Affordable Housing Institute : US

[Continued from Part 1]

 

5.         Build in urban mass transit from inception

 

A healthy city has not only skeleton (streets and major structures), it also has a nervous system (rapid daily people movement): urban mass transit.  Moving people quickly and cheaply between home and work encourages labor mobility and hence a strong and resilient economy.

 

More than any other single factor, urban mass transit creates livability:

 

• Chicago’s El runs into downtown from north, south, and west right from O’Hare Airport.
• Much though Londoners chaff at it, the Tube goes everywhere from Arsenal to Wimbledon.
• Paris’s Metro connects with its RER to run you from Charles de Gaulle to Napoleon’s tomb.

 

Schematic of a city’s nervous system

 

Through a tragedy-of-the-commons effect, successful cities grow until they stall under the cumulative noise of stopped vehicles.

 

Don’t get me started on the smell or the manure removal problem.

 

Large cities without public transport have been gridlocked ever since Julius Caesar banned all wheeled traffic in Rome during the daylight hours.  Closer to home (in space and time), Boston’s great impetus for its subway (first in the nation!) was to relieve congestion along Tremont Street, where it often took an hour to go three miles.

 

“A highway under the earth”

 

In ecosystemic terms, automobiles are scale-intolerant — they work well at low densities, but become exponentially less efficient at high densities.  Mass transit, especially dedicated lanes or ways, is scale-tolerant, and if designed from the beginning, mass transit can be concealed so it does not interfere with pedestrian traffic, the lifeblood of a city’s leisure and thus an integral component in a healthy city that never sleeps.

 

 

This is a recommendation I share with the Brookings Institution, who provided a truly illuminating retrospective of how, why, and where Old New Orleans drowned and offered their own nostrums to “‘make the region a paragon of high-quality sustainable development.” 

 

6.         Deliver large dollops of capital wholesale, not retail

 

The corollary to thinking big is not acting small.  It is up to the Federal government:

 

• To provide the strategic vision
• To make the big, fundamental decisions that are preconditions of advancement but must inevitably inflame a quarter of the populace
• To establish the major initiatives
• To fund the last loss (see next section)
• To get out of the way once this is done

 

All too often, a national government — any national government — has a tendency to advise smaller levels of government, “You have an entirely free choice, now pick my recommendation and do it exactly as I tell you to.“

 

(The UK’s Westminster is particularly prone to this failing.  Something about a lifetime of secure insulated public service untainted by contact with commerce.)

 

Retail prescription won’t work here. 

 

The US’s great advance in affordable housing delivery theory came (by accident, like vulcanization) in 1986 when the Federal government got out of the direct production business (appropriated programs) and in to the indirect fiscal-initiative business (tax credits as a soft equity source).  Providing a block-granted resource, specified by outcome-oriented compliance, to states or localities has the effect of enabling these key decisions to be made close to the action, but without the strangling kudzu of distant process specifics.

 

The proposal by House Banking Committee Chairman Richard Baker (by coincidence, from Louisiana) for a Louisiana Recovery Corporation (LRC, unfortunately pronounced Lurk) is a very good idea, well worth studying in depth — it includes an offer of voluntary compensation — because it intermediates and consolidates one level of decision-making — but Mr. Baker’s good and detailed proposal should go further:

 

1.         Establish bounded and time-limited recovery zones.  Once the government has decided where rebuilding is to be incentivized (Points 1 and 2 above), then those areas — all of them, right to the boundary — should be designated as Recovery Zones.  As former HUD Secretary Jack Kemp suggested, businesses that relocate into these zones, or property owners who renovate or build new, should be eligible for long-term relief from real estate taxes and income/ gains tax on earnings or appreciation.  (Rather than invite perpetuity, this should be 100% for five years, then declining 15% a year for the next six-plus years, eventually down to zero relief.)

