Affordable Housing Institute : US

A living ecosystem is comprised of five basic levels of object:

 

1. Terrain.  Physical features such as oceans, rivers, mountains.
2. Environment.  Temperature, rainfall, wind — external elements that sweep over the terrain.  This includes renewing sources of energy (sunlight, wind) and biological ingredients (oxygen, fertilizer, topsoil) essential to life.
3. Temporal cycles.  Cyclical changes in environment, recurring but locally unpredictable, such as tides, day-night, and seasons.
4. Plants.  Sessile living creatures that establish themselves on the terrain to fill ecological niches created by environmental and temporal cycles.
5. Animals.  Mobile creatures that choose their habitat based on competition with other animals.  Animals, in turn, can be further subdivided into herbivores (who feed on plants) and carnivores (who feed on other animals). 

Of these five, three are inanimate (not alive), two are biota, and one (animals) is consciously animate, making informed choices.  The biotic levels are thus dependent upon the inanimate ones, and the consciously animate (animals) are dependent on everything — including, typically, each other.

 

All levels are interactive and interdependent, but some are more dependent than others.

 

“All animals are equal, but some are more equal than others.” — George Orwell

 

All these concepts — and the systems interactivity principles they imply — can be found in the housing finance ecosystem, a metaphor that grows more robust the more I use it. 

 

As an ecosystem, housing finance is interactive, interdependent, and constantly changing or evolving, and includes ecota (economic biota, an AHI exclusive neologism) as follows:

 

1. Terrain.  Real estate is physical, tangible … and immovable.  Cities locate near naturally desirable features.
2. Environment.  The economic surround, consisting of national governance, national income, the rule of law, efficiency of titling/ land transfer/ mortgaging.  It also includes funding streams (whether private earnings, public investment, or public programs) that create climates fertile or infertile for the creation of housing of particular types.
3. Temporal cycles.  Capital markets are never in stasis; rates rise and fall, unemployment falls and rises, supply and demand are constantly cycling.  All of these cycles are linked via phase-delays, some of them market-derived, some of them consciously driven.
4. Plants.  Both private and public-sector entities create programs, reliable tools (like a secondary mortgage market) that provide baselines atop which.  They also create properties, which in this context are plant-like. 
5. Animals.  Finally, we have companies large and small, generalist and specialist, herbivores placidly feeding (like pension funds absorbing member contributions) or voraciously hunting (developers seeking acquisition-rehab candidates). 

 Once, on vacation in Australia’s Northern Territory — a spectacularly weird wilderness enlivened by fun-loving Aussies — we stopped at the termite mounds.  They are enormous mud constructions, indeed entire arcologies. 

 

Spot the biomass ….

 

They form a bimodal ecology with gum (eucalyptus) trees, whose trunks they hollow out, which forms shelter for birds, whose guano creates nutrients that in turn nourish the tree.  If gum trees didn’t have termites eating them from inside, they would die for lack of animal phosphates and nitrates.  Truly interdependent, and successful — in Australia, the aggregate biomass of terminates underground is greater than all the biomass above ground.

 

Individual properties are like plants, multifamily properties like termite mounds.  (No offense, people.)  Like a plant, a given property cannot move.  Like a plant, it needs nutrients (income).  Like a plant, it shelters animals (in this case, both an owner/ management company and its tenants). 

 

So the metaphor is robust.  But in one very critical way the housing ecosystem differs from our biosphere: whereas our world three ‘inanimate’ levels — terrain, environment, and temporal cycles — change only randomly (unless you believe in intelligent design), in the housing ecosystem they are subject to conscious interference and management:

 

• Terrain.  We build cities; they change the terrain. 
• Environment.  We enact laws, and respect them — or not — which changes the financial environment (economic growth); and we create programs (broad-based ones like the home mortgage interest deduction, narrowly targeted ones by the Washington DC first-time home buyer tax credit).  Changing the environment changes biotic behavior.
• Countering cyclicality.  When economic cycles are not working, we manage them.  Central banks raise and lower interest rates.  Nations enact job creation jobs (NRA, CCC, WPA).

 

 

Thus, the housing finance ecosystem can change faster, and more responsively, than a biological ecosystem. 

 

Where, you may ask, does that leave consultants in the finance of existing affordable housing?  Far up in the trees, like birds of paradise: living in the treetops, subsisting on epiphytic plants that themselves depend on tall trees in a mature rain forest. 

 

 

Indeed, it was at a moment, very early one morning in December, 1999 in the highlands of Papua New Guinea, trying to spot one of these, a distant flitting silhouette through powerful binoculars, that I first had the housing-ecosystemic insight.

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