Month in Review: May 2007
[Previous months in review available here: Apr 07, Mar 07, Feb 07, Jan 07.]
May opened with a continuation of my multi-part series on economic growth and housing affordability in
“We want David back! We want David!”
And about which I posted with addenda to each post, in Part 1, national demand, Part 2, supply boom, Part 3, affordability gap, Part 4, the great unspoken risk, and Part 5, what Turkey can do for affordable housing, which observed:
The most powerful force to improve informal neighborhoods is the people who own property there. As I said in my talk, one could link home improvement with formalization and access to capital. The structure would be something along these lines:
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Owner of an informal house applies for the program, and commits to formalize building structure.
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Government offers a path to formalization, a mixture of inspection now and commitment to reinspect after work is done.
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Government provides a drawdown-type loan to fund the upgrades.
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Loans are administered through private financial institutions.
Something along these lines would be of immense value, not just financial or economic, but likely in deaths prevented.
Unfortunately, improving incremental housing is where I am least optimistic. It’s hard work to do, the scale is enormous and each loan is a challenge, the potential for corruption or leakage between concept design and recipient is great, and it’s difficult to see where an elected official will get the political capital to do this (as opposed to promising it, which I imagine many may).
This is a critical intervention — absolutely essential — but a difficult one politically and economically. I’m much more optimistic about a simpler intervention: inclusionary zoning in TOKI or private developments, particularly in the stronger market areas.
My series finished with:
At the local level, all developers in high-cost areas — whether they are purely private or TOKI, if it remains an active player in the development arena — could be subject to an Inclusionary zoning mandate, as a condition of receiving higher zoning, to include 15-25% of the homes as affordable. Affordability bands will depend on markets, development parameters, and the value gained from increased zoning.
Key here is that
Couple that with new programs and
The new mortgage law is a great place to start. There’s much more to be done.
A followup post, Turkey: housing and democracy, put forth a thesis of affordable housing as a Tocquevillean policy intervention:
I think that the country’s future path to democracy leads through housing affordability and extending the benefits of a successful economy to those who currently work and live on its fringes, because, as the Washington Post reports, that is the dominant issue facing many of the ruling party’s supporters:
A typical gecekondu neighborhood
Umraniye is known as a gecekondu, literally “built in the night,” recalling an Ottoman law that said no one could tear down a house begun at night and finished by dawn. Like the other poor, shoddily built settlements that swathe Istanbul, Ankara and other cities, Umraniye is part of the constituency courted by the party of Prime Minister Recep Tayyip Erdogan, whose populist, religiously resonant politics appeal to the millions of migrants who have flocked to cities prospering in Turkey’s economic boom.
Cities are the world’s future, and therefore the host of the world’s future leaders. Improving
Democracy civilizes not just its citizens but also its government. To stay in power, the AKP must simultaneously reassure the business elite — which means protecting markets and capital — and also reward its political base of the urbanizing poor.
Where the AKP’s votes come from
What public intervention can possibly do as much for those poor as improving both the durability and the economic value of their gecekondu housing?
Any party can win an election with promises that are purest political vaporware. Winning a second election can sometimes also be accomplished through vaporware, by claiming that improvements are ‘just around the corner.’ But a party with serious pretensions of incumbency must deliver by the third election, or be turfed out in favor of the new lot of scoundrels.
“What I tell you three times is true.”
In short, the AKP is very rapidly approaching put-up-or-shut-up time — and housing must be part of its agenda.
Paraphrasing Anna Karenina by way of Tip O’Neill, every country’s politics is unique to that country.
And Tip’s was local to
Yet there is one takeaway for the AKP — tackle the housing problem, in a substantive way, lest your voter base become disenchanted with the AKP, with democracy, and with liberalism itself.
In the closer but equally foreign country of
I was in
“Weally? Donald Twump used my invention??”
You remember the portable hole? Bugs Bunny [Whose accent was pure
Apply to any non-stick zoning laws
Portable holes are sometimes created and used in Looney Tunes cartoons, including such variations as foldable doorways. One entire cartoon (”The Hole Idea,” directed by Robert McKimson and released in 1955) depicts the invention of the portable hole by one Calvin Q. Calculus.
