09




Oct


Idea‐Book
on


How
Cities
Develop?


Rahul
Deodhar

The
 idea‐book
 discusses
 the
 principles
 that
 determine
 firstly
 how
 cities
 evolve
 over
 seven

phases.
 Secondly,
 we
 see
 how
 Affinity
 Factor
 model
 may
 help
 understand
 how

development
spreads
or
distributes
within
the
city.
We
observe
how
these
principles
impact

selection
 of
 office
 location
 and
 how
 we
 can
 predict
 the
 future
 of
 developing
 business

districts.
 We
 try
 to
 understand
 how
 house
 prices
 get
 influenced.
 Finally,
 based
 on
 the

principles
discussed,
we
try
to
work
out
a
possible
township
model.


RAHUL
DEODHAR

How
Cities
Develop?
–An
idea­Book




Introduction



Real
 estate
 development
 in
 every
 city
 is
 unique.
 Still
 hidden
 within,
 are
 certain

principles
 that
 are
 common.
 To
 understand
 it,
 we
 need
 to
 understand
 two

central
 concepts.
 First,
 how
 town
 evolve
 and
 second
 how
 evolution
 happens

within
a
town.


I
 propose
 a
 seven
 phase
 model
 explaining
 how
 a
 population
 surrounding
 a


business
or
factory
transforms
into
a
town.
Through
the
transformation
we
point

to
some
important
developments
in
terms
of
people
and
their
work.

The
 idea
 book
 postulates
 a
 growth
 model
 called
 “Affinity
 Factor
 Model”
 to

explain
 how
 localities
 develop
 within
 a
 town.
 “Affinity
 factors”
 are
 those
 that

drive
 the
 citizens
 towards
 them
 –
 e.g.
 business
 district
 and
 schools
 are
 key

affinity
factor.


The
 models
 help
 us
 understand
 why
 airports,
 usually
 built
 outside
 city
 limits,

attract
 residential
 populations.
 Or,
 on
 a
 lighter
 note,
 we
 can
 guess
 where
 a

company
will
locate
its
office!


We
also
derive
a
method
to
understand
relative
pricing
between
different
areas.

Further,
we
look
at
fundamental
ideas
for
knowing
if
house
prices
are
higher.



I
 also
 propose
 a
 structure
 of
 a
 township
 centred
 around
 a
 workplace
 based
 on

first
principles.


License


The
 work
 can
 be
 shared
 for
 non­commercial
 use
 through
 proper
 attribution
 as

explained
 in
 Creative
 Commons
 Attribution­Noncommercial­Share
 Alike
 3.0

Unported
License




©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




How
do
localities
develop?

A
fresh
or
new
town
forms
over
following
seven
phases.

Phase
I) Seed
Phase:
In
this
phase
the
seed
of
development
is
sown.
This
is

typically
a
business
district
or
factory
is
established.
The
business

district
 is
 planned
 with
 a
 certain
 population
 in
 mind.
 The
 people

who
work
here
live
here.

Phase
II) Development
 of
 Support
 infrastructure:
 In
 this
 phase
 support

infrastructure
develops.
This
leads
to
slight
increase
in
population.

Generally,
 planners
 already
 account
 for
 these.
 This
 typically

includes:

 Retailers
 for
 regular
 goods
 (groceries,
 pharmacy
 stores,

gas
stations
etc)

 Support
services
e.g.
(food
take‐away,
lawn
management,

domestic
help,
plumbing
and
electrician
services
etc
)

Phase
III) Business
 Expansion:
 The
 dominant
 businesses
 attract
 other

supporting
 industries
 and
 a
 factory
 settlement
 starts
 becoming
 a

town.


 This
 leads
 to
 further
 population
 expansion
 but
 the

population
still
lives
closer.

Phase
IV) Strengthening
 of
 support
 infrastructure:
 In
 this
 phase
 the

support
 infrastructure
 itself
 becomes
 an
 income
 generating

activity.
 The
 breadth
 and
 depth
 of
 services
 increases
 drastically

leading
improvement
in
quality
of
life.
Typically,

 Consumer
 durable
 retail
 (car
 showrooms,
 Electronic

goods
showrooms
etc)
start
growing

 A
mall
or
departmental
stores
opens
in
the
vicinity.

 These
activities
add
to
the
population
that
predominantly

works
in
support
sector.

Phase
V) Developing
 Business
 hub:
 In
 this
 phase
 the
 locality
 turns
 into
 a

business
hub
or
a
popular
town.


