Jim Lydotes of BNY Mellon Asset Management North America looks at the next generation of cities and what it means for infrastructure investing.
As the baby boomer generation ages, city-based retirement is increasingly replacing the idyllic countryside version. Retirees are seeking greater access to amenities, better healthcare and less reliance on driving. Western re‑urbanisation is swelling city populations and increasing infrastructure and service demands, from the necessary, like housing and water, to the modern, like 5G connectivity.
Senior citizens today live longer and are more active than in past generations. Their desire to live in larger collaborative communities and maintain active lifestyles will also generate demand for alternative forms of living space, and their ranks are growing. In 2012, there were approximately 43 million Americans over the age of 651, and that population is expected to grow by more than 70% in little over a decade.
Hospitals, rehabilitation centres and assisted living facilities will be needed to service this aging population. However, much of the infrastructure needed for this demographic shift has yet to be built, and we believe we are on the cusp of a construction buildout across the country that will facilitate the way our aging population lives.
Not having a place to sleep could be the least of a senior's worries given the dire situation of water infrastructure. Despite booming urban centres, the US currently has some of the worst and oldest water infrastructure among developed nations. Three-quarters of the large pipelines supporting the north-eastern US were constructed before World War II.
We believe one of the main reasons for the underinvestment in US water infrastructure is its ownership and regulatory structure. Individual municipalities, rather than companies, control nearly 84% of all US water infrastructure2. Their allocation decisions have led to major underinvestment in water infrastructure. Repairing this will require huge investment; the American Water Works Association estimates the current need will surpass $1trn over the next 25 years3.
Another re-urbanisation-related trend capturing our attention is the move to 5G. In the six years leading up to 2022, we expect to see a tenfold increase in smartphone video data traffic, a fivefold increase in audio data traffic, and likely a sixfold increase in social networking. This avarice data consumption is leading to the push for 5G services and, we believe, will enable telecom companies to adjust their pricing as people become more willing to pay for higher-quality networks, presenting some very real business opportunities.
Cities are not physically growing in size, but the number of baby boomers living in them is swelling. This creates a plethora of issues that are poised to change the face of cities. Many of the potential problems - from environmental to social - will inevitably involve infrastructure investment solutions.
Jim Lydotes is portfolio manager at The Boston Company, part of BNY Mellon Asset Management North America Corporation.
For more information please contact: Kenneth Tomlin, managing director, BNY Mellon Investment Management, at [email protected]
1 US Census Bureau - The Baby Boom Cohort in the United States: 2012 to 2060. Issued May 2014.
2 Source: American Water Investor Presentation, October 2016.
3 American Water Investor Presentation,
October 2016. For illustrative purposes only.