How a dying city transformed into one of the wealthiest in the world

by Bruce Katz and Jeremy Nowak · January 12, 2018


This piece draws from original research conducted by Dr. Luise Noring, Copenhagen Business School

In the mid-to-late 1980s, Copenhagen was experiencing a 17.5 percent unemployment rate, a loss of taxing capacity, and an annual budget deficit of $750 million. For decades, government policies had subsidized the outmigration of families to the outskirts of Copenhagen, leaving a city overrepresented by pensioners and college students, neither of whom contributed greatly to the city’s tax revenue. With a stagnant economy and the traditional manufacturing industry moving out, the city government had to do something radical to spur economic growth and attract a strong tax base.

And so it did.

Beginning in 1990, an alliance formed between the Social Democratic mayor of Copenhagen, Jens Kramer Mikkelsen, Prime Minister Poul Schlüter of the Conservative People’s Party, and Social Democratic Party leader Svend Auken. These three leaders agreed to transform Denmark’s capital city by catalyzing investment in housing and state-of-the-art infrastructure, making it attractive to new citizens and strengthening the city’s tax base. Undertaking these improvements without increasing local taxes posed a challenge, so the trio decided to focus on developing public land within the city’s borders that had been left idle and unused.

The solution: a new publicly owned, privately managed corporate vehicle that could regenerate large areas in the city’s core, maximize the value of underutilized public land, and use the revenues generated by smart zoning and asset management to finance transit and other infrastructure. The aspiration was to combine the efficiency of market discipline and mechanisms with the benefits of public direction, legitimacy, and low-cost finance.

And so began the remarkable transformation of Copenhagen over the past twenty-five years from an ailing, depopulating manufacturing city to one of the wealthiest cities in the world. Through this process, Copenhagen established itself as a preeminent leader of New Localism, demonstrating that market power, innovative thinking, and solid leadership can be used for public benefit.

The intervention proceeded in three discrete phases.

The first phase involved creating the Ørestad Development Corporation in 1992. The corporation was charged with redeveloping Ørestad—an area about 1.2 square miles in total located between the city of Copenhagen and the Copenhagen airport and the bridge connecting Denmark to Sweden—and using the revenues generated by redevelopment to finance the construction of a transit system for portions of the city. The land, owned by the national government, had traditionally been reserved for use by the military.

The Ørestad Development Corporation pioneered a close partnership between the national government and the city government of Copenhagen; the corporation was co-owned by Copenhagen Municipality (55 percent) and the National Ministry of Finance (45 percent). While the State of Denmark provided the land, the city government set the zoning, altering the permitted uses from protected heathland to commercial, educational, retail, and, ultimately, residential.

The catalytic move to spur development of this area was the construction of a metro transit line connecting the Copenhagen city center to the Copenhagen airport. National law explicitly tasked the Ørestad Development Corporation with developing the area to raise capital for the construction of the first two stages of the Copenhagen metro (the M1 and M2 lines). To sequence the buildout of the metro system before the full development of the land, the Ørestad Development Corporation took out a loan against the value of its land assets to fund the construction.

The full development of Ørestad is expected to take twenty to thirty years, at which point an estimated 25,000 people will live in the area, along with a daytime population of 20,000 students and 60,000 workers. The first office building was constructed in 2001 and the first residential buildings were completed three years later. As of December 2016 the residential population had reached 10,000 and the worker population totaled 17,000.

The second phase of development involved the revisioning of the Copenhagen port and the restructuring of its management. Historically, the Port of Copenhagen was run largely as an industrial harbor. The port was managed inefficiently and ran continuous annual deficits. To balance these deficits, the port’s management would generally sell unused land to developers. The opening of the Øresund Bridge in 2000, connecting Copenhagen with Malmö in Sweden, dramatically reduced harbor traffic in the ports of both Copenhagen and Malmö, opening up opportunities for the redevelopment of inner-harbor areas for residential and commercial purposes.

To take advantage of these possibilities, the Port of Copenhagen Ltd. was put in charge of both the land management and urban redevelopment of the commercial harbour. The company operating the port functions, the Copenhagen Malmö Port AB (CMP), thus became an entity with a narrow remit. As a result, for the first time in a century, the port realized profits by operating in a more efficient and cost-conscious manner.

The final phase of development involved consolidating the Ørestad Development Corporation and the Port of Copenhagen Ltd. under one entity—The Copenhagen (CHP) City & Port Development. As with the Ørestad Development Corporation, the city of Copenhagen initially owned 55 percent of the CPH City & Port Development, with the remaining 45 percent owned by the Danish national government. A transit construction company was split off from the merged company to take full responsibility for building the expansion of the metro system. Jens Kramer Mikkelsen, who by then was heading the Ørestad Development Corporation, took the helm of the new merged corporation.

