Affordable Housing Institute : US

[Previous Months in Review available here: Jun 08, May 08, Apr 08, Mar 08, Feb 08, Jan 08]

 

Congress enacted a landmark law!

Normally a slow month, July was full of events, first with a small bit of fundamental reform, arriving step by careful step, and capped by landmark housing legislation with a characteristically grandiose title of the Housing and Economic Recovery Act (HERA) of 2008,

HERA’s sponsor: the Speaker, Nancy Pelosi

 

and as I posted, Housing reform legislation: yes, it is that big a deal: Part 1, the GSEs and banking, Part 2, housing, and Part 3, the future, with a dozen predictions, from the first –

 

1.             The GSEs’ Federal backing is now manifest

 

In the four years I’ve been posting about the GSEs, the story reached its climax on Saturday.  Catastrophe being a precondition of fundamental financial reform, for nearly two decades, the Federal commitment to the Government Sponsored Enterprises (GSEs) was like the love children of Charles II – everywhere visible and never politically acknowledged. 

 

I have personally conceived many little government entities

 

The Federal government got away with this doublethink because for most of that era, the GSEs’ financial strength seemed impregnable; their smoothly-managed earnings rose from strength to strength, so whether and how Uncle Sugar would bail them out could remain a mystery.

 

Two weeks ago, the stock market wolf pack took a run at the GSEs, driving their share prices down to absurd levels.  Perhaps they were motivated by two AHI blog posts that seem, in the words of Mickey Kaus, eerily prescient:

 

Huh? Does Krugman not know that Fannie Mae was a huge buyer of subprime mortgages, including mortgages from Angelo Mozilo’s Countrywide? David Smith’s eerily prescient AHI blog noted that Fannie Mae and Freddie Mac reportedly bought $35 billion in subprimes in the first quarter of 2007 alone.

 

Do you know what’s in that subprime portfolio?

 

– to the last:

 

12.          HUD’s decline into irrelevancy is now inevitable

 

When Hurricane Katrina hit, causing the biggest localized housing crisis in America’s last decade, HUD was nowhere; FEMA took the lead, and when New Orleans needed to be rebuilt, we observed the Case of the Vanishing HUD.  

 

When the GSE scandals broke, to its eternal credit, HUD’s Office of Federal Housing Enterprise Oversight (OFHEO) did the digging and made the case in the early days (complete early-AHI archive here), eventually issuing the report that blasted Fannie Mae, so thoroughly the company never rebutted a single charge. 

 

As its reward for this exemplary service, HERA abolishes OFHEO, transferring all of OFHEO’s powers to the newly created Federal Housing Finance Agency, and granting FHFA many more powers as well.  OFHEO is abolished (as we saw above), with a pat on the back for a job well done.

 

Great job … now hit the showers

 

At this point, what is there for HUD to do?  All of its functions have been wholesaled, most of them to the states, except for EEOC (which could easily go to the Justice Department) – and the legacy public housing inventory, which needs a bold Gordian-knot-cutting solution and turn into the essential housing authority, one that is no longer micromanaged by HUD.  So here’s a final prediction:

 

By 2012, HUD will be gone as a Cabinet branch.

 

Whether this is good for the country’s affordable housing is something I can take up in future posts; for now, we can already hear a future Congress having the last word.

 

 

Even as public officials and private executives groped to develop a comprehensive safety network for their customers and their own balance sheets, markets were shifting at speeds faster than tectonic plates and slower than avalanches, as documented in when money moves in:

 

Not only is the world urbanizing, so too is America, and as we do, The value of urban land will continue to rise, with consequences that are both logically predictable – Every silver lining has a cloud – and utterly astonishing to those experiencing them, as detailed in this article from The San Francisco Chronicle:

 

It’s urban flight flipped on its head:

 

 

The number of low- and middle-income residents in San Francisco is shrinking as the wealthy population swells, a trend most experts attribute to the city’s exorbitant housing costs.

 

As usual with a certain kind of reportage, the description reverses cause and effect backwards.  It isn’t the exorbitant housing costs that are luring the rich; rather, the rich being lured are raising housing costs, and in the absence of a countervailing price relief valve – more supply, anyone? – the less-rich are priced out. 

 

Many worry it’s increasingly turning San Francisco into an enclave of the rich, where nurses, firefighters, cops, teachers and other professionals aspiring toward homeownership or in need of cheaper rent can no longer afford to stay.

 

As I’ve chronicled elsewhere, workforce housing *is* affordable housing, and is one of Affordable housing’s great unsolved problems. 

 

I’m getting a grip on the problem

 

“A kind of derogatory term for the city would be Disneyland for yuppies,” said Hans Johnson, demographer with the Public Policy Institute of California.  “There is a legitimate public policy concern when a city that many people have lived in for many years and regard as their homes becomes so expensive they can’t afford to live there anymore.”

 

Increasing workforce housing availability is a challenge, one to be met (or not met) at the local level because of the Housing policy innovation inversion. 

 

– and its corollary, Back to the future via rental:

 

In the future, homeowner rates will be artificially high!

