[Continued from yesterday's Part 1.]

By: David A. Smith

Continuing our review of August’s posts, we saw in yesterday’s Part 1 that housing is local, because the property cannot move.  But housing finance and policy are far from local – usually national – even if the impact of their work once again is felt solely at the local level. 

I’m from the government and I’m influencing your local markets

Cities manage their property uses through zoning, by that zoning, they also influence who lives in their town.  For over forty years national and even state or local policy has been predicated on the belief that economic class, as expressed by house price or lot size, is a stand-in for race, a finding made judicially in Westchester County, as profiled in Anti-black or anti-green? Part 1, we won … didn’t we?, and Part 2, what did we win?:

It was at about this point in the Times article that I realized New York must lack an essential tool that Massachusetts has:

Not another failure?

New York needs a powerful inclusionary-zoning law like Massachusetts’ Chapter 40B. 

As I’ve posted before, Chapter 40B enables states to compel injection of affordable housing into recalcitrant localities, because it uses the override power of a higher unit of government (the state) to nullify the exclusionary restrictions promulgated by a lower unit (the town or village).

Making the Westchester case remarkable was the use of a circuitous yet successful private legal claim – a tort under the False Claims Act that Westchester was fibbing when it told the Federal government it was taking steps to desegregate.  That’s novel – one might say either ingenious or unscrupulous – and yet it worked.

It has only just dawned on me that Chapter 40B works for the same reason the False Claims Act does – it privatizes enforcement by giving private actors a financial motivation to enforce.  Chapter 40B does for affordable housing development what the False Claims Act does for desegregation.  As shown by this map, 40B works – it builds properties in suburban cities and towns:

Notice now many suburbs have 40B properties

I have no doubt that in any group of us – whoever us is – we’d like not to have to live with ‘those’ people, but who are ‘those’ people?  Are we so sure that ‘those people’ means race?  It’s not what I’ve seen in South Africa, not what we saw in Jordan Downs in Watts.  ‘Those’ people means ‘not my tribe,’ and human beings have an infinite capacity to create, divide, and subdivide tribes.

With us we have a tribe of people who need more than shelter, those unfortunates who by accident or choice have found their lives wrecked.  Out of charity and self-interest, we put them into permanent supportive housing, where some have their lives restored, as explored in Pushing PSH, Permanent Supportive Housing: Part 1, housing is critical, and Part 2, assistance is critical:

[Moving in to permanent supportive housing] also means a big boost in income:

This is big movement too

The result?  Lives change:

“My parents and I get along very well. Since I have had my apartment, it has made it easier to get into treatment, which strengthens my relationships” (Tenant quote from Quality of Life Survey)

Not just adults’ lives, their children’s too.

“Before we ate poorly, especially myself as I would give most of the food to my children. I usually ate once a day. Now we eat a relatively good diet and we all have enough to eat 3 meals a day plus.” (Tenant quote from Quality of Life Survey)

Previously we’ve seen that childhood poverty damages your mind and perpetuates an intergenerational cycle of poverty.  Permanent Supportive Housing is one of the very few paths out.

I’ll find my way out somehow

During August, while most federal elected officials fled Washington for the expected sanctuary of their districts, the financial policy makers were hard at work not reaching consensus on any form of regulatory overhaul, despite the urgent need to do so, thus reducing Treasury Secretary Geithner to profanity, at least as reported in the Wall Street Journal and snarked upon in Cutting turf: Part 1, the driver, and Part 2, the sand traps:

You won’t like the Treasury Secretary when I get mad

In many ways our current banking regulation operates like the Articles of Confederation, where each regulator is akin to a sovereign state that can safely ignore what the others are doing, and may certainly ignore the dictates of any purported central regulator.  Now what Mr. Geithner wants is to force through a new federal financial Constitution that makes the Federal Reserve the truly national supra-regulator:

The administration’s proposal would give the Fed broad discretion to supervise any major U.S. financial company and would also create a “financial services oversight council” to coordinate policy and help resolve disputes among regulators.

One ring to rule them all, one ring to bind them. 

One conference table to seat them all …

That may sound ominous, but it’s the right approach to multi-jurisdictional regulation, otherwise boundary effects and borderline behaviors proliferate and swamp desirable and capital-enabling behaviors.

My territory!  No, mine!

