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TECH TALK: Creating Indias New Cities: Land

April 9th, 2007 · No Comments

By Atanu Dey

When I first moved to the US, I was struck by the phenomenon of shopping malls located far away from the city, about an hour along some highway. Land, it occurred to me, was cheap outside the city and what they did was to build these huge malls that were in some sense islands of urban activities in the middle of rural areas.

Because of the cheap land on which the mall was built, the rents that businesses paid to locate themselves there were low. Because lots of businesses located at the mall, every business found it worthwhile to locate there. Because of the presence of so many businesses at one location, people found it worthwhile to visit even if they had to drive an hour or two. They could catch a movie, buy stuff, grab dinner, hang out and watch people, and just have a good time. Malls looked like well-planned micro-cities where people worked and did stuff but nobody actually lived there. Malls were made possible because people had cars to drive to them.

Malls come in different sizes in the US. There is the Great Mall of America, for instance, along interstate 880 in the SF Bay Area, occupying a few hundred acres. Then you have the humongous mall in Nevada occupying thousands of acres better known as Las Vegas. The general pattern is straightforward. Some developer buys a large tract of land, gets into agreements with a few anchor stores such as JC Penny or Macys, builds the mall, and the rest of the stores and other service providers such as fast food restaurants and movie theatres follow dutifully. In the case of Las Vegas, the anchor stores are the casinos and hotels. It is important to recognize that malls, large and small, are micro-cities whose economy is entirely service based, not based on manufacturing or agricultural production. But there is absolutely no reason that you cannot use the same micro-city model and blow it up to the size of a city and base the economy of the city a combination of manufacturing and services.

The basic model is simple. First, acquire a sufficiently large piece of cheap land. Second, make improvements on it such as adding utilities, roads and buildings. Third, get a few big commercial interests to locate themselves on this land. Finally, sell or rent subdivisions of the improved land to whoever wants it at such a price that you internalize the positive externalities you created by improving the land and coordinating the co-location of numerous businesses on the property. The profits made by the developer accounts for only a small fraction of the total wealth created by the process.

The same process can be followed for creating the designer cities that India needs by the hundreds. Briefly, a sufficiently large, perhaps 10 kilometer square, cheap land is acquired by a developer. The developer could be a public-private consortium. The developer then persuades some anchor tenants sufficiently large to give credibility to the later arrivals that this will be a going concern. Improvements on the land are begun and as the work proceeds stage by stage, smaller bits are sold off to interested parties to pay for the on-going improvements on the land.

In the next bit, lets explore this a bit more with a hypothetical example.

Tomorrow: Pune DeCi


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