Flávia F. Feitosa 1 Antônio Miguel V. Monteiro 1,2 1 Earth System Science Center – CCST

1. Urban Conventions and Residential Location ChoiceExploring a Heterodox Perspective of Urban Economics with a Spatially-Explicit Simulation Model Flávia F. Feitosa1 Antônio Miguel V. Monteiro1,2 1Earth System Science Center – CCST 1,2Earth Observation Coordination –COBT National Institute for Space Research - INPE CAMUSS - International Symposium on Cellular Automata Modeling for Urban and Spatial Systems November 8-10, 2012 — Oporto, Portugal

2. The Productionof Urban Space in Brazil blog.opovo.com.br São Paulo, SP, Brazil

3. São José dos Campos, SP, Brazil imoveisesaojosedoscampos.com.br

4. Jardim Aquarius - São José dos Campos, SP (1/7/2006)

5. Jardim Aquarius - São José dos Campos, SP (9/3/2008)

6. Jardim Aquarius - São José dos Campos, SP (4/17/2010)

7. Jardim Aquarius - São José dos Campos, SP (9/2/2011)

8. The Production of Space in Brazilian Cities High Demand for Urban Dwellings SocioDemographic Changes

9. Urban Population Increased Urban Population: From 36% to 84% of total population (1950 to 2010)

10. Family Size Decreased

11. The Production of Space in Brazilian Cities High Demand for Urban Dwellings SocioDemographic Changes Market Dynamics Urban Speculation Urban dwellings/locations seen as an investment

12. Empty Dwellings vs. Housing Deficit (2010) 6.07 million dwellings are empty (urban speculation) http://www.milimoveis.com.br 5.8 million dwellings are needed (housing deficit) Photo: Henrique O. Loeffler (Flickr)

13. Urban Segregation Photo: Tuca Vieira Imposes obstacles that contribute to perpetuate poverty

14. Residential Location Choices Residential Preferences of Families (Stated or Revealed) BUT… How genuine are these preferences? Are the families (consumers) really “sovereign”?

15. Consumer Sovereignty vs. Producer Sovereighty

16. Consumer Sovereignty vs. Producer Sovereighty John Kenneth Galbraith (1908-2006) 1967 1958 Argues that far from consumers deciding what should be produced, it is the producers who are deciding what should be produced, on the basis of what makes the most profits for them

17. The Kaleidoscopic City By Pedro Abramo Chosen as an alternative framework to model residential location choices Focus on the role of entrepreneurs actions in influencing the decisions of families • Builds on the heterodox economic literature to develop an interpretation of how residential choices are made • Criticizes the idea that the spontaneous action of market forces promotes higher levels of consumer satisfaction and efficiency of resource use 1998 (French), 2007 (Portuguese), 2011 (Spanish)

18. Families (Consumers) • Perceive urban space as a mosaic of neighborhood externalities • Preference for places where lower-income families are not present • Location Choice = Investment Choice • (human capital, speculation…) But... • Families’ decisions are simultaneous and decentralized • Neighborhood externalities are constantly changing Opportunistic Decision = Crucial Decision Radical Urban Uncertainty

19. Entrepreneurs (Producers) • Contribute to Urban Uncertainty through the Practice of Innovation • Build dwellings that are are more innovative/attractive to avoid competition with old housing stocks and redirect the demand to new locations • Promote a fictitious depreciation of old housing stocks: not a physical depreciation, but a depreciation in the social status of residents living in the location Innovation = Crucial Decision Radical Urban Uncertainty

20. Under this context of uncertainty… How do marketparticipantsmaketheirdecisions? Techniques suggested by Keynes (1936) Imitation Mimetic behavior converging to an Urban Convention Collective conviction regarding the type of family that is going to live in a particular location

21. By adopting a mimetic behavior… Agentsneedtoidentifywhoisbetterinformedandshouldbeimitated Keynesian speculator : Task is to predict the psychology of the market In the residential market Schumpeterian Entrepreneur = Keynesian Speculator “Better-informed agents”, since they are able to promote innovations that depreciate existing areas. Urban Convention Element of spatial coordination that results from a mimetic speculative process where families elect the entrepreneur’s actions as source of information

22. Order vs. Disorder CONVENTIONS Order CRUCIAL DECISIONS Disorder This tension between the order promoted by urban conventions and the disorder introduced by crucial decisions (innovations) reveals the context of radical urban uncertainty and kaleidoscopic spatial order that characterizes the market coordination of the urban space Quite different from the stable and efficient process advocated by the neoclassical approach...

23. Order vs. Disorder

24. The Kaleidoscopic-City Model rorschmap.com Seeks to investigate how crucial decisions made by entrepreneurs (innovation) contribute to change the urban spatial order and the lifecycle of different regions in a city

25. The Kaleidoscopic-City Model Two Types of Agents Families (Consumers): hierarchized by their income Entrepreneurs (Producers): innovative or imitative Environment Regions (set of cells): can be, temporarily, be recognized by the urban convention as the region where the richest families are going to live, “urban-convention region” Cells: can be urbanized or not. Once urbanized, they can accommodate one or more dwellings, depending on the maximum density allowed in the region. Dwellings located in a cell have a certain degree of innovation and can be occupied by family agents.

