Form follows finance

Leadership Conference Supported by Architecture + Design Scotland and the Academy of Urbanism

4: Form follows finance

Learning from the City Gardens Project: Form follows finance: the role of leadership in shaping place Who builds cities, and why?

In ‘Unsettling Cities’, Professor Doreen Massey et al posit the idea of the city formed by continuous processes of movement and settlement. For them, the city is not fixed. It is in a state of constant flux, shaped by a diverse set of relations, local and global. These relations include the connections between people, trade, finance and culture. In short, they are many and varied. This means that the influence on the city varies. Not all influences on city change therefore are necessarily subject to local control. Similarly, not all the origins of change, nor the forms that change assume, emerge from the local area.

The Lyons review of local government clearly identifies placeshaping as a central purpose of this institution. In his report, Lyons suggests that he sees ‘placeshaping as a way of describing …….. that the ultimate purpose of local government should not be solely to manage a collection of public services that take place within an area, but rather to take responsibility for the wellbeing of an area and the people who live there, and their future’ [Lyons, 2007, p39]. The issue of ‘taking responsibility’ assumes both the influence and means to affect change at a place level. It also assumes some degree of local control over the factors of change. From this point of view, place-making can be understood as a kind of ordering process, where places are seen as an idea amenable to control, (particularly by agencies such as local government) guided by processes of governance and leadership.

For many, leadership is a process ‘in which one individual influences a group of individuals towards a common goal’ [Northouse, 2007]. On this basis, leadership power can be seen in terms of a continuum of leader-follower to follower-leader. Governance on the other hand is the process of making decisions that define expectations, grant power, or verify performance within firms, places, communities and institutions. This can be seen in terms of two broad types: spontaneous or self organising, and purposive or controlled. In this regard, places are complex phenomenon. They are ‘made, and re made through the intersection of largely uncoordinated processes, which originate both locally and non locally’ [Colligne and Gibney, 2010]. These processes may have a range of consequences on the ground. In other words, a process of change decided somewhere else but located in a local place may have more than local effects on that place.

Aberdeen 2nd-3rd June 2011

Page 2 of 10

Contemporary place-making as a relational activity and local control: questioning leadership Some places have sought to position themselves as nodes in the international flow of finance and resources by enhancing their ‘competitiveness’. In some instances, this has sought to capture new forms of finance and investment, new forms of wealth creation. New buildings, new processes, new institutions, of varying scales and scaling, shape the spaces of the city. Although strategies of ‘city distinctiveness’ have often tried to lock these investments into cities in ways that relate in some way to the identity of a place, a recurring criticism is that these strategies say the same thing in every place. Everywhere looks the same. The only distinctiveness that emerges is sameness.

Indeed, management as exercised through local institutions can sometimes be seen negatively.

Development management, as a process, seeks to mediate the intent of a development promoter with the contexts of a place. Negotiating through this process can take time. For some, it is seen as an inhibitor on investment taking form in a place. Paradoxically, some city administrations who seek to manage change proactively at place level are inhibited by power being held centrally or by different agencies of government. Decision making to exert power is sometimes distributed, in what some see as a cluttered landscape of public sector groups. This is reflected in calls for more local powers, city mayors and greater financial responsibility locally to shape change. Within all this, a key issue relates to the financing of change, and the form this finance takes. If there are tensions between government and governance, how much local control can actually be exerted on the form that follows finance? How conditional is investment in place?

Public sector finance in places: the conditions of achieving outcomes?

Professor Duncan McLennan suggests that ‘myriad private actions – often with significant spillover effects within and beyond the localities where they occur – shape places and the outcomes of quality, variety and prosperity associated with them. Some of these outcomes, or the processes that shape them, come to be regarded by the public as problematic and in need of policy action.

Governments, local and national, are required to think why, where and how they will regulate, manage and invest to change place outcomes for the better’. Sometimes these interventions take the form of policies. Sometimes, they take the form of programmes. In all cases, they contain specific measures that must be achieved by all participants to enable the desired outcome to be delivered. For McLennan, better place policy is about either ‘bending’ these policies and programmes to achieve better integrated outcomes at a place level, or building up the institutional capacity of a place to handle a range of decision making matters better. This has implications for the participation of both the public and private sectors in the process of place-making.