The effort to create a rational national banking regulatory structure comes against the backdrop of our successful investments in several TARP-related institutions, who have been buying their way out of administrative servitude by repaying their TARP and repurchasing their warrants, as presented in Who says the price is unfair? Part 1, there’s what we think …, and Part 2, there’s what we did:

A month ago, Treasury first cleared ten banks to repay their TARP funding, creating rules to sell its glass financial menagerie:

Submitted for your consideration, as discussed in this Wall Street Journal article, is a gargantuan Federal government that, for one good reason or another, now finds itself holding warrants in a series of financial institutions that it has forcibly recapitalized.

At the time, I speculated:

Knowing this, I expect Treasury’s advisors to be shrewd and to drive fairly tough bargains.

And not a groat more!

Did we drive tough bargains?  It depends who you ask, and let’s start with some shrill Monday-morning warrant buyers over at the Huffington Post, whose title leaves no doubt where they stand: Ignoring Watchdog Report, Treasury Gives Three Major Banks Sweetheart Deals:

Less than two weeks after a congressional watchdog called attention to backroom deals in which the Treasury Department repurchased stock warrants from bailed-out banks at well below market value, three more such transactions have now been reported. The big loser: The U.S. taxpayer.

It was easier in the old days of smoke-filled rooms

Before we can call the taxpayers ‘losers,’ it’s as well to remember that any bank that has repaid its TARP has cost taxpayers nothing, and in fact we made money on the interim TARP dividends. 

[Also, don't forget that many banks, Goldman Sachs among them, took the TARP under extreme duress, and were not happy about having to do so. – Ed.]

The warrants are additional consideration, so here’s the equation:

What we put in                                     What we got out

            + Capital advanced                             + Capital repaid

                + Risk of losing capital                       + Dividends (at 5% annually)

                                                                                + Value of the warrants

In lighter news, I explicated the obvious – the reappointment of Ben Bernanke – in the virtues of not changing horses, and we tuned in on Planet Malcolm in Great Blog Posts by Others (GBPO) 03: I think, therefore I win:

Nothing either good or bad, but thinking makes it so,” says melancholy Hamlet, counting himself a king of infinite space and that, in a nutshell, is the trap of overconfidence. 

Unzip your mind, and the rest will follow

1. I think, therefore I win

Or so says the logorrheic Malcolm Gladwell, in yet another of his probably-unsound-but-vibrantly-intriguing monologs, as captured in The New Yorker:

The hair has a purpose, doesn’t it?

Who’s the top dog around here?

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By: David A. Smith

With the capital markets stunned into lassitude through repeated bludgeoning with new legislative acronyms, and Washington consumed with an infinite-regressive loop in which the words ‘health care’ are added to every conversation, I spent most of August focusing on the level of governments and markets that cannot escape housing-affordability challenges – namely, state, local, and even site-specific.  I started with that noble and financially wracked institution, the Boston Globe:

So much for your business model …

The Globe faces not just a business-model threat but a real estate threat – the paper’s value today is almost entirely represented by the redevelopment potential of its wonderfully well-located site, and so as a business, the Globe is Better dead than read, Part Deux:

From one of the best-loved genres of our time

Nor does such a move preclude further layoffs.  Private equity does not like to throw good money after bad.

Now we have to go in to get the men who went in to get the men who went in to get the men.

“What’s important here is that the Globe be maintained as a viable business entity, whether it’s sold or we continue to operate it, and make sure that it has the financial stability to ensure its continuity,’’ said [Times Co. publisher and chairman Arthur O. Sulzberger]. “We’re committed to that.’’

You may be, Mr. Sulzberger, but neither what you say nor what you believe will bind any buyer.  That’s just a lullaby for the employees.  Meanwhile, the Globe may be applying a neck tourniquet to itself: the newspaper may start charging for its online content.

Loved you in Wall Street!

Even if the Globe somehow were to stave off shutdown, there is no earthly reason why it should continue to occupy such prime real estate; as an ultimate information business, it should relocate elsewhere to lower-cost land, never mind the longer commutes for editors and reporters.  Such relocation thinking also underscores two human-tragedy stories, the first about a seemingly heartless city in Reviving transportation?:

A moral-philosophy question rattling through cyberspace asks, If you were offered $1,000,000 to make someone disappear, would you?

Happy to make the stain of homelessness vanish?

Actually, as documented in this New York Times article, the cost is much less than that:

They are flown to Paris ($6,332), Orlando ($858), Johannesburg ($2,550), or most frequently, San Juan ($484).

Outward bound: from NYC to somewhere else

The second about a seemingly noble and independent autonomous Anarcho-Syndicalist collective in Romanticizing the poor:

Leave it to snarky Gawker to explode another of those urban-homesteading myths so favored by a certain kind of press, and a certain type of author:

Today’s New York Times Page One recession-porn dispatch is so unrelentingly hackneyed that William Shatner ought to read it aloud to bongos. 

