Property and Thomas Piketty: Casting the Lens of Thomas Piketty’s Capital

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Property and Thomas Piketty: Casting the Lens of Thomas Piketty’s Capital in the Twenty-first Century on Inequality in the Urban Built Environment *Dr.PATRICE DERRINGTON 1 1Graduate School of Architecture, Planning and Preservation, Columbia University in the City of New York, USA E mail: pad2160@columbia.edu A B S T R A C T Currently, there exists a disturbing urban problem exemplified by the excessive luxury apartments and glamorous office towers being built in cities around the world in the face of the increasing unaffordability of housing and low-cost work, trade or craft space. Seeking to address this complex problem, this paper proposes a theoretical framework that uniquely addresses both the capitalist economic structure that drives the development process and the Marxist-based urban theory by which the socio-economic outcomes are currently evaluated. This framework takes as its meta-theory, the approach of Thomas Piketty in his recent treatise, “Capital in the Twenty-First Century”, since he deftly employs the Marxist dialectic of labor/capital while investigating the persistent inequality in the history of capitalism by interrogating that system itself. This bifurcated framework of economic analysis affords a new format for examining real estate returns, how they are represented in the market place, who benefits from them, and how resultant inequalities might be avoided in urban development.

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Property and Thomas Piketty: Casting the Lens of Thomas Piketty’s Capital in the Twenty-first Century on Inequality in the Urban Built Environment *Dr.PATRICE DERRINGTON 1 1Graduate School of Architecture, Planning and Preservation, Columbia University in the City of New York, USA E mail: pad2160@columbia.edu A B S T R A C T Currently, there exists a disturbing urban problem exemplified by the excessive luxury apartments and glamorous office towers being built in cities around the world in the face of the increasing unaffordability of housing and low-cost work, trade or craft space. Seeking to address this complex problem, this paper proposes a theoretical framework that uniquely addresses both the capitalist economic structure that drives the development process and the Marxist-based urban theory by which the socio-economic outcomes are currently evaluated. This framework takes as its meta-theory, the approach of Thomas Piketty in his recent treatise, “Capital in the Twenty-First Century”, since he deftly employs the Marxist dialectic of labor/capital while investigating the persistent inequality in the history of capitalism by interrogating that system itself. This bifurcated framework of economic analysis affords a new format for examining real estate returns, how they are represented in the market place, who benefits from them, and how resultant inequalities might be avoided in urban development. CONTEMPORARY URBAN AFFAIRS (2018) 2(2), 90-105. https://doi.org/10.25034/ijcua.2018.4674 www.ijcua.com Copyright © 2017 Contemporary Urban Affairs. All rights reserved. 1. Inequalities in the Urban Built Environment For the delivery of the urban built environment, the business model derived from neoclassical economics has provided a working framework that harnesses the productivity potential of scale and of skill specialization through the process of private real estate development. More specifically, within this framework, the growing predominance of the production of buildings in most metropolises globally is being performed as a speculative economic activity: that is, by definition, when the developer provides the necessary resources – funding, expertise, and management – to create built forms for utilization by other urban participants in return for rental or purchase payments. This overtly transactional or commercial purpose of the development process, being in contrast to that historic venture of building for one’s own use either for production or consumption, is that which substantially drives the economic activity by which most of the urban environment is created in today’s rapidly growing cities, and is accepted as a normative component of the evolution of towns and cities. While the rapid urbanization currently underway and facilitated by this private economic mechanism is often acclaimed as progress, there is also extensive evidence that better living conditions are not being provided equitably for all urbanites: rather, there has evolved a striking contrast in the surfeit of excessively-priced residences, workplaces and recreational opportunities against the severe lack of affordable housing for the average worker, the displacement of lower income residents and artistic entities requiring moderately priced workspace, the removal of public open space and amenities, and the rising community dissatisfaction with these consequences. Perhaps this pervasively used model of delivering the built environment needs to be re-examined? 2. Urban Real Estate Development Literature Review As an area of scholarly investigation, the intrinsic dynamic of the real estate development process – in its comprehensive inclusion of society’s land use, physical form of the “improvements”, the financial and economic drivers, the community impact, and the symbiotic relationships between these disparate aspects – is remarkably neglected, with most related research occurring within the effectively quarantined, methodological frameworks of various disciplines focused on urban theory, the design form, economic geographies, urban policy, housing economics, or the very specific financial objectives of real estate investment. The dominant body of current scholarship in the area of real estate deals with the urban development activity as a mechanistic, rational process by which the “utility-maximizers” undertake the production of the asset in response to the supply/demand dynamics formulated by neo-classical economics and, in the detailed analysis of the outcome, as an investment asset. It specifically applies the tools of property financial analysis as derived from the Capital Asset Pricing Model (CAPM) utilized by corporate finance. Excellent theoretical evolution within this paradigm has provided the (almost) globally adopted form of investment return analysis that supports the transactions related to the $27 trillion of real estate investment properties worldwide, and also delivered the core textbooks utilized within real estate educational programs of the highest levels (for example, Brueggeman and Fisher 1977; Geltner and Miller 2000). In earlier days of scholarship, specifically focusing on the development process within this conceptual framework, Kaiser and Weiss (1970) had initially proposed that the fundamental laws of supply and demand drove the development process and developers were seen to make their most important decisions based on perceiving and interpreting market signals with the actual development process, once begun, proceeding in a relatively self-organized manner. By this process real estate development was seen to achieve a suitable built form bringing with it the accepted and underwritten status of an investment asset. However, after a couple of decades, this analytical approach was beginning to be seen as flawed by Guy and Henneberry (2000) for its inability to consider, include, or analyze any set of coherent socio-spatial imperatives arising as a result of that Capitalist-system-based process. Attention to the topic, however, from the field of urban theory with its ontological inclusion of the social dimension has proceeded haltingly, perhaps as it wrestled with the pervasive neo-classical framework just described, and how such an analytical methodology might be incorporated, or should be, within its own complex theoretical framework, even as its conceptual structure transformed substantially over the past few decades.

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