Trends in Global Urban Development

Introduction

As the global population boomed over the last century, cities boomed to accommodate it. Today more than four billion people – more than half the global population – live in urban areas. The trend is accelerating. We expect that by 2050 the global urban population will more than double, and seven out of ten people worldwide will live in cities.

In the coming decades, then, cities — already vital — will gain increasingly more influence over global economic and societal dynamics. But importantly, as we’ll examine here, it’s not that urbanization per se stimulates and sustains positive growth, it’s the form that urbanization takes. The speed and scale of urban growth creates major challenges, accelerating demand for housing, jobs, transportation, water, power, and other infrastructure and services. Additionally, this growth amplifies our vulnerability to outside forces such as disasters and disease, as well as the scope of their effects.

But cities don’t bloom beyond control: They can be shaped. Once a city is built, however, its physical form and land-use patterns can be locked in for generations, which means important policy decisions have lasting implications. We must take care to build “cities that work” – inclusive, safe, resilient, and sustainable – which requires intensive policy coordination and intelligent investment decisions. National and local governments, therefore, have an important and urgent role to play — as do private industry and development interests — to shape the future, optimize the benefits of urbanization, minimize the risks, and help create opportunities for all.1

Background

For most of human history, the world population mostly lived in rural areas and in small urban settlements, and growth in global urban population occurred slowly. In 1800, when the world population was around one billion, three percent of the total population lived in urban areas and only one city—Beijing—had a population greater than one million. The global share of urban population increased to thirteen percent in 1900, and that rate of growth accelerated in the 20th century: From 29 percent in 1950 to the current 50 percent, as measured in 2018.2

Cities, of course, are now vital: They currently generate more than 80 percent of global GDP; they consume close to 2/3 of the world’s energy; and they account for more than 70 percent of global greenhouse gas emissions. Almost half a billion city-dwellers today live in coastal areas vulnerable to storm surges and sea level rise, and one billion urban poor live in informal settlements around cities to be near the opportunities they produce. As the world population continues to grow and shift to city life, urban areas will become more and more important and complex in virtually every respect, from jobs and economics to security and policing.

There are many questions about what this growth means, how prepared cities are, and if and when it will end. However, the world has clearly been urbanizing for some time, and experts from major development organizations project this trend to continue into the foreseeable future.

Global Urban Migration Patterns

The rates of change and specific migration patterns differ in various parts of the globe. The developing world congregates more in mega-cities, for instance, while American populations shift both to downtowns and to urban sprawl around dominant economic hubs.

The historical data is eye-opening. Though it took all human history up to 1960 to reach one billion urban dwellers, it took only 26 more years for that number to double. Those intervals are getting shorter: By approximately 2030, the world urban population will increase by one billion people every 13 years.2 This data suggests that about three million people move to cities every week.3

Projections show that this urban migration trend, combined with the overall growth of the world’s population, could add another 2.5 billion people to global cities by 2050.

Asia, despite its relatively lower level of urbanization, is home to 54 percent of the world’s urban population, followed by Europe and Africa with 13 percent each.3 Today, the most urbanized regions include northern North America (82 percent of its population), Latin America and the Caribbean (81 percent), Europe (74 percent), and Oceania (68 percent). The level of urbanization in Asia is now approximating 50 percent. In contrast, Africa remains mostly rural, with 43 percent of its population living in urban areas.3

Given the differences in growth potential, close to 90 percent of the projected urbanization increase will occur in Asia and Africa.

But future growth won’t be equally distributed, even regionally: The increases will be highly concentrated in just a few countries. Together, India, China, and Nigeria will account for 35 percent of projected growth between 2018 and 2050: By 2050, India will have added 416 million urban dwellers, China 255 million, and Nigeria 189 million.3

Since 1950, the rate of urbanization has been higher in some less developed regions, with exceptions for Northern Africa and South-Central Asia. East Asia has experienced the most rapid urbanization, especially over the last two decades. That region’s share of the urban population more than tripled in the last 65 years, from 18 percent to 60. In the past, the currently more developed regions required about 80 years to achieve the same growth (from 1875 to 1955).3

Urbanization Drivers

Brief but important background on economic theory:

The advantages of economic concentration (in our case urbanization) can be explained through two concepts: division of labor and economies of scale.

The first explains gains of productivity — and therefore growth — resulting from specialization. Firms organize around particular products or tasks, yielding efficiencies and enhanced skills. But specialization also applies at the city level, where we see similar types of gains in comparative advantage when a region focuses its efforts on a function or group of functions. This becomes more important as external trade grows and competition intensifies.4

The second — economies of scale — has two aspects. First, the benefits of internal economies of scale, which are specific to the firm and relate to lower unit costs and other efficiencies from large-scale production. Second, benefits of external economies of scale (or “agglomeration economies”), which come from proximity to other firms and markets. These include lower transaction costs and synergistic network effects, such as shared information. The bigger the network, the larger the pool of knowledge and intelligence. Agglomeration economies derive other proximity effects from a large pool of labor, suppliers, customers, and competitors within the same industry (localization economies), as well as firms in other industries (urbanization economies).4