And it neglects to mention that the hero – a gruff homeless-encampment leader – is a convicted child rapist.

The mug shot of camp leader John Freitas

We’re pretty sure Dan Barry’s story about a community of homeless folks living under an overpass in Providence, R.I., originally began with “It was a dark and stormy night…” because it is littered with high-school cliches of the first order and reads like the work of a 17-year-old who just put down his first Raymond Carver story.

If we are to build sound public policy, we must see challenges for what they are, not what we wish them to be, and not what moralistic tales we may be told.  Heartless though this sounds, we cannot afford to romanticize the poor out of their reality.  If we swallow the fables, we simply enable the tellers – and often we should not.

“Help! Help! I’m bein’ repressed!”

“Now we see the violence inherent in the system!”

Although there are some uses that should move, and some people who should relocate, most communities have other people – chiefly the elderly – whom they like to see continuing to live within their town.  Elderly homeowners are a particular challenge because their lives represent two crossing lines: a rising line for their home’s equity value and a falling line representing the amount of housing they need to consume.

Time moves left to right (doesn’t it always?)

Think of ’supply’ as how much house an elderly person owns

Think of ‘demand’ as how much the elderly person needs

Elderly homeowners are generally taxed on their income, which is usually fixed in nominal terms (hence declining in real terms), not on their assets, which being expressed as a large single-family home are typically rising in value.  So it’s politically natural to sympathize with cash-poor granny who’s getting socked with an ever-rising real estate tax bill.  But is it equitable to give granny a break while she trundles amiably about her capacious home?  Is it equitable when to make up for what granny saves, we have to tax new families more?  That’s the question I posed in Subsidy or surcharge? Part 1, how much? , and Part 2, should we?:

In other words, by granting cash-flow relief at no cost, we will be subsidizing the asset-rich cash-poor elderly in the manner to which they have become accustomed – at the expense of families who probably have higher household expenses (such as raising children).

However, other groups vulnerable to overrides—say, non-elderly low-income households with severe property tax burdens—may be motivated to vote against such proposals.

[We could also detour into an exploration of 'who benefits from municipal services'.  Families with school-age children obviously benefit more than do the childless; conversely, since they have more to protect, the rich benefit more than the poor from services such as police and fire.  That would take us far afield, so we won't. – Ed.]

Don’t go there so late in a blog post

I don’t mind subsidies.  I mind invisible subsidies, and I mind surcharges concealing themselves in the absence of subsidy.

You can look at it two ways, can’t you?

Across the Atlantic, an entirely different approach to large residential properties has been adopted in London, as we discovered when toward month-end I posted what may be the ultimate August-holiday property story – about vacancies in the upper-crust’s urban palaces, in Nobody home? :

In the city of Westminster, where Mayfair is located, homes can cost up to £50 million ($81 million). Yet Westminster is fifth among London’s 33 boroughs in the number of unoccupied properties. In 2008, 1,737 homes had been vacant six months or more, the third highest number among all London boroughs, according to the Empty Homes Agency, a nonprofit group that seeks to put empty homes back into use.

Not confined to the bad neighborhoods: red means vacant

Unlike our recently-profiled case of no landlord at all, the problem isn’t loss of equity leading to economic abandonment:

Unlike people facing foreclosures in other neighborhoods around the world, Mayfair’s homeowners aren’t down on their luck. Rather, the properties serve as investments for owners who pay the bills to keep them empty — something the neighbors and city object to when the homes fall into disrepair.

Real estate, particularly well-located and well-built real estate, has long been a ‘brick safety deposit box’ for the world’s rich people.  [More]

A bank of bricks, not a Bank of Glass

Most of us see home ownership as a slow accumulator to retirement savings and a life of ease, but there is one group who seldom experience home ownership appreciation – owners of mobile homes in rented mobile home parks.  The incongruous combination of being able neither to move a home called ‘mobile’ nor to have security of land tenure the rest of us take for granted drains out virtually all of the property’s appreciation potential.  Even worse, the park operator/ land owner can simply dial up the land rent and suck out the appreciation at any time. 

That’s why many of us favor reuniting land and structure in mobile home communities, which leads to the substantial challenge of Condo-ing mobile home parks: Part 1, unofficial affordable housing, Part 2, at what price?, and Part 3, who decides?:

Two days ago, we looked at Santa Rosa’s Country Mobile Home Park, whose owner wants to condo the land (at least as reported in the San Francisco Chronicle; the owner wouldn’t talk to the newspaper), and yesterday we saw that in a forced condo conversion, land value would be a tussle.  Yet why the choice of condo rather than co-op? 

