile tenants. New housing catered for the needs of this generation, fuelling the growth of single-use housing estates in the automobile-centred cities of the fourth age.

At the same time, new investing institutions like pension funds and insurance companies were taking premiums from this generation. Awash with funds, the name of the game was to grow capital values in a variety of assets, including real estate. Income returns mattered much less in an investing world where large sums had to be deployed in big ticket acquisitions and developments. Assets had to be managed and risk understood, but the best covenants were considerd to be long leases taken by big commercial tenants in single use buildings that could be managed easily and analysed in relatively simple portfolio structures.

Little wonder then that fourth age cities started to form as they did. Clean, unencumbered land holdings and large lot sizes were the order of the day. If you wanted investment in your city, this is the planning regime you provided. If you were a builder or developer, you employed architects who could design to this brief. Big block modernism suited this very well; architectural schools catered eagerly for these clients and the fortunes of ‘starchitects’ rose. Put another way, it is difficult to see how any other form of urbanism and architecture could have suited the nature of late-twentieth century capital so well.

Public infrastructure provision, particularly highways, opened up land for development and investment, and continues to do so. Transport, energy systems, schools, and hospitals not only facilitate such development but are often also concurrent with, or even reliant, on it.

The result was that investing institutions got what they needed, but this model hasn’t always left ordinary people – the city inhabitants – with neighbourhoods they love, nor has it always created the most environmentally-sustainable places.

Nevertheless, this style of investment and building was exported from the West to new cities in emerging economies, particularly Asia. Vast new megacities have been built using big block, single use buildings on large grids of roads.

But the forces governing city forms could change again. Not only is there now increasing pressure from communities and environmentalists to seek alternative ways of building and managing places, but the nature of global money and investment has changed once more, and this could make for some very different built environments in the future. And there is a third phase on the long-run interest rate chart: falling interest rates. While they are currently exceptionally low due to quantitative easing, they seem on course to settle much nearer the pre-1950 four per cent average than the double digit norms of the late-twentieth century. Japan has been experiencing this for the last twenty years, but most other advanced economies are only just getting used to this phase which follows the financial crisis of 2008.

I am not the only person to point out that the economic conditions of the late-twentieth century were exceptional, and that the era of high inflation and high interest rates is over. Baby boomers are drawing their pensions, so the demand for fixed income assets has soared and is unlikely to abate anytime soon. Little surprise then that global interest rates have fallen and are likely to remain low. Meanwhile, inflation has also abated with rising global supply. Real estate assets seem to have reached a high plateau in capital value terms, as the yield shift is complete. They are now under pressure to create income streams, so institutions can pay pensions, rather than just grow in value.

If we have entered a world where interest rates are low and stable there can be no capital growth without rental growth. All this alters investor motives and puts the emphasis very firmly on creating long-term income streams. The focus on building has to shift to what people want – and will pay rent for rather than what investors need.

Today, rising energy costs and maintenance are eroding returns. There has also been the realisation that other forms of infrastructure, such as biodiverse city ecosystems, or sustainable urban drainage and water supply, for example, will become more important to the success of real estate.

Resilient buildings set within sustainable contexts – walkable neighbourhoods with wildlife habitat, for example – and with lower maintenance costs, will yield better and more resilient long-term net income. But resilience isn’t just about the built environment. In the twenty-first century, landlords, owners and investors increasingly want places that can sustain communities: these in turn are more likely to provide a sustainable income. Investors who pay attention to the needs of people who live and work in buildings could benefit from high occupancy rates and rental growth.

The success of real estate, therefore, depends on its interaction with investment in a variety of twenty-first century ‘must-haves.’ Investors will need to understand, and fund, environmentally sustainable infrastructure. They will need to favour flexible buildings, capable of accomodating a variety and mixture of uses over time. Examples of these can be found in many of the most popular city neighbourhoods across the world, often in heritage buildings like big Victorian warehouses or period townhouses, which are capable of being adapted to the changing needs of occupiers, from coffee shops and art studios, to co-working and co-living spaces. Brooklyn in New York City, Shoreditch in London, Fitzroy in Melbourne, Colaba in Mumbai, the Mission District in San Francisco, and Xin Tian Di in Shanghai all contain multiple examples of such buildings. Investors will increasing look for neighbourhoods with optimal street networks which provide a choice of interesting routes for a variety of transport modes and help to improve the productivity of places. Buildings with accessible, visually engaging frontages, appealling to passers-by, and fine-grain, multi-use managed spaces will become more popular among different types of investors. Evidence is mounting that these spaces suffer less obsolescence, enjoy higher rental growth and produce stronger and more diversified income streams than single-use buildings reliant on one type of specialised tenant. The changing needs of investors and the nature of modern capital has the power to change cities: the popular appeal of places will directly impact financial returns.

