Month in Review January 2009
[A complete set of 2008 Month In Reviews available here: Dec 08 Part 1, Dec 08 Part 2, Nov 08, Oct 08 Sep 08, Aug 08, Jul 08, Jun 08, May 08, Apr 08, Mar 08, Feb 08, Jan 08]
Recently house prices have been through the twister
Such a whirlwind have we been riding, at least in ever-increasing billions of dollars of writedowns, recapitalizations, stimuli, and proposals, that it’s hard to make sense even of the recent past, let alone the present. Let’s start our review with a three-part post summarizing our study of The LIHTC crisis and states: Part 1, an investment in knowledge, Part 2, go try to borrow some , and Part 3, drive thy business:
“If we do not hang together, assuredly we shall all hang separately.”
– Benjamin Franklin, who was born and raised in
An investment in knowledge always pays the best interest.
In late December, at the request of the Massachusetts Housing Partnership (MHP, www.mhp.net), my for-profit Recap Advisors released a white paper (available in .pdf here as Recap Update 72) that focused on the crisis in US affordable housing rental production arising out of the logjam in LIHTC pricing that we first described last March.
Even a simple listing of the largest 2006 investors in LIHTC equity reveals the critical point the LIHTC equity market has crossed. What had been an $8 billion investment industry may be as little as $4-5 billion in 2008, even though the total amount of LIHTC available will increase, indexed to population. (Section 2C)
We at Recap think the report is important, as in this hiatus before President-Elect Obama is inaugurated, stakeholders are buzzing with possible stimulus packages, and if we are going to spend billions, we ought to spend them smartly.
We felt it was important to develop a strategy for LIHTC, because the LIHTC market had had a shock that would take some significant resetting:
No LIHTC buyers?
We thus foresee roughly a four-tier pricing structure conceptually as follows:
If this tiering shakes out, not only will better tiers command more favorable prices, their prices will stabilize first.
Since we knew this would cost big money, I provided a bar-code reader for scoring Congressional legislation, with Supermarket sweepstakes: legislative budget scoring:
Eventually the committees and both bodies arrive at the checkout counter, and get their legislation scored:
As readers know, we did enact a $787 billion package, and in How to follow the coming sausage fest, I offered some tips to judge the stimulus package:
Until something like a structure emerges, I have no plans to give you blow-by-blow updates of the progress – it’ll change from day to day and you’ll be able to get all that information and more, breathlessly reported by correspondents in trench coats, from hundreds of other places.
And here with the latest speculations …
Instead, let’s consider how to help you sniff and taste the sausage as it’s being ground up, shaped, and squeezed into tubes.
A. The sausage itself
The government factory makes two types of products – laws and money – some better than others. Calling it a ‘package’ neatly obscures what’s in the package:
We’re all in this together!
What goes enacted is definitely sausage. Whether it’s tasty or toxic I’ll address in future posts.
So they assure us
One duopoly that will certainly emerge in a different form is the pair of GSEs, Fannie Mae and Freddie Mac, whose future was resignedly prophesied by outgoing Treasury Secretary Hank Paulson, as summarized in The GSE’s future: Part 1, we need the eggs:
“I would, but I need the loans”
Guy goes to a psychiatrist and says, “Doc, uh, my brother’s crazy; he thinks he’s a chicken.”
And the doctor says, “Well, why don’t you turn him in?”
“I would, but I need the eggs.”
Woody Allen, Annie Hall
That, in a nutshell, represents the views of outgoing Treasury Secretary Hank Paulson, as presented in an important testamentary bequest he has written, romantically entitled by Treasury, Paulson Remarks on the Role of GSEs in Supporting the Housing Recovery:
Who you calling ‘romantic’?
Part 2, you might as well live, and Part 3, choose your poison:
So Secretary Paulson plumps for a public-utility concept – which is by no means nonsensical – but just at the point the hard questions would need answering, he punts.
Next Administration!
Maybe that’s right – the decisions will belong to his successors – but it’s disappointing.
Not boldly going anywhere
In all the Secretary’s many words, there are some whose absence was deafening:
He didn’t say we needed two.
Didn’t I?
Changing economics also changes demographics and household tenure, and I spent a fair bit of time on unusual tenure and household configurations brought about by economic pressures,
Don’t put all your eggs in one vise … or vice!
first in a review of co-housing that generated lots of reader comments, in Paradise future? Part 1, development,
The older I get, the less faith I place in future-tense verbs. Thus it was with a fair dose of jaundice that I read a sympathetic Boston Globe account of a new approach to affordable housing, co-housing.
Any shared-burden, shared-benefit environment faces the free rider problem. Inevitably, some do less than their share – or what their neighbors consider ‘their share.’
We’re doing our share
At Sawyer Hill, responsibilities and costs will be apportioned as presented in the six defining characteristics of co-housing:
Business is predicated on value chains – disaggregated sequences of actions where each participant has a discrete function, for which it is paid. Co-housing challenges that presumption, preferring instead an egalitarian utopia, a socialized community.
and Part 2, operations:
Residents will build and maintain trails for public use.
More future-tense verbs. Building and maintaining trails is hard work.
