Month in Review: May 2008
[Previous Months in Review available here: Apr 08, Mar 08 Feb 08 Jan 08]
[A complete set of 2007 Month In Reviews available here: Dec 07, Nov 07, Oct 07, Sep 07, Aug 07, Jul 07, Jun 07, May 07, Apr 07, Mar 07, Feb 07, Jan 07.]
In May, AHI announced our $1,000,000 grant from the Bill & Melinda Gates Foundation to research themes posted all over this blog:
The grant will fund AHI’s innovative research approach to improving informal urbanizing communities through:
Housing as a catalyst for improving informal communities, and
Non-governmental organizations, often informal, as enterprises that make visible change.
“We want to change the world’s understanding of what slums are, and how benefactor entities can help improve slums and cities,” said
Housing is critical for families because, psychologically at any rate,
A house is not a home without water and sanitation, so I’ve been spending increasing time trying to understand the economics of water: essential principles: Part 1, water and cities, and Part 2, all channels flow into the basic model:
We saw yesterday that cities grow when they have more clean water, and that increasing water supply means mastering technology, law and government, and finance. It’s almost as if the physical difficulties of managing water compelled humanity to learn how to create cities. But beyond that, as far as I can tell, there’s only one approach to financing water infrastructure that has ever worked at any scale. I call it the Basic Model, and it has evolved in every urban environment I’ve yet encountered.
As the credit gridlock cycle plays out, we have reached the point where it made sense to posit, via a survey of previous financial meltdowns, that Catastrophe is a precondition to financial reform, Part 1, and Part 2:
The last few weeks have revealed gaping fissures in our financial liquidity system.
What do you mean, we outran our boundaries?
Will they lead to meaningful reforms, such as the sweeping reforms proposed by Treasury Secretary Paulson?
As Treasury Secretary, I pray they do
It’s evident to me they should be – with any luck I’ll write the long editorial explaining why – but in the meantime, will they? To answer that, you have to answer this question: is the current catastrophe big enough?
Do you feel lucky, blogger?
Late in May, we observed Reform Step 1: License the brokers. Will there be more changes? The answer depends partly on the form of finance, as Sherlock Holmes articulated in Lending collateral: the quadruplet borrowers, Part 1 and Part 2:
I want different collateral from each of you
“Our friend the Worldly Philosopher appears to have underestimated his vulnerability to appearances and the triumph of mob psychology,” said Holmes dejectedly, laying aside the Positions Wanted section of the Times. “That is a pity, for it obscures the greater question facing his charitable society, and that is what lending they should pursue.”
“What type?” asked Watson, with the sickening sensation that he was letting himself in for another disquisition. “Do you mean what form of money, hard debt or soft debt? Or its place in the capital stack or the financing quilt?”
Holmes realized he would have to do some explaining
Holmes smiled with the self-satisfaction of the blogger’s pet. “All of those are valid distinctions, it is true enough, yet I am thinking of something different — the type of borrower.” He held up his hand to forestall Watson’s next prompting question. “By that I do not mean the borrower’s creditworthiness per se; rather, why does the lender have confidence it will be repaid? What is the main form of collateral?”
Along the way, we spent a little time exploring theoretical subjects like Zeno’s subsidy paradox, When top down doesn’t work in program design and housing development, and in opposing views of responsible spokesmen, we gave nearly equal time to When top-down works:
Because programs are complex, they have four levels of program definition (statute, regulations, administrative guidance, and case practice), and are created and operated across three levels of government (national, state or provincial, and local). Recently the
We whip up zee tasty local concoctions, yes?
Even though we all gravitate to the largest unit of government because that’s where the biggest potential impact is, over time I’ve become much more skeptical about top-down programs, and identified several circumstances when top-down doesn’t work. [Another post, currently contemplated, will cover the situations when top-down does work. – Ed.]
Most of what I do deals with situations where there is too little housing, or the housing is unaffordable, but that the other end, one can sometimes have Too many houses: Part 1, the un-growing city of Youngstown, Ohio, which is tackling its problem by Part 2, the un-building government:
Like
They have found that in
Accepting that
The dramatic collapse of the steel industry led to the loss of tens of thousands of jobs and a precipitous decline in population. Having lost more than half its population and almost its entire industrial base in the last 30 years, the city is now left with an oversized urban structure. (It has been described as a size 40 man wearing a size 60 suit.)
Maybe you need to take in your boundaries
There are too many abandoned properties and too many underutilized sites. Many difficult choices will have to be made as
The psychological principle is that shrinking is not failure; shrinking is adaptation.
Ideally, all this energy surrounding Youngstown 2010 will help turn the city around. It does have a lot going for it, including Youngstown State University, which attracts creative-class types like artists and writers and other intellectuals, as well as museums and an excellent public library.
The other extreme – where there’s growth in demand but a huge overshoot in supply, leads to situations such as When a condo busts: Part 1, down to the bottom, and Part 2, up from the bottom
When a property becomes ‘too vacant,’ it is no longer internally defensible. It becomes a target for clandestine occupancy – meaning, crime – and has to be boarded up in community self-defense.
Condo shakeouts cull the herd pretty severely because they draw harsh distinctions between markets strong and weak.
Some of you aren’t worth saving
Twice I looked at
Faithful AHI blog readers know that because of my background – thirty-plus years working in affordable housing, but always on the private side, and always in an entrepreneurial environment – I’m predisposed to see their value everywhere. Still, when I see change being made – in the
They’re the ones doing transactions.
They’re the ones turning resources into properties and developments.
They’re the ones organizing slum dwellers into political and economic forces.
They’re the ones whose activity changes the political environment.
We’re the ones driving change, and we drive fast!
and Profit is the price you pay for competence. What you do with profits determines who you are:
Non-profits compete with for-profits. For-profits who see an opportunity to displace non-profits will do so.
There’s nothing wrong with this.
In a robust and healthy ecosystem, for-profits will dominate the market-solution spaces. This means it’s the role of non-profits to go beyond what the for-profits will do. Non-profits create a business model in pursuit of a policy objective. They do the R&D, the experimenting. They size or reduce the cost-value gap. It’s also the non-profit’s role to use government gap-closing resources to push a market activity further down the income pyramid, to take something that’s economic only for the middle income and use government resources to make the same business economic for the lower income.
Non-profits are pioneers. When they are no longer pioneering, they deserve to be supplanted – and they will be. When the cost-value gap has closed to zero, non-profits no longer have a comparative advantage, and generally give way to for-profits.
In fact, when a business has matured to the point where the for-profits are doing it, and it’s become part of the normal economy, from the government’s perspective, that mainstreaming represents not failure but success.
Non-profits would be less than human if they didn’t resent the for-profits’ entry into what had been their special pea patch, but we have to step away from our territoriality and realize that when the for-profit supplants us, it’s time to pick up stakes and go pioneering again, a little further out.
We’re looking for opportunity in the financial wilderness
For that next round of pioneering, profits are the essential grubstake
You put capital in to the enterprise, and hope to take profit out of the opportunity
“Profit is the price you pay for competence.”
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