Then when he was done, he plucked it off the wall, sealing up the breach. Something similar is what The Donald is doing in SoHo, as he’s developing a condo-that-dare-not-speak-its-name, using the zoning equivalent of a portable hole.
Donald Trump Tuesday got the green light from the city to erect what will be the tallest building between midtown and the financial district, sparking a wave of outcry from politicians and activists.
We’re good to go.
After posting it, my curiosity got the better of me, so I hunted down the condo declaration and had some fun dissecting its provisions, “looking for loopholes” as W. C. Fields said of the Bible, in Condo hotel: I do declare! Part 1, the rules, I do declare! Part 2, the others, and I do declare! Part 3, the dodges, finishing up with:
From all this careful documentary review, there emerge a few policy lessons:
1. Words matter. When facing a contract or commitment, read the words very carefully, paying particular attention to Capitalized Terms that are Defined Elsewhere. They usually mean more, or less, than common sense will tell you they do.
2. Zoning is destiny is definitional. When establishing appropriate zoning, pay very close attention to distinguishing size from usage. Here Mr. Trump’s opponents object to the building’s scale, but the zoning controls only its use.
3. Have a motivated monitor. Here all those on-site at the property have a shared economic incentive not to enforce the externally imposed rules. (This problem arises consistently in affordable hosing income certification, about which I shall post sometime.)
4. Reality trumps theory. Rules that cannot be administered cannot be enforced.
“Rules you don’t enforce are worse than useless,” as I shall expound one day.
All the way across the country, I took a lot at the unbelievably troubled and dysfunctional San Francisco Housing Authority, in what’s wrong with this picture? and Part 2:
Years ago, when I was a mere snarky young lad, I subscribed to Mad Magazine, which ran a grotesquely awful cartoon of a completely dysfunctional family, with the caption What’s wrong with this picture?
What’s wrong with this story, I wonder?
The answer, as I still remember after more than forty years, was:
Better you should ask, What’s right with this picture?
And the answer in
Follow the fingers to those taking responsibility
As Dickens might have written, were he a Chronicle reporter:
Jarndyce and Jarndyce drones on. There are not three Jarndyces left upon the earth perhaps since old Tom Jarndyce in despair blew his brains out at a coffee-house in
Perennially hopeless?
Everything about the SFHA case and situation is a mess. That one of the nation’s most prosperous, vibrant, intellectually rich cities should have a housing authority that is a ten-year deadbeat is a disgrace. It’s brought about because housing authorities are not economic owners, have none of the rights and responsibilities of owners, and thus frequently neither behave like owners nor are rewarded or penalized like owners. As I wrote many months ago, it’s long overdue for public housing to cut the Gordian Knot.
At the spectrum’s other end, there is the futility of a self-defeating gesture, such as
Yet markets and people move even if government does not, and with our multiple levels of government and the curious current policy innovation inversion, it should be little surprise that at least one local government has decided to tackle the immigration problem directly — and decisively. As reported in the
FARMERS BRANCH, Texas — Voters in this
In complex ecosystems like housing markets, direct intervention has all sorts of undesirable secondary consequences, particularly when your scope of intervention is geographically small. Councilor O’Hare’s actions are like King Canute, trying to hold back the ocean by hitting it with a baseball bat.
Take that, illegal immigrants!
If one baseball bat does not stop the sea, perhaps there will be dozens, scores, hundreds of such baseball bats. The noise they make will be loud, it may be satisfying to those swinging, but it will make no difference, for the water is mutable, and relentless.
Look, I made this illegal, don’t you know?
Faced with a rising tide, there are only five options (and remarkably, the metaphor works in all cases):
1. Drain it. Stanch the flow by preventing the water from building up pressure.
2. Dam it. Build a hermetically sealed barrier and keep the water out.
3. Divert it. Channel it to irrigate the fields or flow into natural rivers.
4. Swim in it. Learn to cope with an ever-rising tide.
5. Drown. Succumb.
It’s still illegal!