Blogging’s even harder
When we’re young, we read and write science fiction, because the imagined worlds are more interesting than the experienced ones. When we’re old, we read and write history, because what has happened is both remarkable in itself, and real.
Maki said her children are ecstatic about their future home and she loves that Sawyer Hill is multigenerational. After the death of her sister eight years ago, she said, she realized even more the importance of a tight-knit community and being close to loved ones.
“Once something like that has happened in your life,” she said, “it makes you take stock and remember what’s important.”
I wish them luck. Travel hopefully, but read the signs.
In another example of co-housing, consider marriage and its occasional aftermath, divorce. Divorce destroys economic value, and declining economics liquidity leads to people Staying together for the sake of the bills: Part 1, coming apart, and Part 2, living with it:
As we saw yesterday, using some slice-of-life divorce drama from The New York Times, divorce not only ends a legal entity (the marital estate), it requires division of the assets into two independent clusters.
Each of us gets half of these assets
Dividing the marital union destroys economic value, both in transaction costs and in anti-economies of scale, leaving some couples unable to afford to break up:
For other couples it does not have to end.
Because housing demand is elastic, there’s a direct correlation between housing consumption and family size. It works going upward (more bedrooms means more babies) and it works the other way. Less money means less space means more people per household means fewer households. There’s strong evidence that the high cost of housing in Europe has contributed to the low birth rate in countries like the
The same dynamic works unhappily in reverse – people who no longer wish to live together nevertheless cannot afford to live apart. … If you are what you live in, what you live in can become what you are.
“We’re finding the husband on one floor, the wife on the other,” Ms. Decker said. “Now one is coming home with a new boyfriend or girlfriend, and it’s creating a layer to relationships that we haven’t seen before. Unfortunately, we’re seeing ‘The War of the Roses’ for real, not just in a
And a second example:
For Nancy R., who spoke on condition of anonymity because her colleagues do not know her marital status, the impediments to divorce are visible every time she opens her door.
For now the couple are separated, waiting for real estate prices to recover. But for Ms. R., that means remaining financially dependent on her husband. He moved out; she remains in the house.
While I can understand Ms. R’s desire to start completely afresh, for her to have a rent-free tenancy while her soon-to-be-ex-husband lives elsewhere seems quite civilized.
“We can’t sell the house,” she said, “and whatever settlement I get depends on a good relationship with him, based on his good will.”
I doubt Ms. R’s attorney would acquiesce in such a passive view; divorce is dominated by principles of judicial equity strongly protective of the non-earning spouse.
Still, human beings are involved, and life is not so cut and dried:
“The lines get blurry and confused quickly, which makes emotions fly easily” — especially if she were to start dating.
“Any icing on the cake is going to come from his good will,” she said, “and that means being the peacemaker. I’m the underdog in this situation. We’re basically forced to remain in a relationship after we’ve decided to end it.”
Welcome to the nineteenth century.
One of us has all the mobility
The rest of the world is in no better shape,
You oughta see the other economies
from Asia where we’re watching as the China breaks; to Nigeria, the disabling environment: Part 1, no law, no money, and Part 2, no finance, no rights:
So used are we in the developed world to the presence, even omnipresence, of a capital-enabling environment – of governmental and legal infrastructure that supports capital’s movement and wealth’s generation and accumulation – that we take it for granted. Yet for much of the world, these basics are not only lacking, their emergence is blocked.
Why aren’t he and his countrymen rich?
That struck me forcibly when I read a recent article from The Guardian, Nigeria which, in its matter-of-fact depiction of the housing challenges, provides a horrifyingly clinical depiction of a governmental disabling environment:
New
Physically and spatially, Old New Orleans was one of
All of the historical city was situated on the pink ground, the natural levee created by the
Built by humanity, living in a below-water-level bowl
What happened we all know: the levees were breached by extraordinary storm surge, and the bowl filled with water:
From far above it looked like this.
In a more policy-oriented snapshot, we examined
Open until needed, then closed
Were I the property owner, I’d go get the demolition permit the day I bought the building, and keep it in my back pocket against the prospect of the commissioning tiptoeing up to me and seizing my property right.
Safeguards crumble because –
Can a safeguard crumble?
Our safeguards are entirely safe
– the landmarks commission and the buildings department lack an established system of communication, and commissioners often are unaware that permits have been issued.
There is also no set procedure by which the buildings department alerts the commission when someone seeks a permit to strip off architectural detail.
Notice the Catch-22 implication. Certainly, you have the right to alter your building, but the moment you seek to do so, we might take the right away from you.
There was only one catch, and that was Catch-22
Some City Council members are determined to change that. Tony Avella, who represents northeastern
Or even better – you have the right until you start exercising it, in which case we can rescind the right you thought you had. That, my friends, is a taking.
At least the year opened to good news, with A Christmas present for Paradise Park: Part 4, the burden of proof:
The residents won as much as they possibly could win at this stage. While 2009 will see more litigation, for now the court has given the
Reversed and remanded for further proceedings consistent with this opinion.
Thank you, Your Honor – you know my clients are always the good guys
Merry Christmas, and Happy New Year,
Say goodbye to 2008
2009 will be better. You’ll see.
Bring back the bull market?
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