It has to do with optionality.  Who can force or block what?

I’m blocking your conversion attempt

[Continued tomorrow in Part 2.]

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[Continued from yesterday's Part 1.]

As we continue reviewing April, the global capital de-leveraging now taking place is having impact at a series of rising steps in the value chain, starting with individual buyers (I was dumb so give me my money back), families (Discreet charm of the bourgeois school), and localities (Bitten in the NIMBY ass). 

Mounting the temple of capitalism?

Now moving yet another level upward, we have codependence means coexistence in the relations between US borrowing and the Chinese economy, in Yin and Yank?:

We need each other, whether we like it or not.

So with China in tough shape, will Chinese influence fade?

I think Chinese influence will still grow, but it has to be different. The Chinese approach used to be, speak

softly and make a lot of money. That’s not working any more. The system is flawed. If China wants to

continue to benefit from globalization, China needs a voice.

Might the best economic safety be rational interdependence, where each of us is stronger when the other succeeds, and each of us relies on all of us acting in our rational self-interest?

Or am I being Pollyanna?

As Star Trek’s Q himself said, “You don’t get it, do you?  The trial never ends.”

“See you around – out there!”

In the continuing realm of urban poverty explorations and theory, I looked at the value of technology in cell phones as a means of locating and connecting the very poor in No fixed e-address?, and finished my six-part series, The ecology of a slum: Part 5, government flows, and Part 6, the future’s flows:

[Continued from yesterday's Part 5 and the previous Part 1, Part 2, Part 3 and Part 4.]

The ecology of slums and the ecology of cities are linked. Slums are an ecology of concentrated poverty; cities are an ecology of distributed wealth. So in cracking the problem of slums, we are cracking the problem of healthy cities, and hence wealthy city-dwellers.

Buildings survive. Many of those called slums by Snow, Chadwick, and Whitehead still stand in London.  They’ve been scoured of filth, rewired for broadband, re-insulated, resold, rehabbed, resold again, divided and subdivided and combined and recombined.

Where did the slums go? As their economic ecology changed, they melded invisibly into the rest of the city.

This is the world that Snow and Whitehead helped make possible: a planet of cities. Page 234.

If we want a planet of cities, we have to cure a planet of slums.  We kill a slum not with demolition but with dollars:

To improve a neighborhood, raise the shelter-cost-paying power of its inhabitants.

To do that, raise their ability to earn money, and with it their choices about where to live and what to invest.

How do you eradicate slums? You drive them bankrupt.

The way to win

That’s what Snow and Whitehead sought.

A man who saw the future? Henry Whitehead, 1884

Slums matter, because Childhood poverty damages your mind, a finding that is no longer speculative common sense but is now demonstrable by some meaningful evidence:

Poverty of housing is defined by insecurity of tenure. Fear of losing one’s possessions, fear of violence done in the night-time, all disrupt the brain’s recuperation and growth.

When I left my home and my family I was no more than a boy,

In the company of strangers,

In the quiet of a railway station, runnin’ scared.

Around the world, the great challenge of slums is to provide security of tenure. From that flows capital reinvestment – and, if this study’s findings are right, emotional development of our world’s next generation.

Laying low, seeking out the poorer quarters,

Where the ragged people go.

Lookin’ for the places, only they would know.

Insecurity of tenure permanently damages the brain:

Since Dr Farah’s discovery, Gary Evans and Michelle Schamberg of Cornell University have studied the phenomenon in more detail. As they report in this week’s Proceedings of the National Academy of Sciences,

they have found that the reduced capacity of the memories of the poor is almost certainly the result of stress affecting the way that childish brains develop.

Street children, Philippines

As your brain is damaged, you cannot learn; and being unable to learn, you cannot earn.

Asking only workman’s wages I come lookin’ for a job,

But I get no offers,

Just a come-on from the whores on Seventh Avenue.

I do declare there were times when I was so lonesome,

I took some comfort there.

Oooh la, la, la …

Which, in turn, forms the basis for a two-part post that continued into May with an essential idea (not mine) of The embryo house: Part 1, the idea:

Another type of embryo house: the vision

For much of the world today, however, the contractor-built house is a distant dream, as they live in spontaneous communities of self-built housing whose informality extends not just to their legal condition but also their physical construction, as illustrated in this story from Harvard Magazine:

Chile is a country that venerates architects, commonly listing their names on buildings’ cornerstones; yet,

outside Santiago’s well-to-do areas, evidence of thoughtful design is all too scarce. Exiting the city center,

skyscrapers’ shiny glass walls quickly give way to walls around houses, tall enough to obscure fully the

homes they protect. Each block is a patchwork of materials: brick next to wrought iron next to opaque plastic.

