1.1 The research problem
This book sets out to examine the complex, but indisputably significant, relationship between the property market and the urban economy.1 The stimulus for this work lies in the seemingly ever-accelerating process of urban economic change and the noticeable failure of existing studies to explore adequately the pivotal role that the property market plays in this process.
Over the last three decades or so, cities in Europe have witnessed a remarkable structural transformation at the economic, social and spatial levels, fuelled by changes in production relationships, developments in (tele)communication and transportation technologies, and European economic and political integration. In this environment, it became apparent that urban areas had to reinforce existing strengths and at the same time to develop new qualities to cope successfully with the often traumatic problems of structural adjustment and to maintain a secure basis for local economic development.
This process of urban economic change and spatial reorganisation has been examined by a wide range of studies in search of answers to the ‘urban questions’. Using a number of philosophical, conceptual and methodological frameworks, these studies have offered a variety of interpretations and solutions to urban transformation. However, despite the fact that every socio-economic activity takes place on land or within a built structure, very limited research has been carried out to explore the relationship between urban economic change and the dynamics of property markets. The vast majority of studies either treat the built environment as a passive backdrop to economic change, or acknowledge the interrelationship between economic and spatial structures but simplify and underplay the complex institutional mechanisms that account for the provision of the built environment.2
Clearly, the nature of inquiry and the resulting explanations depend on the theoretical viewpoint adopted. Mainstream urban and property economics (e.g. DiPasquale and Wheaton, 1996; Harvey, 1996) stress the importance of market mechanisms, assuming that they operate in a more or less efficient way to bring supply and demand into a state of equilibrium. Trade defines property prices that can be taken as meaningful representations of value, and the built environment is put to the most valuable use and held in a form that most closely meets the various requirements of rational economic actors. However, the emphasis here is clearly on the demand side of the urban economy, with supply-side conditions being perceived as relatively unproblematic. The built environment is regarded as relatively malleable and the property market as a passive adapter to urban change. By taking this approach, conventional approaches largely neglect any property-related factors in urban economic organisation and change and therefore fail to provide a satisfactory explanation of the mechanisms and processes through which the built environment is provided and, perhaps more importantly, of the way it affects the course of the urban economy.
In contrast, other approaches view urban economic and spatial transformation as a reflection of the dynamics and processes of the evolving politico-economic system and therefore correctly place urban change and built environment provision in an economic and political context. Some of their explanatory determinants are structural, reflecting the nature and dynamics of capitalism (Castells, 1977; Harvey, 1985), while others place emphasis on the (inter-)active role of human agency (Healey, 1992). The analytical approach is essentially historical, focusing explanation on the way economic and socio-political structures are organised and interact dialectically with each other through human agency. These interpretations portray the city as a ‘rational’ economic, political and social entity in dynamic transformation, constantly searching for an equilibrium solution to all traditional urban problems (unemployment, poverty, physical decay, etc.) mitigating tensions in the economic sphere.
These approaches have been attacked on many grounds, including their deterministic or teleological system of explanation, their functionalist treatment of the built environment and their undue stress on structure or agency. In addition, none of these approaches has managed to effectively incorporate the complex nature of property market processes into their analysis of the provision of the built environment and to carry this analysis into an integrated urban economic theory. On these grounds, the dynamics and mechanisms of the property market, as well as its relation to urban spatial-economic transformation, remain largely unexplored.
There are, however, a few studies (e.g. van der Krabben, 1995; D’Arcy and Keogh, 1997; Ball, 1998) which explicitly place the property market (through which the built environment is defined, generated, transformed, used and traded) at the centre of their explanation. These draw on an eclectic mix of institutional economics. Institutional economics see the socio-economy as an integrated and dynamically evolving system which is constantly reproduced and transformed by purposeful and multidimensional human agency. This enables external pressures and internal institutional arrangements to be reconciled and tensions arising in economic relations, as well as in law, politics, culture and power structure, to be addressed. The potential for economic progress and success rests on the institutional context (described in economic, political, legal and socio-cultural terms), the associated organisational framework (economic actors, organisations and networks) and the ability of the system to adjust these structures to anticipate and accommodate changing conditions and circumstances.