 Now
 we
 significant
 percentage
 of
 population
 travelling

from
newly
emerging
localities
in
the
proximity.

 Crowd
 movement
 (travel
 in
 and
 travel
 out)
 gains

importance
 and
 infrastructure
 is
 usually
 created
 to

support
this.

 Now
 the
 established
 infrastructure
 needs
 to
 support

resident
 population
 full
 time
 (work
 and
 after
 work)
 and

daily
migrant
population
part
time
(during
work).

 Support
infrastructure
is
strained.


 Support
services
become
costlier

 Slums
start
appearing
in
the
locality

Phase
VI) Super
 straining:
 In
 this
 phase
 municipal
 innovations
 in

debottlenecking,
 infrastructure
 additions
 create
 some
 relief.

Though
 slums
 increase
 and
 cost
 of
 doing
 business
 starts

skyrocketing.

 Slums
expand
to
artificially
reduce
cost
of
doing
business

aggravating
the
strain.



©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




 Infrastructure
now
has
to
support
far
too
many
people.

 Commute
 times
 skyrocket
 accompanied
 by
 rising
 real

estate
prices.

 Investors
 and
 companies
 start
 looking
 for
 alternative

locations
but
are
wary
of
moving
out
of
the
town.

Phase
VII) Sustainability:
After
coming
to
a
breaking
point
wherein
a
nearby

locality
starts
becoming
a
location
of
choice
for
businesses.


 The
 new
 locality
 has
 benefit
 of
 better‐planned

infrastructure
and
lower
cost.

 It
has
advantage
of
being
closer
to
a
popular
town.

 Our
current
town
shrinks
in
size
and
starts
undergoing
a

change
in
character.

 This
phase
involves
higher
municipal
taxes
and
spending.


Note
 that
 phases
 III
 and
 IV
 iterate
 for
 a
 while
 with
 town
 management

developing
new
infrastructure
leading
to
further
business
expansion.




©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




Affinity
Factor
Model

There
are
some
characteristics
that
attract
us
to
any
locality
within
a
city.
Such

preferences
 lead
 to
 clustering
 of
 similar
 people
 –
 though
 they
 never
 meet
 or

interact
 with
 each
 other.
 Affinity
 factor
 model
 postulates
 a
 basic
 framework

through
which
we
can
aggregate
these
factors.

1. Affinity
factor
is
factor
that
attracts
people
to
a
residential
location.


a. Affinity
 factors
 exert
 a
 force
 that
 can
 be
 expressed
 similar
 to

gravitational
force.

b. The
 force
 of
 attraction
 between
 an
 Affinity
 factor
 and
 a
 locality

(neighbourhood)
 is
 directly
 proportional
 to
 importance
 of
 factor

and
 inversely
 proportional
 to
 the
 square
 of
 distance
 between

them.


c. Since
there
is
no
documentation
and
calculation
of
affinity
factors,

we
 cannot
 surely
 say
 if
 we
 should
 use
 distance
 or
 square
 of

distance
as
in
Newton’s
law
of
gravitation.

d. The
 ultimate
 preference
 of
 location
 is
 a
 vector
 sum
 of
 all
 the

attraction
forces
acting
on
the
locality.


2. The
evaluator
relatively
sets
importance.


a. A
 single
 worker
 tends
 to
 set
 higher
 weight
 for
 proximity
 to

workplace.

b. Parents
tend
to
set
higher
weight
for
proximity
to
schools.

c. Cities
located
near
water
bodies
tend
to
value
waterfronts.

d. Importance
is
also
accretive.


i. A
 business
 district
 employing
 larger
 numbers
 gets
 higher

importance.

ii. The
importance
also
increases
if
composition
of
businesses

is
more
diverse.

3. Distance
here
is
actually
“commute”
rather
than
actual
distance.

a. Commute
 is
 actually
 the
 distance
 one
 can
 travel
 in
 acceptable

travel
time.

b. For
workplace
it
is
the
commute
to
workplace.


c. For
school
it
is
function
of
child’s
commuting
time
+
commute
time

between
 nearest
 parent’s
 workplace
 and
 school.
 The
 second
 part

reduces,
as
kids
get
older.