People on horseback share the road with cars.

How can we break the self-reinforcing feedback loop among physical, legal, and financial informality? Perhaps by providing people with a formally built embryo house – the smallest formalizable housing unit. Here’s my working definition:

I first heard the term embryo house at the Rockefeller Foundation’s 2005 Bellagio housing conference, where my colleague and since friend Alberto Mulas of Mexico articulated it. My earliest observation of embryo housing was in 2001, South Africa.

Embryo house, Franschhoek, Western Cape, South Africa

Mixing the global with the local, I featured an There’ll always be an England vignette in Negative equity: Part 1, glebe land, Part 2, the laches defense, and Part 3, what price farmland?:

In a story that proves there’ll always be an England, in Part 1 we met our plucky, ‘attractively disheveled’ English couple, as profiled in a Daily Mail article, who were being assessed the cost of repairing the chancel on a pre-Reformation church in their vicinity, solely because they owned a 6.5-acre parcel of ‘glebe land’ that carried with it the a periodic chancel-maintenance obligation.  We heard their tale of woe and how the singularly unsympathetic Church of England was seeking to extract a sum that by now had totaled nearly £500,000.  By that part’s end, we were ready to expunge the glebe land obligation.

In Part 2, we discovered that people can get title insurance for glebe land obligations; that the deed clearly referenced the duty; that the owners knew of it when they bought the property; that the property, which is being farmed as one might say in the medieval manner, would be worth £2,000,000; and that this represents a 48x increase in value over the 39 years the Wallbanks have owned it, making it four times as valuable, in real terms, as when Ms. Wallbank’s father bought it in 1970.

I don’t like the tone of your blog, young man

While you, our jury of readers, ponders your verdict, a word from our pedagogical sponsors, seeking the policy lessons. 

1.  Glebe law has very fuzzy boundaries.  It all began with a polite letter:

And then, out of the blue one day at the beginning of 1990, a letter arrived from the church wardens of St John the Baptist.

‘We hope that you are well and are enjoying your life in that beautiful part of Wales in which you now live,’

it began with ominous good cheer.

Then, in a tip to the past, I profiled my unknown namesake in David Smith, 1918-2009:

No, not your humble narrator – rather one of the many namesakes that we who have such a common name experience.  [I was once invited to attend a gathering of the members of the David Smith Society – no joke! – for whom there was only one qualification – to be named David Smith.  We saved a fortune on name tags. --- Ed.]

A houser ’til his death: Dave Smith

This David Smith – who evidently answered to Dave, which I do not – was a long-time affordable housing advocate in New York City, home of Jane Jacobs as well as the birthplace of American apartment living and of the American co-op. 

David L. Smith, a leader in the nation’s co-operative housing movement and locally in the Penn South co-op,

where he lived for 46 years and served as president and chairman for more than two decades, died Sat.,

March 14, at age 90.

As told by this affectionate obituary in The Villager, his life story reveals one of the great policy issues regarding affordable housing, and a subtle unpleasant truth about how it was answered.

Ave atque vale.

Until next month’s review, dear reader

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My blog isn’t the only source of periodic writing. 

So much prose, it surfaces in multiple outlets

A year into the LIHTC equity markets disruption, over at my for-profit consultancy we published an important piece, Policy Update 74, Rethinking and Re-engineering the LIHTC Value Chain (link in pdf)

In 2008, after more than two decades of uninterrupted and rising success, the LIHTC value chain – the sequence by which annual LIHTC awards turned into successful properties – broke.

In 2009, it needs fixing.

Evolving within and engineered for a benign and stable financial environment, the LIHTC value chain we knew was volatility-fragile. This was not an intrinsic condition, but an indulgence to which we succumbed over a period of a decade and a half. It is fixable, and it needs to be fixed – now.

If we fix it, we will have a delivery system robust enough to weather future ups and downs.  For demand to increase, whether stimulated by rising yields or program changes, investors will need to have confidence in the market mechanisms for delivering a pipeline of investments.

We recommend specific steps in §5.

Re-engineering value chains and capital stacks remains an ongoing theme of our global deleveraging, starting with Slicing through the capital stack:

What happens when a property’s capital stack is too high – when the debt substantially overtops its value?  The Law of Economic Gravity  dictates that such capitalization cannot be sustained for long, and as reported in the Boston Globe, in one of the least surprising developments of the global de-leveraging, on April Fool’s Eve, the overlevered John Hancock Building was foreclosed upon by its mezzanine lenders. 