Some architects suggest that you can tell a regeneration scheme. They tend to have a particular set of characteristics which reflect a particular set of thinking in time. In London Docklands for instance, you can see the 1980’s regeneration, the 1990’s intervention, and the more recent development almost side by side. Both the form these developments take, and their aesthetics represent, particular sets of values. Regeneration funding, delivered through public sector agencies has often tended to deliver on a series of particular outcomes. The implementation process is often guided by standards and targets. For instance, the English Partnerships regeneration funding that shaped much of the Urban Renaissance agenda was guided by the national standards on design. Housing Association funding through the Housing Association Grant funding in Scotland is conditional on certain targets and performance criteria being met. Much of this financing is conditional on a set of particular factors, some of which are determined centrally. In this context, place can sometimes mean provision of a mechanism of localising a set of national priorities rather than a generator of form in itself. The recent debate about Regional Spatial Strategies, and housing targets in the UK is one example of this process. The issue here is that place-making is an ordering process, but the degree of local influence, even through the agency of the public sector, varies.

There are similar challenges in private finance.

Aberdeen 2nd-3rd June 2011

Page 3 of 10

Private sector finance: commodification, standardisation and control?

In 1992 DEGW identified three main values of buildings: use value (mainly custom designed buildings with greater accent in functionality), exchange value (speculative buildings with greater accent in flexibility of space) and symbolic value (importance is given to the image, sometimes in detriment of the function of the building). Traditionally, property investment has generally focused on the location, identity and quality of individual buildings. It has tended to focus less on the contribution that the building and its occupants can make to the character and economic health of the surrounding neighbourhood. This is in part because the city is for some, ‘a complex commercial environment where buildings are themselves businesses, space is a commodity, and location and image have value.’ This business and commodity focus has influenced the form of much development, from the ubiquitous suburban housing estate, to the standardised form of large retail development, in and out of town, to even a one size typology for the MacDonalds drive through in any location. Throughout the sectors of development, from residential to retail to leisure and commercial, there is clear evidence of both commodification and mass production influencing the cycling of finance and form. These influences in turn have shaped the urban environment in a myriad of ways.

The commodification of space following private sector finance does not always lead to standardised products. Ash Amin has studied the phenomenon of both globalisation and competitiveness in terms of the relations that shape these processes. Participation in the global flow of investment is shaped by responses to architectural form which tend towards the iconic, with high degrees of both ‘use value’ and ‘symbolic value’ as referenced in the DEGW work. Jonathan Glancy, speaking in the Guardian notes that the ‘The mantra of zealous modern architects in Britain, Europe and the United States during the great depression of the 1930s was “form follows function”. They bided their time, nurtured their ideals and came to prominence in the decades following the Second World War. Since then, modern architecture has passed up, down and through many aesthetic – “form follows fashion” – and economic hoops.’ In the last construction boom, some building took particular form, aiming to assist cities to participate in particular stories about competitiveness and globalisation.

However, there is some emerging thinking that value for both the user (business value) and investors (exchange value) are created by the quality and wellbeing of the neighbourhood and the building. This in turn could drive the potential to create new public value in place making understood here as a combination of organisational behaviour and spatial actions over time.

However, in both instances, the form and function of the built products relate to the motivations and desires of the investor, and the frameworks at local level for organising and shaping spaces. This is a function of leadership. Form in this context, can be potentially influenced in a number of ways.

Aberdeen 2nd-3rd June 2011

Page 4 of 10

Real estate and the desire for sustainable urban form Smart Growth is a term used to describe a form of urban development that contains high density housing, mixed land uses, pedestrian friendly spaces and access to public transport. It is a similar idea to the form of development advocated by the Lord Roger’s Urban Renaissance agenda.