Over the past decade, CPH City & Port Development has transformed various areas of Copenhagen. They include the Ørestad area, the formerly industrial South Harbor area, the North Harbor, and an industrial area known locally as Paper Island. CPH City & Port Development has deployed the same innovative model of governance, finance, and operations used by both the Ørestad Development Corporation and the Port of Copenhagen. Since its formation in 2007, CPH City & Port Development has managed about half of all the redevelopment projects undertaken in Copenhagen. Eleven of its sites are landfill sites reclaimed from the sea.

The impact of CPH City Port & Development has been transformative at the city scale as well as at the district and project scales.

A revitalized economy, a stronger tax base, and an expanded transit system have recharged the city. By 2013 the daily ridership on the Copenhagen metro amounted to 150,000, with an annual ridership of 55 million passengers. Like the Ørestad Development Corporation, CPH City Port & Development was established with the explicit purpose of using the revenues of redevelopment to finance the construction of infrastructure (specifically the City Circle metro line). The financing of this major transit expansion, as well as of metro connections to North Harbor itself, involved sophisticated management of public assets.

The sequence, simple and effective, generally works as follows:

  • National and local government transfer assets to CPH City & Port Development;
  • Local government rezones the land for residential and commercial use;
  • The land increases in value;
  • CPH City & Port Development borrows (generally with loans on favorable terms from the Denmark National Bank) based on the (increased) value of the land;
  • CPH City & Port Development either transfers the capital to the metro construction company for broader transit investments or uses it to pay for local infrastructure that enables the development of the land;
  • CPH City & Port Development facilitates development through a variety of mechanisms, including land sales to or lease agreements with developers and, in a limited number of cases, development by the corporation itself; and
  • The newly generated revenue services the debt.

This process results in a virtuous cycle. CPH City & Port Development invests funds from the sale of public land and assets under its control in a broad range of infrastructure projects, including public transit, roads, and recreational and other public amenities. These infrastructure improvements in turn increase the value of CPH City & Port Development’s remaining land and assets, which in turn enables the corporation to invest and expand further.

The ongoing transformation of North Harbor best illustrates the impact of these investments at the district and project scale. North Harbor is the corporation’s most recent redevelopment project and, together with Ørestad, the largest urban development project in Denmark. The project was showcased as “The Sustainable City of the Future” at the COP 15 UN climate summit, hosted by Copenhagen in 2009, and at the Architecture Biennale in Venice.

There are multiple reasons for these accolades.

The North Harbor project is essentially building a new city within the city in a dense, sustainable, transit-connected environment. Eventually the entire North Harbor area will include residential, commercial, and office space and the capacity to accommodate 40,000 inhabitants and 40,000 workers.

The North Harbor district is partly built on surplus soil pulled up from the underground during the metro construction. The amount of soil deposited has been so substantial that it has actually raised the level of the new land by a meter to better prepare North Harbor for climate change and rising sea levels and to offer businesses and residents an assurance of climate resiliency.

National and local law require that new construction in the North Harbor must conform to Copenhagen’s larger ambition of becoming the first capital city to be carbon neutral by 2025. Developers must adhere not only to national and local standards for energy consumption but also ensure that materials are sourced locally, building insulation is adequate, the construction process is conducted properly in terms of reduced accidents and suitable working conditions (lighting, temperature, and the like), and employee satisfaction is high. Local law also requires that at least 25 percent of the housing in new city districts is set aside as social housing for lower-income residents.

The North Harbor project finances both the redevelopment of the North Harbor itself and the continued expansion of the city’s metro system.

To support this, CPH City & Port Development has created a smart profit-sharing mechanism: the corporation receives part of the property value increase generated by the introduction of a metro station.

The mechanism works as follows. CPH City & Port Development includes a clause in all sales agreements requiring the purchaser to pay a supplement to the purchasing price if and when a metro station is established in close proximity to the property. Agreements specifically require the purchasers to pay an additional $11.41 per square meter for office buildings or $5.71 per square meter for residential properties annually for a period of sixty years after the establishment of the metro station within a fifty-meter radius of the property. In this way the public realizes a portion of the value that it creates through the introduction of a transit system rather than allow it to be realized exclusively by private owners.

The Copenhagen story is an example of how the public sector can realize the full potential of public assets to spur large-scale regeneration, finance critical infrastructure or other needs, and participate in the value appreciation that naturally comes with urban prosperity. The public asset corporation model has made the city’s industrial harbor a vibrant, multipurpose waterfront while channeling the proceeds of land disposition, revaluation, and development to finance new infrastructure.

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