Was that a personal guarantee John?

Just as a chain involves many links, a regulatory structure involves many planks, two of which have been hammered together, as profiled in Planks in the new regulatory platform: Part 1, the uptick rule and Part 2, putting the ‘fair’ in value:

Yesterday’s post highlighted the first of two new planks in a slowly emerging post-crunch global regulatory framework and platform, restoration of the uptick rule (as reported in the New York Times and as we recommended last December).  Today we look at another overdue change as part of the necessary improvements in regulatory structures after the financial catastrophe. 

Time to rethink the structure

2. Easing the mark-to-market rules

Over the last few years, the FASB had moved to require periodic revaluation of assets under a mark-to-market rule based on trading prices – a fine idea for securities that have a thick market with many similar items for sale and prices that rise and fall smoothly.  But, as I wrote in State of the Market 1 (September, 2007) and State of the Market 7: Banking on Value (April, 2008) that system collapses when the securities in question are thinly traded because they are unique, and when only some of the traders have to mark-to-market:

Enabling the revolution: FAS 157 and mark down, not up

Display or financial reporting only

Other good ideas were offered by Raghuram Rajan of the University of Chicago, as profiled in Capital markets regulation 2.0?:

Although catastrophe is a precondition to fundamental financial reform, one shouldn’t waste a good catastrophe, and now that we’ve had ours, let’s start on the reform.  A recent guest article in the Economist by Raghuram Rajan, former chief economist for the IMF, now a finance professor a U Chicago’s Booth school, “argues for a regulatory system that is immune to boom and bust,” with several ideas that have merit:

Rajan wants immunity

We can also examine the capital crunch from the micro to the macro:

The micro implies the macro, tovarisch

Starting with small complaints at the individual buyer level, as I skeptically reviewed in a post with which some commenters disagreed, I was dumb so give me my money back:

“I was dumb, so give me my money back.”

Okay, there’s more to these condo-buyers’ claims than simply that … but not much more. 

Insolvency being the mother of creative litigating, as shown in this New York Times article, numerous buyers’ attorneys (who, one presumes, are not being paid contingently) have been concocting interesting theories to justify not merely escaping from a purchase contract, but in fact having a collectible claim to recover the down payment:

Could the days of the iron-clad contract be numbered?

No, but that won’t stop the Times from speculating!

It used to be that once a buyer went to contract on an apartment, the terms of the deal were all but set in stone. Sales prices never budged, and if the buyer balked, the down payment went bye-bye.

Legally, it does – unless you can find a loophole.

If in financial panic, press here

But double-digit price declines and the lending drought have started to threaten this once near-inviolable pillar of New York real estate.

Block that metaphor – how does a drought violate a pillar?

Violating a pillar?

Rising one level, we have two snapshots of the municipal-budgeting challenges and their impact on property owner choice from the allegedly sacred Discreet charm of the bourgeois school:

Another benefit of a permanent professional rental sector – households with economic and demography mobility also need tenure and consumption mobility.

Meanwhile, landlocked owners — unable or unwilling to sell in a down market or to spend around $33,000 a year to send their child to private school — are panicking.

Thirty-three kay a year?

How much extra is a place in the right New York City school district worth? 

Using $33,000 annually as the cost of sending a child to private school, let’s assume that the home or condo owners are in the 25% effective tax bracket, so that $44,000 in pre-tax mortgage interest costs them the same as $33,000 after tax.  (Actual New Yorkers are almost certainly in higher tax brackets than that, particularly when state and local taxes are factored in to the Federal rates.)  Now, at an 8.0% cap rate/ Weighted Average Cost of Capital (which is higher than typical cap rates, but probably realistic in today’s credit-constrained environment), that means as much as $550,000 in house price differential per school-age child.

To the allegedly profane in Bitten in the NIMBY ass:

Every now and then, the little guys win one, and when they do, as in this day-in-the-life farce reported in a recent Washington Post article, the resulting splutters reveal some folks’ unbalanced view of rules – namely that they’re things I write and you obey. 

To many in Old Town Alexandria, the sex shop that opened recently on King Street is nothing short of scandalous, a historical desecration just blocks from the boyhood home of Robert E. Lee.

But to Michael Zarlenga, it’s justice.

“I’m not just the owner of Le Tache, I’m also …”

Zarlenga spent $350,000 on plans to expand his hunting and fishing store, the Trophy Room.  

However laudable may be our historic preservation statutes, their procedures are archaic and arbitrary, prone to abuse, and opaque to judicial or legislative review – much less by an ordinary citizen.