For many, it has come to represent an ideal, sustainable form of development, the way places should aim to develop. This development model, and the forms that come with it, contain a series of complexities. The idea of mixed use for example, brings a range of challenges for institutional investors. There are issues of how uses locate within buildings, issues of how uses might change within buildings and affect the long term value of the investment, issues about construction.

Traditional mixed use was a coming together of many small investments in a place, a clustering or agglomeration of finance in a place for a reason. Modern mixed use can often be an investment by a single developer spread across a range of interfaces, residential, retail and so on. The difference lies in who handles the complexity and how this shapes city form.

‘From Wall Street to Your Street’ is an American study which sets out some of the challenges to achieving the concept of Smart Growth. It opens with an important observation: ’despite its imperfections, the overall …real estate finance model works well in attracting Wall Street capital into Main Street homes and businesses’ [Hornburg, 2001, p IV]. Simply, the way the property market that produces the standard products so decried in urban design literature works in financial terms, for investor, developer, and to some degree consumer. Some clarity about what works and why in this context, embedded in some commodification or standardisation of building form enables the flow of finance. Bending or changing how this financial model works is a big challenge, although ‘innovations in finance can open up new urban design possibilities and using a greater range of urban design options can open up new finance alternatives’.

One argument put forward around both standardisation and commodification is that the finance houses, ‘Wall Street’, force standards on developers in a kind of ‘form follows finance’ argument. It is true that lenders prefer ‘standard products with proven performance records. The past becomes an indicator of the desire for future investment. Standard products such as family housing have tended to afford lenders more liquidity because they can sell loans to a large secondary market’, although this has been significantly constrained in recent times. Real estate researchers in the US have described ’19 Standardised Real Estate Products’. These are the products that typically Wall Street is willing to invest in, and have tended to emerge as a consequence of historical accident rather than a deliberate strategy to rationally structure funding. Following the property speculation crash of the 1990’s, financial institutions sought to repackage and resell liquidated properties. There was some debate as to whether properties should be sold individually or bundled into categories and sold in bulk, a wholesale proposition that allowed quick sale. The wholesaling option developed as the model partly because Wall Street has an easy time ‘fitting most real estate products into categories that could be easily bundled and sold to investors’. In other words, the existing commercial real estate landscape was easily categorised, meaning that finance followed form. Wall Street had found development forms that already embodied standardisation. Once Wall Street codified these practices, increasing quantities of cheaper capital could flow to these forms.

Form then began to follow finance. Increasingly, the argument goes, it does so.

Aberdeen 2nd-3rd June 2011

Page 5 of 10

Philanthropy and the city: new finance, old rules?

Philanthropy has always been a characteristic of city making. The nineteenth century philanthropists, motivated to protect morals and ethics in a changing social and economic context, invested in operation of the labour market, in the processes of production, in sanitation, housing and public space. For some, this investment was conditional on compliance with a set of behaviours, temperance and religious duty often figuring prominently. The creation and redistribution of profit by wealth creators is a key element of the place argument, whether this redistribution is a function of philanthropy or a function of the state. Professor Duncan McLennan argues that ‘thinking about place, or community, in investment decisions has a long history in the UK. It is clear, for instance, that the great philanthropist investors in place such as Rowntree, Cadbury and Leverhulme all had an integrated view of the different amenities and services that were required to shape good places and, in turn, thriving communities. They had a more total sense of place, and the linked mix of participation, services, community infrastructure and wider infrastructure that places needed to thrive, than had subsequent state planning and provision agents in the UK’. McLennan argues that much of this subsequent place policy focused too much on the redistribution of services, on the siloing of programmes and initiatives to enable growth as well as mitigate the effects of poverty. The place debate, he argues, has suffered as a result.

In the 21st century, philanthropy is again shaping the nature of places, of cities. The creation of wealth in recent times through property speculation, internet businesses and financial trading has generated a new generation of wealthy who are keen to invest for philanthropic purposes.