26. Process Schedule Set up initial state of the system SIMULATION CYCLE Create new families and expand urbanized areas Compute and report output measures tn+1 = tn+ 1 Families’ actions: Move to a different location and evaluate urban convention Entrepreneurs’ actions: Build new dwellings and evaluate urban convention

27. Process Schedule Set up initial state of the system SIMULATION CYCLE Create new families and expand urbanized areas Compute and report output measures tn+1 = tn+ 1 Families’ actions: Move to a different location and evaluate urban convention Entrepreneurs’ actions: Build new dwellings and evaluate urban convention

28. Initial State of the System • 12 Regions • Urbanized area in the center of the region • 20 Families with different income level, occupying 20 dwellings with equal degree of innovation • Profile of Entrepreneurs (innovative or imitative) set according to a user-defined probability Urbanized area (t=0) Family agent (consumer) Predefined regions Family Income Level Higher Lower

29. Process Schedule Set up initial state of the system SIMULATION CYCLE Create new families and expand urbanized areas Compute and report output measures tn+1 = tn+ 1 Families’ actions: Move to a different location and evaluate urban convention Entrepreneurs’ actions: Build new dwellings and evaluate urban convention

30. Process Schedule Set up initial state of the system SIMULATION CYCLE Create new families and expand urbanized areas Compute and report output measures tn+1 = tn+ 1 Families’ actions: Move to a different location and evaluate urban convention Entrepreneurs’ actions: Build new dwellings and evaluate urban convention

31. Select Entrepreneur YES Innovator? Evaluatecurrentconvention NO Convenient? YES NO Establish new convention Selectregionto build Chooseplotand build new dwellings Entrepreneurs‘ Actions NO Isdemandsupplied? YES Stop

32. Process Schedule Set up initial state of the system SIMULATION CYCLE Create new families and expand urbanized areas Compute and report output measures tn+1 = tn+ 1 Families’ actions: Move to a different location and evaluate urban convention Entrepreneurs’ actions: Build new dwellings and evaluate urban convention

33. Select Family Families‘ Actions YES New in thecity? NO Evaluatecurrentlocation: Neighborhoodexternality anddwellinginnovation It needs/wantsto move? NO YES Stay in currentlocation Evaluatealternativelocations Anyadequatelocation? NO YES Move toselectedlocation

34. Process Schedule Density of dwellings in each region Average income of residents in each region (proxy of land value) Spatial isolation of income groups Set up initial state of the system SIMULATION CYCLE Create new families and expand urbanized areas Compute and report output measures tn+1 = tn+ 1 Families’ actions: Move to a different location and evaluate urban convention Entrepreneurs’ actions: Build new dwellings and evaluate urban convention

35. Without Innovation Families‘ Response to Entrepreneurs‘ Actions Spatial Isolation of Wealthier Families Lower Income Higher Income Lower Isolation Higher Isolation

36. With Innovation Families‘ Response to Entrepreneurs‘ Actions Spatial Isolation of Wealthier Families Lower Income Higher Income Lower Isolation Higher Isolation

37. Urban Regions Density of Dwellings With Innovation Without Innovation Dwelling’s density Dwelling’s density Time Time

38. Urban Regions Mean Income of Families Without Innovation With Innovation Mean Income Mean Income Time Time

39. transition phase 3 (a) DENSITY OF DWELLINGS Regions‘ Life Cycles transition phase 2 phase 1 transition fictitious depreciation fictitious depreciation (b) FAMILIES’ MEAN INCOME Region Green (R1) Region Brown (R2) Region Pink (R3) Region Red (R4) Region Orange (R5) Other Regions increase in prices (c) CONVENTION REGION R5 R4 R1 R1 R4 R3 R2 R2 R3 R1 time

40. Empirical Data: São José dos Campos DWELLING UNITS UNDER CONSTRUCTION DWELLING UNITS Source: ACONVAP – Associação das Construtoras do Vale do Paraíba

41. Empirical Data: São José dos Campos DWELLING UNITS UNDER CONSTRUCTION Jardim Aquárius - Urban Convention- DWELLING UNITS Source: ACONVAP – Associação das Construtoras do Vale do Paraíba

42. Final Remarks • The Kaleidoscopic-city model explores a heterodox perspective of urban economics: focus on the impacts of entrepreneurs’ decisions • In pursuit for higher profits, entrepreneurs manipulate the sovereignty of consumers through the practice of innovation • Entrepreneurs: from the neutral position of price-takers to an active role as price-makers

43. Final Remarks Limitations and Perspectives • The framework/model addresses only the formal market • The model considers a single “urban convention”, but different conventions could be simultaneously represented • The role of the State, as regulator agent, should be included

44. Final Remarks • This alternative way to envision the residential market has implications for the future urban order and, consequently for the development of urban policies. • Instead of adopting the neoclassical exchange paradigm, the model is built on the Keynesian speculative-financial paradigm. • Studies and policies developed under this perspective should focus less on economic predictions and more on the historical process of urban development and the possibility of having economic agents making crucial decisions that redefine the course of history

45. Thank You! Flávia Feitosa (flavia@dpi.inpe.br) Antônio Miguel Monteiro (miguel@dpi.inpe.br)

46. Urban Conventions and Residential Location ChoiceExploring a Heterodox Perspective of Urban Economics with a Spatially-Explicit Simulation Model Flávia F. Feitosa (flavia@dpi.inpe.br) Antônio Miguel V. Monteiro (miguel@dpi.inpe.br) Earth System Science Center – CCST Earth Observation Coordination –COBT National Institute for Space Research - INPE CAMUSS - International Symposium on Cellular Automata Modeling for Urban and Spatial Systems November 8-10, 2012 — Oporto, Portugal