 

In 2006 the US homeownership rate was up to 68.8%, a two-and-a-half percentage hike from the rate only eight years earlier, before subprime and adjustable rate financing zoomed into the marketplace, when the US homeownership rate was 66.3%.  Nor was that the crest; at the height of the subprime-influenced market, some informal reports had the homeownership rate cresting above 69.5% in 2007.

 

Pushing up homeownership rates since 1998!

 

Might these people have been homeowners in name only – that is, titular but not economic equity holders who did not pay and never could have paid their mortgages?  Were they, in effect, renters in disguise?

 

What makes you think I’m not a homeowner?

 

 

In the realm of practical theory, I invested a great many words deconstructing an article in The Atlantic that offered a fallacious view of the link between housing subsidy and crime, in Lord Wellington’s lament: Part 1 ‘needlessly moving about’,

 

Lord Wellington stood astride the railway of history growling, “None shall pass.”  Something similar, although cloaked in regretful empathy, is coyly implied by of a lengthy and provocative if questionable article in The Atlantic, which coyly implies – but never actually states – that an increase in crime is directly attributable to mobile housing subsidy in the form of Section 8 (recently renamed Housing Choice Vouchers), and that things would just be so much better if all ‘‘those people’ could return to the halcyon days of public housing.  Because author Hanna Rosin – who appears new to housing and cites only sociologists, not any actual housing experts, in her 8,500 word article – seems embarrassed by her thesis, she tiptoes up to it with an elliptical day-in-the-life opening:

 

To get to the Old Allen police station in North Memphis, you have to drive all the way to the end of a quiet suburban road until it turns country.

 

Got the theme?  Bucolic suburb shattered by escaped urban hordes. Shades of The Wild One.

 

We’re here for the housing subsidies

 

Part 2, ‘warehousing the poor’, Part 3, ‘day-release prison’, and Part 4, ‘those people in our midst’:

 

The only virtue of concentrating poverty is political avoidance.  By warehousing the poor in what was once ‘decent, safe, and sanitary’ housing, we can claim to have addressed their needs even as we conveniently can overlook ‘those people’ in our midst.

 

Cabrini-Green: might as well be prison

 

Dispersing the poor is good for the poor.  Maybe it’s not enough – some people never cope with leaving, at least not without help.  Maybe it creates new challenges for immigrant communities (as, throughout history, immigrants arriving in any community have created challenges).  Then maybe those are challenges we had better tackle, rather than wistfully imagining people were happier in their public housing ghettos.

 

“Publish and be damned.”

                                                        The Duke of Wellington
 

I’ll be damned if I read a blog

 

A different, more cheerful view of household mobility and neighborhood development was exposited in Hermit crab housing: Part 1, how and why, physical, Part 2, how and why, economic, and Part 3, fringe benefits and essential principles, which highlighted an innovative mission-entrepreneurial approach to adaptive reuse of buildings whose sole obsolescence was of their location:

 

Two days ago we introduced Builders Of Hope in Raleigh, North Carolina, which (as profiled in the Wall Street Journal) lifts up solid but economically obsolescent houses from their ample and now-too-valuable sites, and relocates them elsewhere on smaller, less valuable sites, along the way converting what would have been a teardown into affordable workforce housing. 

 

Rather than tear it down, you prep it for travel  …

 

The critical role of an effective Mission Entrepreneurial Entity

 

In a model I call Hermit Crab Housing, Ms. Murray’s non-profit does all the pieces as a vertically integrated boutique development company that handles and quality-assures every phase:

 

There you go, little fella, you’re ready for occupancy now

 

Program conceptualization and design

Land acquisition (and, if necessary, land rezoning)

Site acquisition (via charitable donation)

Relocation of the physical structure

Construction/ rebuilding of the transplanted house

Marketing and sale of the new homes

Ongoing affordability

 

Builders of Hope’s great comparative advantage is its capacity; its second great advantage is its brand, meticulously developed over several years both by commitments (Ms. Murray working for free) and by outcomes (being able to show completed, successful developments).

 

[…]

 

Why can’t the idea propagate? 

 

I think it can, if the conditions are right, to wit:

Continuing to dig into affordable housing finance’s largely undocumented history, I offered a personal speculation on the steam-unk version of microfinance, in Microfinance: born in the USA? Part 1, birth, Part 2, evolution, and Part 3, maturity, offering this overall thesis:

Finally, nearly a hundred years after its founding, the company married into respectability:

 

Gilbert Ellis became HFC’s fifth president in 1972, and he promptly signed a joint venture agreement with J.P. Morgan & Company, a finance company that had long served wealthy individuals and large corporations.

 

Even hearing it now makes me glare from my grave

 

Diversification and niche expansion continued:

 

In 1976 HFC acquired Keystone Savings and Loan in California and several commercial banks in Colorado.

 

The minnow had swallowed the whale: a non-bank bought a bank. 

 

[…]

 

Was America the birthplace of microfinance?  Maybe not in the modern sense, but in the sense of pioneering below the bankable lending frontier, and in using the same principles – high interest rate, short tenor, a continuous orientation toward customer value – that now inform the microfinance industry.  What this little periscope into the past shows is that microfinanciers and their non-profit counterparts, savings associations, are micro-businesses, and can grow as such.