What do you mean global liquidity is affecting me?

Rising still one more level, Cities mean traffic jams:

Unfortunately for those of us in a hurry, just as slums are economically rational, so too are traffic jams, in two ways:

1.  Municipal budgeting.  Private spaces are revenue producing, in demand, and readily created incrementally; public spaces are capital-consuming and to be done properly require a strong and courageous municipal government.  For an example of massive failure of nerve, see how the mayor and city utterly botched the reinvention and reinhabitation of New New Orleans.

2. People’s earning power and choice.  Give people secure tenure and a minimum acceptable structure (the embryo house) and they will improve it, bit by bit, incrementally.  By contrast, they don’t spend money on public infrastructure, partly because they can’t (what they can afford goes into their private spaces first), partly because infrastructure involves network hookups and formalization – which some informal homeowners would prefer to defer.  That’s why slums may be defined, in municipal terms, as places where private investment has outrun public infrastructure.

If there’s one image I have of peri-urban Africa, it’s of people walking.  In Los Angeles, no one walks; in Africa, many people walk, most of them black and poor.  (When Nancy and I were in Johannesburg some years back, she who likes exercise would often walk from our hotel or B&B to her destination, often the world-class zoo.  She used to comment that the only people she ever saw walking were black, and that many of them would warn her to be careful.)

Nairobi: four miles to work, four miles home: 90 minutes each way

Transportation and affordable housing are deeply interconnected.

Okay, maybe on-street parking

[Continued tomorrow in Part 2.]

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[Previous Months In Review available here: Feb 09, Jan 09.]

In our review of a very busy month, we turn from how we got into this mess toward how we will get ourselves out, starting with Auctioning our headaches: Part 1, the why, and Part 2, the how:

A month ago, I predicted the structure –it wasn’t hard to do so –

With AHI blogs, you too can be psychic!

– in State of the Market 16: Auctioning Your Headaches (.pdf), from which I’ll quote (in this font) alongside the Journal’s commentary

Core to this plan is the hypothesis, as I’ve written extensively before, that the assets aren’t without value, they are merely – ‘merely’ – highly complicated and require restructuring, simplification, and resolution.

“This will help banks clean up their balance sheets and make it easier for them to raise private capital,” Mr. Geithner said.

In terms of moving and making the market, this program has two goals: (1) create demand for these securities (’buy-side’ intervention) by providing leverage, which increases buyer upside potential, and (2) increase that demand by bringing into the market capital that until now had been sitting on the sidelines – the vast pools of private equity.  As I wrote in State of the Market 16:

Treasury Secretary Geithner’s announcement of a shift in TARP policy to an ‘aggregator bank’ is proposing the classic workout/ recapitalization strategy, good-bank/bad-bank, successfully used in similar asset-pricing collapses going back through the centuries [at least as far back as Genoa’s 15th century Banco di San Giorgio – Ed.].

Such a move is now appropriate, but does not tackle the fundamental challenge – fixing the ‘broken’ assets.

Who’s going to fix my broken assets?

Meanwhile, as the pileup in slow motion moved from homes to banks and now to a contracting economy, we looked at the triage choices being faced by Department of Transitional Assistance chief Julia Kehoe, who’s managing the lifeboats:

The ship is sinking. 

Women, children, and credited cast members first

You have lifeboats in the water.

We’re lowering them as fast as we can

But you have fewer lifeboats than passengers.

We thought they were enough, for the ship could never sink

What do you do?

Get away from the wreck as quickly as possible?

As reported in the Boston Globe, that dilemma confronts Julia Kehoe:

Julia E. Kehoe, the commissioner of the Department of Transitional Assistance, which oversees state shelters, said the system is “overburdened” and must change to provide services more equitably.

Trying to provide services equitably: Julia Kehoe

[Full disclosure; I worked with Julia when she was executive director of the Metropolitan Boston Housing Partnership.  MBHP does great work, and Julia’s good people, so I’m biased. – Ed.]

Basically, you have two choices:

Fill the lifeboats with the first in, and then repel all boarders.

Have a rotation, some in and some out of the boat.

Leo, you’ll have to understand, I’m in the lifeboat

[Snip]

Ms. Kehoe has the evidence on her side:

While hundreds of families will likely lose their shelter beds, she said the changes would open space for qualifying families, many of whom the state is now paying an average of $85 a night to stay in motels. Last week, more than 630 families, including about 1,000 children, were staying at motels, waiting an average 22 days for a spot at the state’s 59 shelters.