When it comes to illegal immigration, I don’t know what
For the sake of
With subprime problems so prominent in the news, I illuminated the curious creature the lender, in How a lender thinks: Part 1, attitudes and Part 2, behaviors, listing fifteen features including the last and perhaps most important one:
15. Lenders want to be told there is a plan. Lenders think of the world as having a stable state of being ‘in whack’ (as opposed to ‘out of whack’), so any period where things are out of whack they consider transitory, and they want it over. Since the lender wants the borrower/ owner/ manager to fix the problem, the lender craves knowing that the borrower in fact has a plan to restore order — even if the plan requires pain — provided that pain is quantifiable and temporary.
As the operating system monitor program (think: lender) Tron said to user (think: sponsor) Kevin Flynn:
“If you’re a user, then everything you’ve done has been according to a plan.”
“I’ve got news for you, pal; you just keep doing what it looks like you’re supposed to be doing, no matter how ridiculous it seems.”
“That’s the way it is with programs, I thought users were different.”
“I hate to disappoint you pal but most of the time that’s the way it is for users too.”
“Stranger and stranger.”
Useful principle: Maintain the illusion you know what you’re doing.
Our figures stack up
Amid the failures, one group of subprime lenders — state housing finance agencies — have been successful, and in three parts I described The subprime lenders that worked: Part 1, who, Part 2, why, and Part 3, more why:
The HFAs substantially better performance in the subprime sector owes little to luck and a great deal to differences in their business model relative to the specialized value chain in the pure-private markets:
Hands across the keyboard
1. An originate-and-hold business model
2. Less aggressive underwriting
3. Adding innovative features pioneered in the private market
4. Consumer education before lending
5. Generous reserves, and
6. Active asset management with customized tools.
A loan is a bargain struck across the years if not decades. A commission is a payment made at an instant in time. They are temporally at odds. Businesses built around one-off commissions are eternally vulnerable to principal-agent risks, to risk blindness (it falls between the radar screens), and to short-term thinking.
Hey, nothing to worry about until the end
The HFAs have a political accountability and an enduring immobile political visibility. That makes them cautious even as it bestows upon them extra social capital and resources. In good times HFAs can be much too conservative, too settled in their ways — but that’s a post for another time.
Both conservatism and risk have their features
In wobbly times, those same characteristics keep them active in the arena and out of trouble, while others are either idle on the sidelines or foolhardily flinging capital into the ocean.
We kept up with the GSE’s: welcome to turbulence, and looked at a self-interested donor in 3% altruistic
It sounds like a misprint — a non-profit that gives low-income borrowers money for the down payment on their first home, and HUD wants to shut it down — indeed, to shut down a whole industry? Have they got something against charity?
Are you questioning my motives, young man?
It’s easy to see why Mr. Syphax and Ms. Ashburn so fervently defend their companies and their status. They go to closings, from which emerge happy customers who are now titularly homeowners. For doing this good, the two companies evidently do well, with their costs plus covered by home sellers. It’s all a terrific business model — except for that skyrocketing default rate, and the damage that does to aspirant homeowners and the Treasury cost.
Happier days: Celestine and Scott Syphax,
at the Kennedy Center Honors Gala White House reception,
Donohue, who oversees internal HUD audits and investigations, said he has been trying for years to get HUD to ban nonprofit assistance. The agency acted only after the IRS issued its ruling a year ago, he said.
Sherlock Holmes appeared for a brief discourse on project and corporate finance in Finance types: the house of three mortgages, a subject to which Holmes will return in future posts, and finally, we looked at local economics, both when they go bad, in As a town dies, and when some succeed even as others are failing, in To each according to its need: local taxes and revenue sharing:
Revenue sharing at the state level means simply that, via the redistribution of their state income taxes, homeowners in high value cities and towns pay to top up the operating budget of less affluent communities elsewhere in the state, whose homeowners pay lower taxes.
Revenue sharing: from each city or town according to its ability, to each according to its needs. For the state, which has a broad interest in seeing all its communities work, that makes policy sense.
“Hey, I wasn’t totally wrong, was I?”