4. Affinity
factors
can
be
of
various
types:

a. Natural
factors,
e.g.
beach,
hill,
lakefronts,
special
parks,
etc.

b. Man‐made
 e.g.
 parks,
 gardens,
 palaces,
 churches,
 temples,
 town

squares,
etc.

c. Leisure
driven,
e.g.
football
clubs,
golf
courses,
etc.


d. Convenience
based
e.g.
work
place,
school,
etc.

e. Safety
based

i. Physical
safety
–
swamp,
landslide‐prone,
etc

ii. Social
 safety
 –
 good
 neighbours,
 walk‐safe
 routes
 to

stations,
bus
stops
etc.

5. Amongst
the
various
Affinity
factors
work
place
(business
district,
factory

etc)
and
school
are
dominant
ones.





©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




Concept
of
Commute

It
is
important
to
understand
what
I
mean
by
“commute”
in
little
more
detail.

1. Commute
refers
to
distance
travelled
in
acceptable
travel
times.

2. Acceptable
travel
time
changes
over
time
as
city
grows.


a. In
mega‐cities
the
times
are
higher
than
30mins
(one
way)
journey

often
reaching
90mins
(one
way).

b. Smaller
cities
tend
to
have
10
to
15
mins
(one
way)
journey
times

are
normal.

c. Journey
is
by
car
or
public
transport
and
some
5‐10min
time
is

often
added
to
walk
to
and
from
station
or
bus‐stops.

3. The
distance
travelled
in
the
commute
time
changes
dramatically
with

improving
infrastructure.
So
metro
rail,
rapid
transit
systems
allow

people
to
travel
further
in
the
same
time.

4. The
distance
variable
is
interpreted

a. Based
 on
 certainty
 of
 commute
 time:
 A
 30‐min
 drive
 (average

time)
 through
 safe
 lonely
 roads
 is
 preferred
 over
 30‐min
 drive

through
mostly
crowded
roads.


b. Based
 on
 safety:
 A
 45‐min
 drive
 through
 absolutely
 safe
 roads
 is

preferred
over
20
min
drive
through
disturbed
neighbourhoods.


Dispersion
development
and
Subsequent
Affinity
factor
development

Dispersion
 development
 is
 the
 understanding
 of
 how
 population
 settles
 given

the
 Affinity
 factors
 existence.
 Subsequent
 Affinity
 factor
 development
 is
 a

function
 of
 the
 existing
 and
 planned
 settlement.
 These
 two
 phenomena

compliment
 each
 other
 iteratively.
 The
 overall
 development
 is
 thus
 fractal
 in

nature.


Dispersion
 Development
 helps
 us
 understand
 which
 areas
 will
 see
 house
 price

rise.
 It
 can
 help
 predict
 median
 prices
 in
 a
 locality.
 It
 can
 definitely
 predict

relative
price
ranks
between
localities
or
neighbourhoods.

Subsequent
affinity
factor
development
is
dependant
on
dispersion
at
the
time.

This
helps
understand
practical
questions.
We
can
predict
where
a
company
will

relocate
 its
 office.
 We
 can
 predict
 if
 new
 business
 district
 will
 be
 successful
 or

not.
We
can
even
design
strategy
to
make
it
a
success.

Let
us
first
examine
these
two
concepts
and
then
answer
the
practical
questions.




©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




Dispersion
development

The
Affinity
factor
model
drives
how
the
dispersion
of
the
city
occurs.
Dispersion

forces
 radiate
 out
 of
 affinity
 factor
 like,
 business
 districts
 (or
 workplaces)
 that

are
 first
 affinity
 factor.
 Such
 dispersion
 forms
 areas
 based
 on
 commutes.
 The

innermost
circle,
representing
shortest
commutes,
develops
first.


Single
Affinity‐Factor
dispersion

We
 can
 see
 a
 good
 example
 of
 such
 one‐factor

influenced
 development
 at
 industrial
 townships
 or

settlements
 around
 as
 single
 manufacturing
 plant.

Here
commutes
are
often
as
low
as
10
mins.

The
development
starts
closer
to
factory
gates
as
this

minimizes
 commute
 time
 (even
 in
 this
 small
 scale).


Development
 eventually
 moves
 outward
 gradually
 in

a
 circular
 fashion.
 The
 concentric
 circles
 represent

commutes.






Now
if
we
add
a
connection,
say
a
road
or
metro

link
then
we
influence
the
dispersion.
Dispersion

around
 the
 Affinity
 Factor
 is
 higher
 along
 this

connection
 as
 commutes
 are
 easier
 along
 the

road
 or
 metro
 lines.
 The
 dispersion
 is
 now

skewed
along
the
road
or
metro
line.
The
shaded

area
represents
the
new
dispersion.