Thus we have families staying in motel rooms – at the state’s expense (average $85 a night, or a whopping $2,550 per month) – because there is no room in the homeless-shelter lifeboats. 

Sometimes the choice is living in a car

By reducing those eligible for shelter, Kehoe said the new regulations would save the state $520,000 this fiscal year and more than $11 million in fiscal 2010. “Given our limited resources, we wanted to encourage people to find housing or stay where they are, rather than encouraging them to come into the system,” she said.

Now are you more willing to push out into the market those who have been evicted from affordable housing, who haven’t used their time in the shelter to work or save a little money, who are staying in the shelter even though their income has risen, and so on?

I haven’t finished using it

I covered The challenge of mold: Part 1, the sickness and Part 2, the liability:

Whatever the outcome, whatever the settlement, that is the lesson: supervise your subs!

You have no idea what’s going on under the surface

We discovered When and where modern housing was born, starting with a definition:

What defines modern housing?  Tour enough castles, abbeys, and stately homes and it isn’t hard to identify the five critical features:

State of the art, thirteenth century

1. Central heating rather than fireplaces

2. Running water instead of basins and pitchers

3. Flush toilet and sewer instead of chamber pots and outhouses

4. Bright lighting instead of candles

5. Electricity for appliances

One of housing’s five great technological advances

Reflecting on a talk I gave at NAHRO’s spring Washington meetings, I sketched a hopeful vision of public housing, based on Housing authorities’ comparative advantages:

2. Durability and longevity

“How does it feel to be 100?”

“Beats the alternative.”

– George Burns, when asked

I’ve outlived all my critics

Theorizing from a historical perspective, I continued my series on The ecology of a slum: Part 3, work flows and Part 4, family flows:

[Continued from last week’s Part 2 and Part 1.]

[Editorial justification for the tour: If we want to improve slums, we have to see them as ecosystems – spontaneous self-generated communities, self-organized, economically rational, economically efficient, adaptive and robust.  We may not like the slums (like Dharavi in Mumbai, Kibera in Nairobi, or Sao Paulo’s favelas) we may wish them away or wave our hands (or our bulldozers) to disappear them.  Yet they will return, resisting our efforts almost as if conscious, unless we see them as organic and dynamic, and come to understand how a slum dies. – Ed.]

As we continue our tour of the ecology of a Victorian slum, using as our text Steven Johnson’s excellent story of defeating cholera, The Ghost Map, we’ve hit the problem of recycling, and professions that seem universal in cities: ragpickers and night-soil men.

4. Work and low-skilled labor: ragpickers

Ragpicking is a profession both modern and ancient.

Manet, The Ragpicker, circa 1869

It requires meticulous and patient labor:

[From an 1854 article]  “It usually takes the bone-picker from seven to nine hours to go over his rounds, during which time he travels from 20 to 30 miles with a quarter to a half hundredweight on his back.  In the summer he usually reaches home about eleven of the day, and in the winter about one or two.  On his return home he proceeds to sort the contents of his bag.  He separates the rags from the bones, and these again from the old metal (if he be lucky enough to have found any).”

As I write this, a lyric has popped into my child from my childhood almost half a century ago: “Any rags, any bottles, any bones?”  I never knew what it meant until just now, when I Googled and found a 1931 Irving Berlin song:

“You know the man who once used to say

Any rags, any bones, any bottles today?”

Ragpickers’ Row, New York City, 1890

Halfway through the month, I had a chance to exposit and expound on these ideas at Harvard Business School’s India Conference, where my topic was The challenge and opportunity of slums: Part 1, the challenges and Part 2, the opportunities:

In mid-March, I had the scintillating experience of participating on a panel in Infrastructure and Real Estate at Harvard Business School’s 2009 India Conference, one of the largest student-run events in the country, attracting several hundred people. 

“Who knew slums could be funny?”

My fellow panelists were:

Abha Joshi-Ghani, Urban Sector Manager for the Finance, Economics, and Urban Department (FEU) in the Sustainable Development, World Bank.

Songsu Choi, Lead Urban Economist, South Asia Region vice presidency of the World Bank,

Kenneth Munkacy, Senior Managing Director, GID International Group

Dennis Pieprz, president of Sasaki Associates, who’s worked on Dharavi.

During March we also announced the AHI Exchange Seminar Series with a terrific inaugural event, pairing Joel Bolnick of Slum Dwellers International and Tom Bledsoe of Housing Partnership Network.  More events are planned – lots of really interesting people from around the world come through Boston – so watch this space (and AHI’s Exchange Series signup page) for more such events!

Sign up sign up for the AHI exchange series

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