The motivations behind this investment vary. For some, philanthropy is the ‘acceptable face of capitalism’. For others, the motivations mediate between a concern for social challenges and personal status. The Scots-born US steel tycoon Andrew Carnegie said: “The man who dies leaving behind him millions of wealth will pass away unwept, unhonoured and unsung”.

In 2010, the Beacon Fellowship’s annual forum highlighted the growing role of the City in both wealth creation and philanthropy in Britain. With an aim to reflect on the ‘culture of giving in the UK through the lens of philanthropy in the City’, it was not surprising that ‘leverage’ emerged as a common theme. Indeed, a key objective of the forum, according to Beacon Chairman Martyn Lewis, was to “highlight individual contribution to philanthropy through leadership, innovation, passion and dedication” - role models providing leverage to attract new donors. Charities who have benefitted from this type of investment detailed leverage strategies to attract other investment to deliver key outcomes in partnership with public, private and other financial stakeholders. In this context, an issue concerning the philanthropic movement is the nature of the opportunity beyond the initial investment: how can leverage be achieved, who does it and how? In this, the issue of leadership, embodied in people is a key issue. For example, the Blackstone Group’s John Studzinski emphasizes the importance of role models in inspiring new philanthropists: “It’s hard to explain to people who don’t give money that charity is not about money; but that it’s about a way of life and a way of looking at your commitment to humanity.” Turning to financial parlance, he referred to philanthropy as a “permanent asset” to explain what inspires him: “When I see the market and asset values go up and down, when I see life changes and friendship changes, the one thing that no-one can take away from me are the things I’ve already given away to others.”

Aberdeen 2nd-3rd June 2011

Page 6 of 10

On the basis of the observations above, it may be that the relation of the individual, and the investment are critical. Personal motivations to use money for public good organises how philanthropic investment flows. Finance follows many things in this context, but always carries a relation back to the individual giver, the philanthropist. This can be in the form of specific conditions, or a cultural framework of managing the finance by the organisation surrounding the giver, exemplified in the professional conduct of Foundations. The relationship of these institutions of financing and local contexts is important to put form on the finance, achieve the desire outcomes and a range of leverage effects. In this regard, leadership can be seen not only in terms of the organiser of the finance, but in terms of a conversation between a range of parties who collectively organise to achieve the best advantages. These leaders will be many, operate in a range of contexts and influence the decision making process in a number of ways. Collaboration becomes essential.

Changing contexts: leading change The recent financial crisis has highlighted both the vulnerability of financial mechanisms to support the development of places, and the failure of a range of institutions to guide sustainable change.

This is giving rise to new sets of thinking about the creation and management of places where ‘we will require a different set of mechanisms and pathways to unlock the investment streams required to re-think places. And if it is still true that ‘form follows finance’, this inevitably implies a different place-making mode. The financial logic underlying the Urban Renaissance has collapsed – so what will replace it? The answer to this question is contested. However, the answer does require some new relations to concepts of place, value, finance, governance and leadership. It also requires, according to Collinge and Gibney‘….a less conventional sense of leadership is required in the context of place-making and shaping, one that acknowledges the importance of spontaneous governance and that embraces the possibility of follower-dominance’. The challenge here is to accept both that not all variables in a place context are amenable to local control, and that a ‘command and control’ or hierarchical view of leadership is not sufficient. In the changing landscape of 21st century society, power is being mobilised across a diverse set of groups in different ways. Partnership working and participation matter, bringing with them new requirements for skills and decision making. In a place context, some argue that these issues are playing out in part in a move from place-making as an ordering process of public policy and programmes, to a process of market making with new forms of finance and development models. For example, ‘rather than being a helpless victim facing the relentless pressure of a financial market that only produces sprawl, [sustainable place-making] stands at apoint where it can be a real market maker’. In this context, the authors see two major fixes that can evolvepractice to the point where capital canbegin to flow more freely, easily, andcheaply into smart growth. The first is the nature of financing, how it might bend to the principles of sustainable placemaking on the one hand, and build more diverse financial models on the other as a process of building institutional capacities. The second is the nature of urban design. Both require leadership in a place context. This requires a new place story.