However,
 rarely
 do
 we
 have
 such
 single
 factor
 examples
 in
 real
 life.
 Usually
 as

additional
 factors
 get
 introduced
 we
 start
 getting
 skewed
 distributions.
 Fully

formed
cities
are
examples
of
multiple
affinity‐factor
driven
settlements.

Multiple
Affinity
factor
development

We
 can
 therefore
 extrapolate
 the

dispersion
 in
 multifactor
 localities.
 As

mentioned,
 the
 Affinity
 factors
 forces

are
 vector
 additions
 and
 various

combinations
 can
 be
 worked
 upon

based
 on
 type
 of
 Affinity
 factor
 and

commutes.



Alongside
we
have
shown
an
example
of

3
 factor
 dispersion
 (shaded)
 with
 main

road
 (arterial
 connection)
 and
 an

anciallary
 road
 (e.g.
 a
 side
 road).
 The
 scheme
 is
 indicative
 and
 not

mathematically
modelled.



©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




Subsequent
Affinity
Factor
Development

Just
 as
 Affinity
 factors
 influence
 dispersion,
 dispersion
 also
 influences
 new

developments.
This
refer
to
development
of
new
business
districts
or
expansion

of
existing
business
districts
or
development
of
other
Affinity
factors.
This
means

based
 on
 current
 location
 (home
 and
 workplace)
 of
 population
 we
 can
 predict

what
areas
are
more
likely
to
be
the
next
business
districts.

There
 exists
 between
 Affinity
 Factors
 and
 dispersion
 an
 interdependence.
 The

fractal
nature
(iterative
with
simple
rules)
of
development
possibly
causes
this.

The
 interdependence
 is
 breakable
 and
 initiating
 a
 new
 Affinity
 Factor
 usually

creates
forces
of
distortion.
This
new
affinity
factor
has
to
be
a
high
importance

factor
and
cannot
simply
be
a
park
or
garden.
Usually,
new
airport,
new
business

district
(Canary
Wharf
e.g.)
has
the
potential.
Still,
such
new
factors
take
longer

to
pay‐back
for
investors.




Impact
of
zoning
and
other
regulations

The
arguments
and
ideas
above
are
essentially
for
an
organically
developing
city.

Zoning
 directs
 or
 channelizes
 the
 development
 but
 overall
 organic
 nature

remains.
Since
development
is
iterative,
a
5‐year
zoning
limitation
(e.g.)
will
alter

the
 cities
 development
 course
 forever
 though
 its
 influence
 wanes
 with
 time.

Hence
when
we
are
looking
at
a
city
and
its
future
development,
it
is
important

to
know
the
history
as
well.




©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




Some
practical
observations
and
insights

Now
 let
 us
 use
 the
 concepts
 above
 and
 distil
 them
 into
 practical
 applications.

These
 should
 help
 real
 estate
 brokers,
 developers,
 investors
 and
 users
 to

understand
development
better.
I
have
included
price
understanding
separately.

I
would
love
to
hear
examples
reinforcing
or
contradicting
these
observations.




Where
will
a
new
office
be
located?

Imagine
a
company
that
has
to
shift
its
office.
The
new
office,
ideally,
should
be

located
so
that
it
is
convenient
for
employees,
customers
and
suppliers
to
reach.

So
it
follows
that
if
we
construct
importance
and
spread
of
employees,
customers

and
 suppliers
 we
 can
 find
 the
 optimum
 location.
 This
 gives
 us
 a
 neat
 logic
 for

why
 businesses
 often
 seen
 clustered
 around
 a
 location.
 So
 we
 can
 infer
 the

following:


1. The
 importance
 of
 top
 management
 residential
 dispersion
 is
 higher
 and

in
some
cases
it
is
only
thing
that
matters.


• The
 office
 location
 is
 mostly
 the
 most
convenient
 location
 for
 top

management
(or
key
decision
makers).


• This
 results
 in
 most
 offices
 locating
 closer
 to
 prestigious

residential
 areas
 resulting
 in
 longer
 commutes
 for
 most
 of
 the

employees.


2. Existing
companies
give
good
indication
where
offices
might
be
located

• If
a
new
metal
company
wants
to
set
up
office,
it
will
prefer
an
area

where
lot
of
metal
companies
are
already
thriving.

• Old,
 established
 metal
 companies
 might
 choose
 to
 pioneer
 a
 new

location
based
on
its
brand
value.