Explaining the city shift

The agricultural revolution was the most important driver of the first wave of urbanization. In the 18th century, the development of sophisticated methods and machinery decreased the number of workers required for production. This trend currently drives a greater velocity of migration in developing nations now transitioning to modern agriculture techniques.5

A second driver is the increased concentration of wealth. Urban density and connectedness decrease transportation costs and provide shared labor pools, infrastructure, and knowledge. These forces enhance job creation, economic growth, and concentration of wealth.6 Naturally, these centers of wealth attract more people, which in turn increases a city’s potential to create more wealth — a virtuous cycle that accelerates urban growth.5

 
 

The populations of large metro areas are therefore much wealthier than people in surrounding areas. The gap is widest in emerging markets, not in advanced economies where discrepancies in wealth have generated significant political backlash. In Western Europe and the United States, the GDP per capita gap is roughly 40 percent — not insignificant, but it pales in comparison to other regions.

In developed countries, economic specialization — when people move to specific places to pursue work in specific fields — drives people towards fewer, but larger, cities. Prime examples in America include Houston (energy), San Francisco (technology), and New York (finance).

At a high level, it’s important to note that none of these factors appear to be temporary. These are well-developed trends. As the world continues to urbanize, we need to examine the structural pressures and changes it creates for global systems.5

The Rise of Megacities

More than half of urban dwellers live in fewer than 1,000 cities with more than 500,000 inhabitants. One in eight live in 33 megacities with more than 10 million inhabitants. By 2035, the world is projected to have 48 megacities, most in developing regions. Joint research from the University of Melbourne and the Tokyo Institute of Technology projects that urban land coverage will expand 409,022 square kilometers by 2050 to cover one percent of the planet’s total land.

Tokyo is the world’s largest city, with a total 37 million inhabitants, followed by Delhi (29 million), Shanghai (26 million), and Mexico City and São Paulo (around 22 million each). Cairo, Mumbai, Beijing, and Dhaka all have close to 20 million inhabitants. Some cities have experienced population decline in recent years, mostly in low-fertility countries of Asia and Europe. Economic contraction and natural disasters have also contributed to decreases in some cities.

Because not many cities or National Statistical Organizations report city-level GDP, we can’t get a precise estimate of urban contribution to global GDP, but researchers have made attempts. New Climate Economy analysis — based on data from Oxford Economics and LSE Cities — estimated value-added at $62 trillion in 2015, or about 85% of global GDP.

The Metropolitan Policy Program at the Brookings Institution estimates that in 2016, the 300 largest metro areas accounted for a little under one-fourth of the world’s workforce but generated nearly half of global GDP.6 Additionally, the 300 largest metro areas exhibited growth rates well above each of those indicators as measured in 2016.6 This means large urban areas are powering recent global economic growth.

U.S. population migration and urbanization trends

The rate of urbanization in North America has dropped off significantly. Since the mid-1970s, the growth rate has decelerated to almost zero. Today, the vast majority of North Americans — 82 percent — live in urban areas, increasingly concentrated in large and mid-size cities. The U.N. estimates that in 2018, 45 urban areas in the United States held more than one million people — up from 12 in 1950 — expected to increase to 56 by 2035.3

Though the share of people in urban areas isn’t changing much, U.S. populations continue to increase in large and mid-size cities. This might seem paradoxical, but population drivers are different between large, mid-size, and small cities.

Population growth in large cities (over one million people) is based primarily on natural population increase and the inflow of international migrants. However, in mid-size cities (populations between 100 thousand and 500 thousand) the inflow of domestic migrants contributes almost as much as the inflow of international migrants. These migrants come from small cities, where natural population increases and foreign migrant influx barely overlap their outflow of domestic migrants.

We also note that U.S. birth rates are the same across all city groups, but the natural population increase is highest in large cities. This is because large cities also have the lowest death rates. This implies large cities provide a more human-friendly environment, high living standards, and especially better medical services. High labor productivity and increased household income further support the trend.

Also worth considering: The rapid growth in the Sun Belt, a region that stretches across eighteen states from the Southeast to the Southwest. Between 2010 and 2018, urban population in the Sun Belt grew by 13.6 million (10.4 percent), while the non-Sun Belt urban population rose by 5 million people (3.7 percent).

Why the Sun Belt? A business-friendly environment; lower cost of living; higher quality of life; and mild climate. Over the last decade, domestic relocations to the Sun Belt totaled nearly five million, largely sourced to outflows from non-Sun Belt states, in particular the Northeast and Midwest.

Why this shift? The Sun Belt generally offers greater economic opportunity and affordability, and we can view the boom as an exodus from high- to low-tax states. Overall, Sun Belt states have either low or no corporate, individual, or property taxes. Farther north, tax burdens are increasingly onerous. California is the main outlier in the Sun Belt, given its high taxes and domestic outmigration. However, the state balances those factors with a dynamic labor market among many vital industries.

Against the background of the Sun Belt boom, we can isolate different generational migration patterns.

