Yesterday’s post covered half of my little talk – the challenges part – on the Infrastructure and Real Estate panel at Harvard Business School’s 2009 India Conference, one of the largest student-run events in the country, attracting several hundred people. 

“So far out there I can’t be contained behind a dais!”

My main text is in Times New Roman.

So with all those challenges, where is the opportunity?  Let’s call it the necessary opportunity.

4. Which comes first, the slum or the city?

Private structures or public infrastructure?

Because there ain’t no such thing as free infrastructure, slums exist and expand long before communities embrace them.  Eventually incumbency, physical durability, and sheer mass mean that municipal powers-that-be have to formalize slums in municipal and political self-interest and self-defense.

Jockin being interviewed by journalists: Mumbai, India

“Money + Votes = Power“

Dharavi’s elected representatives to the Indian Parliament and Senate

5.  When does a slum formalize?

When (a) slum land becomes really valuable if redeveloped, (b) residents secure anti-eviction protection, either judicial or political, and (c) development becomes so profitable it can fund the non-recoverable upgrading costs.

Chemist, Mukuru Sinai, Nairobi, Kenya

It also requires:

Good government has taken an interest. Many governments choose to ignore slums (or, like Mr. Mugabe, to bulldoze them). At Dharavi, both the national and state government are active partners in the redevelopment:

Govt. of Maharashtra has accepted the proposal submitted by Architect, Mr. Mukesh Mehta for the redevelopment of Dharavi which, after suitable modifications, will be implemented through the Slum Rehabilitation Authority (SRA), according to the norms of S. R. Act of 1971.

Among government’s four essential roles, aside from the enabling environment for capital, government has to provide capital to close the cost-value gap. Here India’s government has been pump priming for municipal infrastructure. As The Hindi reported two years ago:

The Central Government has already announced a grant of Rs.500 crores [a ten-million, so 500 crores is Rs 5.0 billion — Ed.] for the project, which will go towards the infrastructure. “I would like to integrate Dharavi with mainstream Mumbai and convert it into a cultural, knowledge and business centre. The main idea is to convert the whole population into a middle income community by 2010,” adds Mr. Mehta.

Meanwhile, Dharavi is still not redeveloped, because of the interlocking puzzle of politics, economics, law, and real estate.

Proof that slumdwellers can be developers: Oshiwira II, Mumbai, India

6.  Home Asset Finance and its role in slum upgrading

Between microfinance and mortgage finance is a netherworld that we have dubbed Home Asset Finance; lending to finance purchase or improvement for quasi-formal or quasi-legal structures. 

I figured this out last summer, when I taught a three-day course in housing finance for the very poor, at the Boulder Institute of Microfinance (held, confusingly, in Torino, Italy):

Flying blind, I structured the course into three modules:

Part 1: Economics and structure

Part 2: Roles in a mortgage loan system

Part 3: Current practice around the world

[Snip] 

I expected the participants to be heavily represented by Mission Entrepreneurial Entities — actual lenders who were doing business in microfinance loans, and who had elected the one-week housing-finance course (as part of the three-week comprehensive MFI course) to learn about housing finance and whether they should expand their activity into housing finance. 

[Snip]

As I said to them about five minutes into the course:

To a housing lender, a microfinance loan is a tiny amount, with an exorbitant interest rate, for an insignificant interval, and with no collateral – hence really risky.

Having paused just long enough for them to wonder, I went on:

Of course, to a microlender, a housing loan is a huge sum, with a minuscule interest rate, over a really long interval, and with no knowledge of the borrower – hence really risky.

With that out of the way, Day 1 dug into the practicalities of making a loan with secure collateral – fixed collateral that you cannot repossess.  Most of the participants were used to making loans on personal credit – I lend to you because I’ve checked you out – and on chattel – movable personal property like television sets, cell phones, and cards.  But housing is a whole ‘nuther ballgame, because you can’t move it. 