3. This
explains
the
presence
of
shop
clusters
along
various
streets
in
cities

for
unbranded,
un‐malled
or
speciality
goods.

• Certain
areas
are
famous
for
certain
goods,
clothes
are
best
found

in
particular
areas.

• Branded
 goods
 are
 easily
 available
 in
 malls
 (hence
 malled!).

Singapore’s
Mall
street
(or
Orchard
road)
is
a
good
case
study
for

retail
malls
and
location.

Setting
up
new
business
districts

Success
of
new
business
districts
is
defined
by
convenience
of
commute
for
top

management.
 The
 top
 management
 prefer
 to
 stay
 in
 prestigious
 residential

areas;
so
new
business
district
must
be
accessible
from
such
areas.
Therefore,
we

can
infer
the
following:


1. If
 it
 takes
 more
 time
 to
 reach
 the
 new
 business
 district
 then
 its
 success

odds
are
lower.

• The
 travel
 time
 is
 measured
 from
 key
 decision
 maker
 residential

areas
and
employee
residential
areas

2. If
 a
 new
 business
 district
 locates
 on
 the
 connection
 between
 old,

established
 business
 district
 and
 key
 residential
 areas
 then
 it
 is
 more

likely
to
be
accepted.



©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




• Even
 here
 it
 has
 to
 offer
 lower
 rentals,
 higher
 floor
 plates,

additional
 conveniences
 like
 more
 parking
 per
 seat,
 more
 visitor

parking
etc.

3. If
 connection
 to
 the
 new
 business
 district
 runs
 through
 congested,
 low‐
income
areas
the
odds
of
success
decrease.

• Fortunes
 of
 ailing
 business
 districts
 can
 drastically
 change
 by

developing
 new
 connections
 (roads,
 rails,
 metro
 etc.)
 to
 top

residential
areas.


Influence
of
airports

New
airports
are
often
located
outside
the
cities
where
the
aircraft
noise
will
not

disturb
citizens.
Yet
curiously,
the
residential
areas
eventually
come
up
close
to

airports.
There
is
a
reason.
The
administration
usually
builds
a
fast‐lane
highway

or
 high‐speed
 train
 to
 the
 airport
 directly
 from
 business
 district.
 This
 cuts
 the

commute
time
significantly.
Soon
we
find
that
it
is
easier
and
faster
to
commute

from
 airport
 than
 our
 congested
 residential
 neighbourhood.
 Naturally
 the

residential
development
moves
closer
to
airport.


Therefore,
whenever
a
new
airport
is
developed
with
a
high‐speed
connectivity

then
real
estate
investment
along
the
connection
become
lucrative.

1. If
 the
 connection
 is
 a
 metro
 then
 it
 makes
 sense
 to
 buy
 land
 near
 the

metro
 stations.
 Initially
 the
 high‐speed
 train
 has
 no
 stops
 in
 between.

However
 eventually
 normal
 metro
 trains
 run
 along
 that
 line
 and
 those

stop
at
in‐between
areas.

2. If
 the
 connection
 is
 a
 road
 then
 red‐lights
 or
 signals
 are
 best
 place
 to

make
investments.
Signals
on
this
road
indicate
importance
and
therefore

easier
exit.

3. If
 there
 are
 two
 connections
 then
 land
 between
 them
 and
 towards
 the

airport
is
of
prime
significance.

4. Logically
 it
 may
 appear
 that
 near‐airport
 lands
 are
 best
 used
 for
 hotels

and
 other
 tourist
 infrastructure.
 But
 there
 is
 lot
 of
 residential

development
as
well
and
it
is
not
limited
to
low‐income
housing.

5. The
 above
 is
 general
 organic
 development
 and
 zoning
 or
 other

regulations
may
prevent
or
alter
it.




©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




Determining
Real
Estate
prices
&
development

Understanding
 price
 is
 very
 difficult
 exercise.
 The
 complexity
 is
 result
 of
 twin

tracks
upon
which
price
depends.
Price
varies
spatially
and
over
time.


In
 my
 experience
 it
 is
 better
 to
 understand
 fundamental
 price
 variation
 across

the
city.
Then
we
need
to
understand
how
fundamental
prices
change
over
time.

And
 finally,
 we
 superimpose
 adjustments
 for
 Real
 Estate
 industry
 cycle
 and

economic
cycles.

