[Choi Jun-young's Urban Pilgrimage] Capital and the City

Highest Housing Prices in 37 OECD Countries, Increased Building Floor Heights and Rent Rise
Traditional Commercial Areas Disappear, Rapid Changes in Spatial Structure Influenced by 1990s Capital International Movement
Concentration in Major Cities for Higher Profits, Less Preferred Residences Gaining Attention as New Development Sites
Transformed Cities as Foundations for Regrowth, Focus on Utilization Over Negativity...

The appearance of major cities around the world has been rapidly changing recently. This is due to the rise in land and housing prices. According to recent data released by the Organisation for Economic Co-operation and Development (OECD), housing prices in 37 member countries reached their highest levels in the third quarter of 2020. In addition to major cities in countries like New York and London, housing prices have been rising for several years in places such as Auckland in New Zealand, Berlin in Germany, and Stockholm in Sweden.

Through this process, the spatial structure of large cities is also undergoing rapid change. The floor heights of residential buildings are increasing, and traditional commercial districts and businesses that have long been established are relocating or disappearing due to rising rents. In these vacated spaces, stores dealing in high-end goods or large-scale franchises are moving in, or entire areas are transforming into upscale residential neighborhoods. The term ‘gentrification,’ which once seemed unfamiliar to us, has become a word that explains phenomena occurring not only in South Korea but also in major cities worldwide, such as Paris, France.

Behind these changes lies the international movement of people and capital that has been ongoing since the 1990s. Until the early 20th century, the flow of people and capital freely crossing borders was abruptly interrupted after World War I. During World War II and the Cold War, the movement of people and capital remained confined within national borders.

This trend began to shift gradually from the 1970s but fundamentally changed with the end of the Cold War following the fall of the Berlin Wall in 1989 and the subsequent dissolution of the Soviet Union.

Capital, now able to move freely, flowed to places where higher returns could be expected, and people flocked to major cities in key countries. Through the movement of capital, many countries began to break out of stagnation and start growing. This led to a reduction in poverty and an increase in the middle class.

The growth of the middle class increased consumption of housing and durable goods and made university education and overseas travel more common. Over time, these changes resulted in alterations to urban spatial structures and rising housing prices.

The increase in university graduates due to expanded higher education led to a rise in high-wage office workers. Concentration in large cities, where such jobs are clustered, accelerated. Originally, large cities attracted those seeking employment. However, the increase in highly educated individuals produced different outcomes than in the past. As wages rose, demand for housing that matched this income level surged. Additionally, lower financing costs, the normalization of dual-income households leading to increased household income, and smaller family sizes enabled more money to be invested in home purchases.

In cities where development was largely complete, existing housing that met middle-class standards was limited. These changes led to rising housing prices. As housing prices surged, previously less favored residential areas within cities became attractive new development zones. Areas with convenient transportation but poor residential environments became major development targets and transformed into emerging middle-class residential neighborhoods. While this process naturally improved residential environments citywide, it also caused the disappearance of housing bases for low-income groups, gradually changing the city’s appearance.

Moreover, tourism is also transforming urban structures. Most overseas tourism demand concentrates on specific cities, and facilities to accommodate these tourists quickly reach saturation, generating high profits. This attracted significant capital investment, leading to a boom in the construction of hotels and other tourist facilities.

[Image source=Yonhap News]

These facilities concentrated in areas where land prices were lower than in city centers but transportation was convenient. Globally, most of these areas had below-average living conditions. Furthermore, they were primarily inhabited by low-income residents, maintaining unique local characteristics. The spread of the internet, smartphones, and social networking services (SNS) in these areas made information about new locations easily accessible to tourists and consumers. This led to a concentration of visitors, causing rent increases and significant changes in existing commercial districts, accelerating changes in urban spatial structures.

Changes in spatial structure also represent a process of efficiently allocating limited land resources. It is similar to recognizing the value of undervalued stocks and assigning them appropriate prices. Capital, as a form of energy, can bring about urban changes that were long considered impossible within a short period. Cities transformed in this way can become foundations for further growth.

This process proceeds amid many difficulties and twists. If change is rejected or denied, cities decline and fall behind. Therefore, efforts to maintain the status quo generally fail.

Cities are the result of accumulated past time. However, they are also the places where current and future generations will live. Urban space is not an eternal, fixed form. Many spaces that are now taken for granted were created not long ago. Memories and nostalgia about spaces are important, but they should not become reasons to resist change.

Challenges such as aging populations, population decline, energy conservation, and climate change adaptation are piling up for cities. In regions where the energy of rising asset prices continues, it is desirable to consider how to utilize this energy well rather than simply rejecting and suppressing it to solve these problems.

Choi Jun-young, Specialist, Yulchon LLC