In this approach, the property market itself is conceived as an institution, comprising a set of formal and informal rules, rights, norms, practices, conventions, cognitive frameworks, relationships and organisational formations through which property is defined, generated, used and exchanged. It acts, alongside other institutional structures, as a mediator through which the potential for economic change is realised. The effectiveness of the market to provide what economic actors require, in terms of both the physical and institutional aspects of property, affects the ability of the urban economy to accommodate pressures for change and promote economic potential. Thus the operation of the property market is seen as an important parameter in understanding economic performance and the development of cities.
Despite these theoretical advances in conceptualising the property market and its relation to the urban economy, our understanding of these mechanisms, processes, relations and dynamics still remains, at best, partial. For example, although the relation between the property market as an institution and the wider (urban) institutional environment is generally recognised, many of these links remain virtually unexplored and require further theoretical development before effective empirical research can be undertaken.
Three knowledge gaps and potential research avenues are apparent. First, despite the variety and diversity of institutional economics, no published research has systematically deployed its conceptual and methodological nuances and its perspective on urban economic development and the provision of the built environment. It therefore seems essential to explore the breadth and depth of institutionalist thought and to identify those elements which can be employed for the analysis of the property market as an institution and of its relation to the urban economy.
Second, a unifying and comprehensive conceptual framework is required to advance understanding of the complex mechanisms through which the built environment is provided in response to urban socio-economic processes and dynamics, and to translate this into an effective theory of urban economic development. This should involve the provision of an explicit ontological, epistemological and methodological perspective from which a clear research agenda for concrete analysis can be defined. Clarity on these issues is essential given the fact that institutionalist research can be, and has been, informed by a range of philosophical positions and analytical standpoints.
Third, empirical work is needed to investigate the processes of urban economic change and built environment provision and to consider their relations in specific urban settings. Such empirical analysis has a dual function. It serves to form new hypotheses about causal mechanisms and relations that have not been previously identified or adequately theorised. It also provides a basis from which the relative power of developed or competing theories can be assessed and validated in historically and spatially specific urban configurations.
1.3 Organisation of the book
The arguments of this book are deployed in six chapters. Chapter 2 starts by examining the main philosophical traditions in the social sciences. This provides the basis to consider the analytical frameworks that are available in economics. The chapter discusses their conceptual underpinnings and methodological practices and critically assesses their deficiencies and limitations. This enables the identification of appropriate conceptual and methodological cornerstones for the development of a holistic framework that advances understanding of the processes through which the built environment is provided and the way it affects urban economic potential (developed in Chapter 4).
Chapter 3 reviews the extensive literature on urban economic change and the provision of the built environment to identify knowledge gaps and possible research agendas. It starts by outlining the processes, contextual trends and emerging patterns of urban socio-economic reorganisation, identified by researchers independent of their methodological stance. This essentially descriptive analysis of urban transformation is put under scrutiny on the basis of the theoretical interpretations provided by the main frameworks of economic thought. This discussion provides a range of theoretical insights into the transformation of spatial structures, the provision of the built environment, the operation of the property market and the role these all play in urban economic development.
Building on these insights, Chapter 4 develops a holistic framework to enrich the conceptualisation of the property market as an institution and to specify its links with the urban economy. In particular, drawing on the philosophical approach of critical realism, the chapter first delineates the ontological and epistemological underpinnings of the developed research programme. Next, key critical realist principles are combined with the institutionalist insights of economic organisation to construct a three-layer ontological framework discussing the institutional nature of urban socio-economy. Finally, a rich theoretical framework for the exploration of urban economic organisation is laid down, where emphasis is placed both on the wider institutional environment and on the specific mechanisms, processes and dynamics of the property market. The interrelation between the property market process and the wider institutional environment is explored, particularly in terms of efficiency in providing appropriate property market institutions and outcomes which support urban economic potential.
Building on the holistic research programme developed in Chapter 4, Chapter 5 provides an analytical framework that translates the developed theory into an agenda for concrete research and practice. A two-level research design is put forward. The first level examines in a conventional manner the relation between economic and property market outcomes, while the second provides an in-depth institutional analysis of the market process. To this end, the developed concepts are operationalised, the kind of information needed is determined, the appropriate techniques for data collection are identified, and the processes and methods for analysis are specified. This research design provides a blueprint for any empirical case study.
Chapter 6 concludes the book. Here, with reference to the overall research aims and objectives, the developed philosophical, conceptual and analytical frameworks are evaluated. This provides a judgement on the validity, reliability and generalizability of the overall framework and the associated research design. Finally, in the light of the key findings, directions and recommendations for further research in the area are provided.