Spatial
distribution

Spatial
distribution
is
easily
determined
using
Affinity
Factor
model.
The
Affinity

Factor
 model
 gives
 us
 lines
 of
 influence
 adding
 at
 a
 location.
 This
 is
 a
 vector

addition
 implies
 the
 result
 has
 a
 value
 and
 direction.
 The
 value
 can
 be
 used
 to

understand
relative
prices
across
localities
/
neighbourhoods.
The
direction
tells

us,
indicatively,
what
Affinity
Factor
is
most
influential
and
hence
what
could
be

fundamental
 price
 level.
 The
 relative
 ranking
 of
 neighbourhoods
 is
 constant
 in

short
term
and
changes
only
gradually
over
decades.


Let
us
revisit
the
multiple
affinity
factor

diagram.
Here
the
prices
in
proximity
of

Affinity
 factor
 1
 (say
 industrial
 park)

will
 be
 determined
 by
 wages
 in

industrial
 park.
 Similarly
 prices
 near

Affinity
 factor
 2
 (say
 IT
 park)
 will
 be

influenced
 by
 IT
 salaries.
 Anecdotally,

the
fundamental
prices
near
IT
park
will

be
 higher
 than
 those
 around
 Industrial

park.

However,
the
prices
at
the
central
intersection
will
derive
from
all
three
factors.

Further,
 if
 Affinity
 Factor
 3
 is
 a
 golf
 course
 residential
 community
 then
 prices

around
that
will
be
driven
by
highest
income
earners
amongst
all
three
factors.

Changes
to
fundamental
prices
over
time

We
now
need
to
understand
changes
in
fundamental
prices
over
time.
This
is
a

function
of
median
income
in
the

business
 district
 and

neighbourhood.
 Typically
 the

median
income
and
fundamental

price
follow
the
path
indicated
in

figure
 4.
 This
 depicts
 the
 price

changes
 in
 single
 Affinity
 factor

model.


As
 the
 Affinity
 factor
 is
 formed

and
 developed
 the
 median

income
 drops
 initially
 then
 sets

on
 a
 growth
 path.
 The
 initial



©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




drop
 happens
 as
 migrant
 population
 comes
 in
 to
 stay
 around
 the
 factor.
 This

population
 is
 dependant
 on
 residents
 and
 therefore
 has
 lesser
 income
 than

residents.
 If
 township
 planning
 is
 done
 properly,
 new
 growth
 opportunities

emerge
leading
to
growth
in
incomes
and
therefore
fundamental
prices.

Actual
Price
movement

Actual
 price
 is
 result
 of
 certain
 factors
 weighing
 in
 on
 the
 fundamental
 price.

Fundamental
prices
are
easier
to
defend
even
in
downturns
and
form
some
sort

of
 floor
 for
 prices
 in
 the
 area.
 However
 any
 decision
 related
 to
 real
 estate

investment
 must
 consider
 future
 actual
 prices.
 Following
 are
 the
 factors
 that

affect
actual
prices:


1. Loan
 to
 value
 ratio
 of
 banks:
 Banks
 give
 certain
 part
 of
 house
 value
 as

loan.
 The
 rest
 amount
 comes
 from
 individual
 /
 household
 savings.
 For

same
 down
 payment,
 changes
 in
 LTV
 impact
 affordable
 house
 price

drastically.

• E.g.
 If
 down
 payment
 is
 $10,000
 then
 at
 90%
 LTV
 person
 can

afford
 house
 of
 $100,000.
 But
 if
 bank
 changes
 down
 payment
 to

80%
then
affordable
house
price
is
just
$50,000.
So
10%
change
in

LTV
create
affordability
swing
of
50%.
This
does
impact
prices.

2. Interest
 Rate
 Scenario:
 If
 people
 believe
 interest
 rates
 will
 continue
 to

remain
stable
on
lower
side
then
house
prices
tend
to
increase.


3. Policy
 intervention:
 Government
 can
 give
 tax
 breaks
 and
 incentives
 that

may
impact
the
prices.

4. Income
 profile
 changes:
 Overall
 income
 profiles
 may
 change
 as
 type
 of

business
 in
 the
 business
 district
 changes.
 This
 is
 creeping
 change
 and

takes
longer
time.

5. Business
cycles:
The
changes
also
depend
upon
where
we
are
in
economic

cycle
and
real
estate
industry
cycle.


Following
 chart,
 figure
 5,
 gives
 an


example
of
actual
prices
in
a
locality

over
 time.
 As
 the
 locality

experiences
 growth
 the
 prices

increase.
 However
 as
 fundamental

prices
 taper
 off
 we
 see
 peak
 in

actual
 prices
 and
 these
 correct

thereafter.