Savings passbooks, Mukuru Sinai residents cooperative Akiba Mashinani Trust, Nairobi, Kenya

The value chain of an asset-based loan is quite different from classical microfinance:

I’d printed up name tents for each of the major roles I wanted played:

Home seller

Home buyer

Loan originator

Appraiser

Underwriter

“Funding desk”

Securitizer

Security holder

One by one, we introduced our dramatis personae, and I took volunteers from the group.  It wasn’t hard; give people who know something a chance to ham it up, and you’ll be amazed at the results.  Sure enough, the Brazilian district attorney volunteered to be the home doctor; Muaffaq the Palestinian community organizer was ready to be the buyer, and Hemantha the Indian microbanker (from Hand-in-Hand) was happy to be the loan originator.  As we introduced each one, we asked:

What does he or she want from the transaction?

How does he or she get paid?

What are his or her incentives?

We are working with SEWA Bank in Ahmedabad on such housing-finance products.

My traveling office, at SEWA’s offices, Ahmedabad, India

7.  India, Mumbai, and Dharavi

Mumbai and Dharavi are a quintessential urban problem.  Mumbai’s combination of anti-eviction laws and Transferable Development Rights (TDRs) gives slumdwellers leverage.  Meanwhile, Dharavi’s scale and complexity make its redevelopment a highly complex challenge.  We work with SPARC and the National Slum Dwellers Federation on places like Dharavi.

Mission Entrepreneurial Entities are the change agents. 

Change-making personified: Jockin Arputham of Slum Dwellers International

Twenty-first century cities will be competitive precisely to the degree they harness the brainpower and entrepreneurial energy to be found in their slums.  To do that, cities must, in self-defense, formalize and embrace the informal.

Dry-goods store, Mukuru Sinai, Nairobi, Kenya

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“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.

Kenneth Munkacy, Songsu Choi, Abha Joshi-Ghani, Dennis Pierpz, David Smith

Our panel, being flanked by Mary Ellen Hammond, HBS ‘09 (left) and Tulika Khemani, HBS ‘09 (right)

Since the conference was all about India, and our particular topic was Real estate and infrastructure, I decided to assemble a handout concentrating on the intersection between the two, and to my surprise, the resulting little piece neatly encapsulates many of the main themes informing AHI’s work. 

My main text is in Times New Roman.

Storefront shop, Mukuru Sinai, Nairobi, Kenya

1. The 21st century’s great problem; see Century of the City

Making cities work is the 21st century’s great problem. 

Between 1995 and 2025, the world will undergo urbanization never been seen before and that will never be seen again. 

[The authors of] a fascinating new PNAS paper, Growth, innovation, scaling, and the pace of life in cities, by a
quintet of authors bookended by Luis M. A. Bettencourt and Geoffrey B. West … make no bones about their
interest in cities and their reasons for tackling the problem now:

Humanity has just crossed a major landmark in its history with the majority of people
now living in cities.  Cities have long been known to be society’s predominant engine of
innovation and wealth creation, yet they are also its main source of crime, pollution, and
disease. 

I really like a crisp, clear expression of the challenge: cities have always been where wealth was born, yet
bringing so many people together in proximity has all those negative externalities.  When one vector (wealth)
goes one way, and another (disease) goes the other, we want to know which (if either) will prevail, or whether
they can reach a happy medium.  Moreover, the problem is urgent:

The inexorable trend toward urbanization worldwide presents an urgent challenge for
developing a predictive, quantitative theory of urban organization and sustainable
development. 

We may pine for the country villa, but we create the means of building it in cities. 

Musket, silk clothing, wrought-iron bench — all from cities

The world’s success or failure in its transformation to cities will define the twenty-first century. 

A slice of downtown Sao Paulo

As Rakesh Mohan put it when I was at Bellagio:

If the world is urbanizing, it’s because people think it’s a good idea.
 