 

2.         Plus-up existing programs with targeted funding.  Within the Recovery Zone, rather than invent whole new delivery mechanisms, use existing programs and “plus them up” (increase their funding on a targeted and time-limited basis).  Applicable programs that have proven to work include:

 

·         Low income housing tax credit

·         Historic tax credit

·         CDBG (if modified to allow an automatic match of external funding)

·         HOME (with automatic funding match)

 

The key advantage of wholesale funding is smooth execution.  Wholesale streams are calculable, reliable, and transaction-efficient.  They will assure that money is rapidly put to work — and speed is essential.

 

7.         Put the Federal government in last-loss position

 

Entrepreneurs think wilds thoughts, move quickly, and take risks that terrify outsiders — all because they can better perceive their markets and can thus seize opportunity.

 

Capital, by contrast, looks suspiciously down its long nose, takes a long and skeptical breath, and with neatly sharpened pencil ticks boxes for completeness, accuracy, and evidentiary soundness.

 

Entrepreneurs and capital are the ultimate odd couple, bound together by practical need: entrepreneurs are capital consumers, investors are capital providers.  But because capital moves so cautiously and slowly [OODA loop], it can never control the entrepreneur — the most expensive documentation high-priced lawyering can buy is still static, and therefore vulnerable to loss.

 

Over the centuries, capital has learned one equalizer: the entrepreneur takes first loss.  In other words, in any venture, 100% of the first downside is paid by the originator, so the capital is insulated.  A typical sharing arrangement might be:

 

Percent loss	Originator share	Capital share
3%	100%	0%
7%	50%	50%
90%	0%	100%

 

“Asps.  Very dangerous.  … [Brightening.]  You go first.”

Spoken like a true investor!

 

We can apply this to New Orleans‘ recovery by seeing the Federal government as the check-writing investor, the state and local government as the wild-eyed entrepreneurs.  (Not so absurd a notion given some of the less-credible statements tossed off by Mayor Ray Nagin.)  The Federal money should thus be packaged as:

 

• Loan guarantees (subject to risk sharing as above)
• First mortgages or preferred equity recovery positions
• Credit enhancement for LRC Bonds, provided that the State of Louisiana and the City of New New Orleans collateralize the top loss.

 

Observe that this approach — Federal government takes last loss — is consistent with the wholesale-not-retail posture we recommended above.

 

8.         Empower residential rebirth by using housing vouchers

 

The hurricane destroyed over 150,000 homes, the vast majority of which were low-income, many of these rental (either private or HANO public housing).  In doing this, the hurricane destroyed the fragile economic balance maintained by many of these families, who will not be able to rebuild their rent-paying power any time soon.  If we want to see residential markets come back, we need to provide substantial income subsidy.  Brookings favors portable vouchers:

 

Wide, long-term access to renewable federal housing vouchers ought to be the starting point, and a core element, of the drive to create neighborhoods of choice and connection in New Orleans.

 

Housing Choice Vouchers represent one of the most humane, dignified options for providing near-term shelter to the displaced—wherever they may be.  But housing vouchers are also critical to the longer-term recovery of the region.  All in one they have the power to reanimate housing markets and foster the emergence of more diverse, healthy mixed-income neighborhoods.

 

Vouchers, in the first place, will be essential to stimulated local market demand.  But beyond that, studies have also shown that families who use vouchers often use them to live in lower-poverty neighborhoods, near better employment and educational opportunities.  That means that in helping returnees repopulate their city, vouchers will also help New Orleanians move to better, less-segregated, higher-ground neighborhoods as they resettle.  And the architects of rebirth should note that housing vouchers can be applied not just to rent but to mortgage payments.  That means that vouchers are good for both former renters and homeowners, and can inject a powerful spur to homeownership.

 

This is all well and good, but overlooks the challenge of creating new affordable housing.  Basing the assistance in properties would enable immediate underwriting and financeability of new construction and substantial rehab properties (under Section 221d4). 

 

In terms of immediate production, the most successful multifamily affordable housing program ever was Tandem Section 8/  221d4 New Construction/ Substantial Rehab.  Both Section 8 and 221d4 are still on the books — all it takes to revive Tandem is funding.  Do that and those speedy entrepreneurs will be optioning land, demolishing the economically obsolescent, and building at warp speed.

 

“Mr. Crusher, invest.”

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