©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




Thoughts
on
development
of
townships

It
occurs
that
development
of
towns
should
follow
flow‐based
design
similar
to

safety
design
of
stadium
or
amphitheatre
etc
where
flow
of
people
and
materials

is
central
design
criteria.


In
a
city
there
are
four
types
of
people
as
we
describe
below.
The
term
“worker”

here
includes
business
owners,
free
lancers
etc.
We
simply
want
to
understand

the
movement
of
people
in
and
around
the
city.
The
classification
has
no
relation

to
income
differences.
The
four
types
are:

1. Primary
workers:
This
comprises
two
types:

a. 
Firstly
 the
 people
 who
 work
 in
 the
 business
 district.
 They
 are
 the

central
 work
 force
 of
 the
 city.
 They
 are
 the
 ones
 who
 man
 the

computer
terminals
or
factory
machines.

b. Then
 there
 are
 people
 who
 actively
 support
 the
 dependant

population.
Teachers,
health‐care
workers
etc.
are
included
here.

2. Secondary
 Workers:
 These
 support
 the
 primary
 workers
 around
 the

business
district.


a. They
 man
 the
 restaurants,
 convenience
 shops,
 malls
 etc.
 in
 the

business
district.


b. They
also
support
through
mail,
courier
(FedEx,
UPS
etc).

3. Tertiary
Workers:
They
support
primary
and
secondary
workers
around

residential
premises
and
business
district.


a. They
do
housekeeping
at
business
district
after
it
closes.


b. They
 also
 critically
 support
 the
 primary
 and
 secondary
 workers

helping
them
before
they
go
to
work
or
after
they
return
from
work.

E.g.
 Metro
 train
 operators,
 airlines,
 house‐help,
 baby‐sitters,
 taxi

operators,
police,
etc.

4. Dependant
 Population:
 This
 includes
 school
 (including
 high‐school)

children
and
senior
citizens.


Flow
of
people

The
flow
essentially
takes
place
in
following
steps
every
day.

1. Tertiary
 Workers
 movement
 to
 residential
 area
 before
 primary
 and

secondary
workers
can
leave
for
work.

2. Secondary
 Workers
 movement
 towards
 the
 business
 district
 before

workers.
At
the
same
time
Tertiary
workers
leave
the
business
district.

3. Primary
Workers
movement
towards
business
district

4. Business
 Activity
 flows
 towards
 and
 out
 of
 the
 business
 district.
 This

represents
 clients
 visiting,
 people
 travelling,
 lunch
 delivery
 and
 other

activity.
 Simultaneously,
 we
 have
 dependant
 movement
 in
 residential

areas.

5. Secondary
workers
change
shifts
at
business
district
(for
evening
coffee)

6. Tertiary
 workers
 change
 shifts
 in
 residential
 areas
 for
 end‐of‐day

convenience.




©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




7. Secondary
 workers
 go
 home
 and
 Tertiary
 workers
 move
 to
 business

district.

Flow
of
material

The
material
flow
is
logically
fitting
with
people
flow.
Material
delivery
capacity

has
to
be
allocated
so
that
goods
and
material
may
flow
in
and
out
of
the
place.

• The
 usual
 material
 required
 at
 business
 district
 is
 transported
 before
 the

business
district
opens
or
after
it
closes.


• Secondary
 workers
 usually
 handle
 this
 activity.
 Same
 is
 the
 case
 for

material
support
for
dependants.

• This
does
not
impose
stress
on
material
capacity
of
the
area.

• Material
requirements
of
residential
areas
are
served
during
the
day
(when

transporters
cannot
access
business
districts).

• Food
and
other
time
critical
material
(mail)
moves
into
the
business
district

during
 the
 working
 time.
 The
 infrastructure
 needs
 to
 be
 planned
 for
 this

movement.
Infrastructure
implies:

• Parking
for
mail
vans,
food
vans,
food
delivery
people
etc.


• Loading
and
unloading
bays
at
offices
and
shops
for
above

• Some
material
delivery
capacity
(on
roads
and
rail)
is
required
to
be
reserved

for
medical
and
emergency
services
like
fire,
etc.
This
means
even
roads
and

walkways
have
to
have
safe‐access
in
case
of
emergency.

• Generally
some
capacity
is
required
for
moving
construction
machinery
and

materials
as
there
is
always
some
construction
going
on.