 

 

Guess what I’ll grow up into?

 

I also wrote some notes from a Gates-Foundation-sponsored workshop on water, sanitation and hygiene (WS&H, pronounced wash), in Two days in the WASH: Part 1, the basics, and Part 2, urbanization and housing:

 

Urban WS&H problems are mainly financial.  As I mentioned yesterday, for rural people, WS&H is a labor good.  You solve your problem by your own efforts: walking somewhere, carrying something, pumping something, digging something.  In an urban environment, WS&H is a money good – aside from having to get somewhere to find it, you pay money to obtain it.

 

[…]

 

Cities must solve WS&H, because its externalities hit rich people.  If you want to get things done politically, leave aside the moral case except insofar as you can package it to appeal to self-interest: self-interest of voters, self-interest of elected officials, self-interest of administrators.

 

Ever since cities existed, the aristocracy and plutocracy have periodically fled them for country villas, whether Hadrian to Tivoli, or the Venetians to the Brenta Canal, or Charles II decamping to Richmond to sit out the plague.  Though the rich could hide for a few hazy summer weeks, in our interdependent and ever-more-densely-inhabited world, unsolved WS&H has externalities that hit rich people (e.g. water contamination).  Guarapiranga in Sao Paulo, that city’s largest slum upgrading program, wasn’t undertaken by the housing ministry, but by the water company (SABESP) in self-defense, to clean up the reservoir. 

 

Water runs where it will; pestilence blows on the wind.  In an urban and global world, even those who might wish to cannot escape the reach of hygiene and disease.  Set aside your sense of right and wrong if you will; sublimate your sense of equity and your compassion.  

 

If we want a healthy world, we have to have a healthy poor. 

 

Though he’s describing the wrong liquid, Edgar Allan Poe had the right instincts in his miasmatic nightmare, the Masque of the Red Death:

 

But the Prince Prospero [Note the name! – Ed.] was happy and dauntless and sagacious.

 

I am Prince Prospero, and the world cannot touch me

 

All these posts expounded facets of AHI’s grand unified theory of urbanization and formalization, which I posted in a manifesto-in-progress:

 

 

AHI: What we think: Part 1, housing is the catalyst:

 

Blog readers know that a while back, AHI received a $1,000,000 grant from the Bill & Melinda Gates Foundation, for a two-year research effort, with a modest goal:

 

Putting housing under a laser microscope

 

Change the world’s understanding of what slums socioeconomically are, and therefore change how benefactor entities can help improve slums and cities in the global south.  Do so by exploring the validity of two related hypotheses: (a) housing as catalyst for improving informal communities, and (b) non-governmental (often informal) enterprises as drivers.   

 

Nobody ever succeeded by planning to fail

 

and AHI: What we think: Part 2, MEEs are the driver:

 

Since submitting the grant proposal, I became so irritated with the malapropism NGO – which describes things only by negatives, not positives! – that I coined Mission Entrepreneurial Entities, or MEEs.  Though drawn into the space by a sense of mission, they are enterprises and subject to the normal business imperatives.

 

 

It’s an ambitious agenda.  To achieve it, we’re staffing up.  As I mentioned in part 1, we are hiring an Executive Director [Since hired – Ed.] and a Research Director, both positions full-time and based in Boston. 

 

Want to change the world?

 

The month ended on a cliffhanger:

 

Where’s part 2?

 

Donors as scaffolding: Part 1, need for startup capital

 

Somewhere between Hagia Sophia and a Gates-Foundation-sponsored workshop on water and sanitation a week later, in London, it struck me that the scaffolding metaphor applies not just to physical creations, but also to intellectual and economic ones, like MEEs. 

 

Scaffolding is designed with a vision in mind, flimsy and made of lightweight materials, rickety and risky, modular and reassembled during construction.

 

 

Scaffolding is applied in stages, the same scaffolding being reused as the construction advances.  It’s temporary and it’s removed when done.

 

MEEs are businesses:

 

They have a product or service – mission-related, to be sure, but nevertheless a tangible output. 

They have a manufactory – an organization that can create successful projects. 

They maintain and self-repair the machine – people come and go, market environments shift, and successful MEEs adapt and move on.

 

So far in my career, I’ve founded two organizations – Recap and AHI – that are now established successes.  Once a business has made it to establishment, with a market position, established reputation, set of business lines, it’s hard for newcomers to imagine that it was once nothing more than a conception in the mind of a hyperactive founder, or that the business went through multiple experiments and incarnations before finding its mature form. 

 

I’m still exploring possible role models

 

Organizations grow in three phases, one after the other:

 

1. Design-build the machine.

2. Operate the machine.

3. Repair the machine.

 

Even though the order of phases is immutable, I’m going to take them out of order, starting with Operate – which is the action of a constructed enterprise – as that will better illustrate the crucial Phase 1 development-construction role of donors as the financial scaffolding of enterprise.

 

For the exciting finish, read the full post.

 

Signing off for July