Millennials are more mobile than their elders and more apt to shift with changing opportunities — particularly to areas with knowledge based economies. Young adults mostly migrate to locations in the southern and western Sun Belt, where all except three of the top 20 millennial magnet cities are located. (Those three — Minneapolis-St. Paul, Columbus, and Kansas City — are among the most highly educated Midwest areas for millennials.)

None of the top five senior migration magnet cities overlap with the top five young adult magnets. In fact, several metro areas that gained young adults — such as Seattle and San Francisco — registered a net loss of seniors.10

Phoenix leads the senior migration pack, with an annual net migration exceeding 18,000. It’s followed by Tampa, FL, Riverside, NV, and Jacksonville, FL. Notably, Tucson — another Arizona city — ranked sixth, and two other Florida metros (Orlando and Miami) ranked seventh and ninth. This means seniors who do move are zeroing in on a small set of Sun Belt destinations long associated with retirement, warm climates, and recreation. New York and California have seen the greatest decline in senior populations.

Impacts on business, government, and households

Urbanization creates both more cities and larger cities. Larger cities create a new set of transportation, sanitation, and infrastructure requirements, and they change the fundamental market dynamics across a wide variety of industries. New technologies, processes, products, and engineering solutions emerge to address the unique issues resulting from this unprecedented rate and scale of urbanization.

The impacts fall into three primary categories.5 First, infrastructure. Public officials and city planners need to support larger populations in a sustainable fashion, which private companies will ultimately build and manage. Second, private development companies, which compete to build and manage large communities, venues, and facilities where people live, shop, eat, and find entertainment. The third category is consumer products, marked by companies that sell goods and services to people whose consumption patterns are influenced by where and how they live.

Though the United States isn’t projected to host the majority of new megacities, urbanization there coincides with a deep need to modernize city infrastructure. The infrastructure in American cities dates to the post-war era and has neared or surpassed its planned lifespan. This infrastructure often supports a larger population it was built to handle, and although new technologies are available, they haven’t yet been incorporated into real-world projects.

We see abundant evidence that cities across the United States are looking for solutions to these issues.5 The American Society of Civil Engineers, which scores United States infrastructure broadly as a D+ (on the traditional A-F academic scale), believes the country needs $4.5 trillion in investment by 2025 to improve its roads, bridges, dams, airports, schools, and more.11

Companies who build and sell goods and services experience urban markets quite differently from suburban or rural markets. Some companies have adapted better than others to this new reality. However, the rate of change continues to increase, and the collision of more people with new types of infrastructure will require further adaptation. A company’s choices will determine whether it gains or loses market share. We’ll also see companies fail and new companies emerge from these shifts in market dynamics.5

Cities, urban planners, and related public entities also face major challenges as they try to accommodate growth in a sustainable way. Some cities will likely over-invest in the wrong technologies and design strategies. Others will underestimate the scale of change, resulting in deteriorating and dangerous urban areas. Public institutions, if they’re to succeed during this transitory period, should draw from a base of accurate, useful information and learn from one another’s successes and mistakes.5

China is widely held up as an example of how urbanization can accelerate industrialization and transform standards of living. In 2011, China passed a historic milestone, when 50 percent of its population lived in cities, up from 20 percent in 1980. Average household incomes in Chinese cities are now almost three times higher than in its rural areas, largely because of increased productivity.

Additionally, the Chinese government’s commitment to urban infrastructure investment has helped limit the socially disruptive effects of this massive population movement. This approach differs from those in India and many other developing countries, which are all too often plagued by urban congestion, water shortages, squalid living conditions, and public health problems. In the early 2000s, China spent 12.6 percent of GDP on infrastructure – more than twice that of India.4 When poverty and weaker local governance constrain large cities’ ability to address their problems, we see what economists have called “urbanization without growth.”6

Conclusion

This doesn’t mean urbanization will necessarily increase economic output across the board. A number of factors can offset the economic benefits of concentrated populations: rising congestion; overcrowding; overloaded infrastructure; stresses on ecosystems (such as water and air quality); and higher costs of living, labor, and property.

What’s more, these negatives tend to increase as cities expand. This is especially true if development is haphazard and anemic public investment cripples a city’s ability to maintain and expand essential infrastructure. Dysfunctional systems create problems — such as gridlock, power cuts and insecure water supplies — which in turn create extra business costs, reduce productivity, and deter private investment. The balance between urban agglomeration economies and diseconomies will influence whether city economies flourish, stagnate, or decline.

In this context, we’ll reiterate a point made in the introduction: Urbanization alone doesn’t automatically stimulate and sustain growth; it’s the form that urbanization takes. Public entities, private developers, and businesses need to figure out how to accommodate growth within individual cities, and — importantly — how to distribute those gains across cities of different sizes and across the wider national territory. These choices will also affect poverty levels and the environment. Public investment — especially commitments to infrastructure — will determine whether urbanization functions or fails.

Image: Pixabay

Source: Knoema

This article is culled from daily press coverage from around the world. It is posted on the Urban Gateway by way of keeping all users informed about matters of interest. The opinion expressed in this article is that of the author and in no way reflects the opinion of UN-Habitat.