• This
 includes
 utilities
 (power,
 water,
 gas,
 telephones)
 lines

maintenance,
cement
trucks
(when
time
critical)
etc.

• Construction
equipment
and
heavy
machinery
is
moved
after
hours.

• If
the
central
Affinity
Factor
is
a
factory
then
there
is
high
material
movement

and
that
requires
separate
connectivity
routes.


Proposed
Township
model

Above
 ideas
 can
 be
 used
 to
 create
 an
 easy
 access
 township
 model.
 One
 such

model
could
be
as
shown
alongside.
We
draw
a
representative
segment
of
a
town

–
often
called
sector.



1. The
 area
 within
 the
 circle
 is


walk‐able.
 The
 bigger
 circles

denote
longer
distances.


2. Business
 district
 is
 big
 circle
 –

probably
 distance
 covered
 by

taxi
in
the
first
meter
reading
or

10‐min
drive
time.

3. Business
 district
 is
 high‐density

area.

LIG
 represents
 lower
 income
 group

residential
area.





©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




1. That
 is
 close
 to
 BD
 (Business
 district)
 and
 well
 connected
 from
 other

residential
areas.
This
is
to
reduce
cost
to
LIG
dwellers.

2. This
is
high‐density
residential
settlement.

3. No
specific
dependency
ratio
(workers
to
dependants).

4. High
public
transport
frequency
and
options


MIG
is
middle‐income
group
residential
area.


1. Accessibility
is
maintained

2. It
is
low‐density
settlement.
Further
because
of
nature
of
cities
there
are

less
middle‐income
group
people
as
compared
to
LIG.

3. Dependency
ratio
is
usually
lesser
than
average.

4. Car
 or
 personal
 vehicles
 infrastructure
 in
 addition
 to
 high
 frequency

public
transportation.


a. Limited
 options
 for
 public
 transport
 are
 fine
 just
 the
 frequency

should
be
high

b. Typically
to
LIG
and
BD


HIG
refers
to
rich
people
residential
area.


1. This
 is
 usually
 located
 around
 a
 leisure
 factor
 like
 beach‐fronts,
 lake‐
fronts
etc.


2. Very
low
density
settlement
comprising
large
properties.

3. Dependency
ratio
is
high.


4. Better
automobile
or
personal
vehicle
infrastructure
is
required.


a. Additionally,
 high
 frequency
 public
 transportation
 is
 required
 as

there
is
lot
of
tertiary
work
force
supporting
this
area.

b. Direct
high
speed
highway
to
business
district
is
required

c. Public
transportation
is
required
to
LIG
(high
frequency)
and
MIG

(medium
to
low
frequency
is
fine)

For
 bigger
 towns
 the
 sectors
 can
 be

arranged
 as
 below.
 Alternatively
 there
 can

be
 multiple
 ways
 in
 which
 we
 can
 create

township
 while
 maintaining
 the
 principles

discussed
above.




©
Rahul
Deodhar
2009

www.rahuldeodhar.com



How
Cities
Develop?
–An
idea­Book




Notes
and
Disclaimers

The
ideas
presented
in
this
idea‐book
are
from
my
experience
and
observations.

They
suggest
possible
principles
at
work.
These
have
helped
me
understand
real

estate
prices,
land‐use,
success
rates
etc.


Thus
I
have
validated
these
only
anecdotally.
I
welcome
suggestions
and
testing

of
 these
 principles
 and
 look
 forward
 to
 working
 on
 them.
 I
 will
 continue
 to

change
modify
or
alter
the
theories
based
on
further
experience
or
research.

Users
 should
 exercise
 caution
 while
 studying
 the
 principles.
 If
 in
 doubt
 please

email
me
at
rahuldeodhar@gmail.com

The
 ebook
 and
 contents
 can
 be
 shared
 for
 non‐commercial
 use
 as
 per
 creative

commons
licence
detailed
above.




About
Me

I
 worked
 as
 a
 buy‐side
 analyst
 with
 top
 hedge
 fund
 client
 of
 Morgan
 Stanley.


Prior
 to
 this,
 I
 worked
 for
 CRISIL
 Research
 doing
 industry
 and
 company

research.
I
have
over
8
years
of
work
experience
across
various
roles
starting
on

the
 shop
 floor
 to
 investment
 analysis.
 You
 can
 email
 me
 at

rahuldeodhar@gmail.com.






©
Rahul
Deodhar
2009

www.rahuldeodhar.com