Aberdeen 2nd-3rd June 2011

Page 7 of 10

McLennan argues that ‘in growth contexts, planning as opposed to programme spending has had key roles in shaping place development. There have been concerns that the planning system – comprising loose visionary spatial development plans, more specific metropolitan land use plans and regional spatial strategies – is not accommodating growth efficiently; and, since the Barker planning review, that approaches to planning and the emergence of proposals to promote both community and national infrastructure strategies have fallen well behind processes of change’. In this context, he identifies ‘big thinking and big action’ as necessary levers of leadership in achieving outcomes in places. He suggests that ‘politicians have to have regard to the current public will, but also need to reflect on the common good. In shaping better places for the future, politicians confront a public will that is increasingly set against immigration and is unwilling to accept the implications of global warming for their choices on how to live. These are issues, given ageing and the rising real cost of fuel, where politics has to lead more, albeit by appealing to self-interest rather than altruism. In shaping our cities and neighbourhoods, politics in Britain has to up its game. Planning needs to be seen as, and become, a process that is about creating better choices for households as their out-of pocket energy costs rise, and not yet another bureaucratic/political constraint. And place policy has to be the means by which Britain still chases the big goals but reduces the wider costs of doing so for all of us. Place policy needs not just new mechanisms, but a new story’.

Aberdeen 2nd-3rd June 2011

Page 8 of 10

References Academy of Urbanism 10x10x10 series, Reading Provocation: http://www.academyofurbanism.org.uk/projects/10x/provocation_reading.pdf Allen, John, Massey, Doreen and Pryke, Michael. Unsettling Cities: Movement/Settlement (Understanding Cities), Routledge, London and Open University, Milton Keynes, 1999 Adams, David, Tiesdell, Steve, Weeks, George. Delivering Better Places, A+DS, RICS, Scottish Government, 2010 http://www.scotland.gov.uk/Resource/Doc/336587/0110158.pdf Beundeman, Joost. [What] form follows [which] finance: provocation paper.Rsearch 00. 2010. http://architecture00.files.wordpress.com/2010/09/00_whatformfollowswhichfinance.pdf Chisolm, Sharon [ed]. ‘Investing in Better Places: International Perspectives’ , The Smith Institute, 2010. http://www.smith-institute.org.uk/file/Investing%20in%20Better%20Places.pdf Collinge, Colin and Gibney, John. Connecting place, policy and leadership, Policy Studies, Vol 31, Number 4, July 2010, pp 379-392 Finance and Philantropy: the acceptable face of capitalism http://www.independent.co.uk/news/business/analysis-and-features/finance-and-philanthropy-theacceptable-face-of-capitalism-415097.html Glancy, Jonathan.The architecture of recession. http://www.guardian.co.uk/artanddesign/2009/mar/06/architecture-rogers-foster-recession Lang, Robert E, LeFurgy,Jennifer and Hornburg, Steven.From Wall Street to Your Street: New Solutions for Smart Growth Finance , Funders Network for Smart Growth and Liveable Communities and Metropolitan Institute at Virginia West, 2005 http://www.fundersnetwork.org/files/learn/From_Wall_Street.pdf Lee, Neil. Distinctiveness and Cities: Beyond ‘Find and Replace’ Economic Development?, The Work Foundation, October 2007 http://www.theworkfoundation.com/research/publications/publicationdetail.aspx?oItemId=50 Markusen, Anne (2004) Targeting occupations in regional and community economic development, Journal of the American Planning Association, Vol 70 No 3 Summer 2004, pp253-268 Markusen, Ann (2006) The artistic dividend: urban artistic specialisation and economic development implications, Urban Studies, Vol 43 No 10 Sep 2006, pp1661-1686 Philantropy UK. http://www.philanthropyuk.org/quarterly/articles/philanthropy-city-breaking-new-grounds Willis, Carol. Form follows Finance. Princeton Academic Press, 1995

Aberdeen 2nd-3rd June 2011

Page 9 of 10

Notes

Aberdeen 2nd-3rd June 2011 Page 10 of 10