The investing world is already adapting and altering its strategies. More far-sighted investment managers are looking at how they can build, own, and manage the sort of multi-use places that people want to live, work, create, play and stay in, not to mention shop and visit. In cases ranging from small-scale such as café-bar Bathtub Gin in Manhattan, and L Manze’s pie and mash shop in east London, which transforms into The Jellied Eel cocktail bar at nightfall, to whole city blocks of mixed and changing use like Student Hotel in Florence, which includes a hotel, student residences and a co-working space, investors are looking at buildings that can switch between uses at different times of the day or week.

Not only does new technology aid in managing this complexity, but new technologies are also themselves increasing and creating complexity.

Most of us are aware, for example, that the internet has disrupted conventional retailing and changed the way we shop. It will continue to do so as new e-tailers seek real-world premises at the same time as conventional retailers struggle with the real estate implications of expanding their online options.

In the office sector, wireless technology is changing the way we work, when we work, and where. A skilled, footloose and global new millennial generation are not attracted by big corporations in monumental buildings, but are seeking out urban environments and a freeer lifestyle. It is not the name at the top of a tower that enables employers to compete for human capital, but the city or neighbourhood in which they are located.

In the real estate investment world, this leads to demand for different and new types of property. Asset classes such as student housing, hotels, care homes, forestry, small industrial units and small, ‘last mile’ distribution warehouses, previously considered to be fringe or ‘alternative’, now feature as trophies in portfolios.

Finally, we come to the fifth age of cites. As investors pay more attention to occupiers’ wants and needs, the interests of both will become increasingly aligned. If there can be no capital growth without rental growth, investors should look to increasing the longevity of the communities they provide accomodation for. This means creating cities that look much more like the first age of cities than the fourth age.

In a world where many things happen online and digitally, where work and social life can be dictated by algorithims, people increasingly value authentic experiences only available in real places. Once again, the quality of human interaction and the serendipitous meetings and juxtapositions that happen in cities have value. Street networks and the cultural life of the city matters once more.

And what is the place of climate change within this debate? The real estate industry has been talking about ‘place making’ for some time now, but the revolution required to create more authentic, human-centred cities goes way beyond this. Much has been discussed and documented about the bottom-line benefits of green infrastructure, for example. But planting trees, building rain gardens or using porous paving are not enough in themselves to create sustainable buildings. To be truly tenable, the dawning fifth age of cities must counteract obsolescence.

True sustainability cannot be achieved by buildings only useful for a few decades. Buildings need to be reusable, they need to add value to their environment, and be pleasant and enjoyable to occupy, as well as being flexible enough to adapt and respond to changing social, economic and technological conditions. To achieve this, green infrastructure and the industry response to this need cannot be separated from the considerable disruption to other areas of real estate we are seeing in the twenty-first century, characterised by fundamental changes in the nature of capitalism and money. The need for long-term income streams has completely changed investment criteria and aims.

There is a growing global realisation that it is not enough for real estate to tick boxes for sustainability. Land and property is always set within a bigger and richer context. People are increasingly expecting to encounter an experience of place, rather than a collection of buildings – however green they may be, wherever they are. If any individual building cannot add this, its appeal and price will lower. To achieve a greater value, investors in real estate need to enhance the experience of developments, and be capable of adapting to the changing needs and conditions the future will throw at them. If it is unable to do this, it is incapable of being sustainable.

What we have learned from the twenty-first century to date is that we need to focus more and understand better integrated outcomes of, and interventions into, places that are not prescriptive, and which encourage innovation and holistic solutions.

In this respect, the design of regulation, funding, business, management, and land ownership are as important as the design of the actual building. Few, if any, of the significant issues that face real estate in the twenty-first century can be tackled from a single standpoint. This applies nowhere more powerfully than to the changing function and use of cities. If we acknowledge and embrace the coming fifth age together, we will have the power to help address problems of climate change, social pressures and economic vulnerability. Solutions to the twenty-first century’s challenging problems must be global, multi-sector, inclusive and multi-disciplinary.