Despite the problems of urban environments, overall welfare has increased in cities in every dimension
we can think of.  Despite massive inequality, even Mumbai pavement dwellers have access to municipal
schools.  They still have a benefit compared to where they came from; they all say, “We are much
better off than our relatives back home.” 

Reversing my frequent quote from Fields of Dreams, if they come, you must build it. 

We’re here for the jobs

2. Cities will compete on their relative efficiency

To quote Rakesh Mohan, Deputy Governor of the Reserve Bank of India:

With increasing free trade in services, the price of traded products has almost stabilized across the world.  Goods now have very similar prices everywhere; therefore, no city has any advantage over any other in traded goods.  Comparative advantage of nations will increasingly lie in the relative efficiency of their cities.

While it was not exactly Saul on the road to Tarsus, my hearing of that talk represented a major epiphany in my thinking about slums and cities. 

Gives you a new perspective, doesn’t it?

After all, a city is defined by its housing:

Cities are homes plus jobs plus density (which means verticality). 

Without housing, there would be no cities – for what is a city without housing?

All of these are parts of a city, but without housing, at night they are just so many dark shells.

Housing is what makes cities bright at night. 

It’s not their jobs that keep those lights on at night

City efficiency demands slum upgrading, for it is impossible to have an efficient city with enormous slums, as they generate massive negative externalities, including:

Pollution.  Sao Paulo’s slum upgrading was forced upon it by the encroachment of squatters on the slopes around the Guarapiranga reservoir.

Traffic.  That many people living in that close proximity without access to proper infrastructure means that they crowd the roads or the trains or the ‘taxis’ that crowd the roads and highways of every African city I’ve visited.

Disease and health.   Air and water respect few zoning boundaries.

Crime.  Slums are a place of refuge for clandestine occupancy.

Broken window, health clinic, Cite Soleil, Port-au-Prince, Haiti

Making cities efficient requires improving their slums.  People move to cities to make money, and slums arise when private investment outruns public infrastructure.  Mohan again:

If the world is urbanizing, it’s because people think it’s a good idea.  Yet our urban planning has a ‘third-class carriage’ mentality: I’m inside, don’t you dare come in, you’re much better off where you are. 

Clothing for sale in the open air, Mukuru Sinai, Nairobi, Kenya

3. What defines a slum?

Readers know that this question continues to occupy me, because in its diagnosis lies an understanding of the next quarter-century of living for over a billion people. 

Many different indicators …

Spontaneous community of people pursuing urban work (even if informal).

Low-value land in close walkable proximity to urban jobs (even if informal).

Where private investment has outrun public infrastructure.

Wealth is extracted from slum dwellers and not invested in the community.

If we are to improve slums, we have to see them for what they are: robust, vibrant, complex, interdependent triumphs of human entrepreneurialism – and at the same time concentrations of poverty, disease, and lawlessness.

A moment of wariness, Vila Nilo, Sao Paulo, Brazil

Having laid out the challenge, I ask, where is the opportunity?

[Continued tomorrow in Part 2.]

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I’m not enjoying your taste in music

Noise travels, and it cannot be shut out (nor can odor), so when your neighbors are noisy, it certainly disrupts your enjoyment, but what are you to do about it, particularly when the noisemakers are … children? 

How we grew America: immigrant children at Ellis Island

That’s dicey, as reported in The New York Times:

APARTMENT dwellers in New York City have long endured the trauma of jackhammers, Manolo Blahniks, recycling trucks, sirens, canines and air-conditioning systems.

Only the colors are loud, daring

But, perhaps because the population of children in the city is increasing, the sound of little feet is a complaint being voiced with increasing frequency.  And, for reasons ranging from a sense of entitlement to the impossibility of teaching a 3-year-old to glide to the potty like a supermodel, the parents of those little feet are not happy to hear that their children are driving you crazy.

Many, in fact, have heard just about enough of it. They complain that they are being forced to choose between being good neighbors and good parents.

As I’ve posted many times, New York is unique in American cities, not least because it always has a shortage of rental and affordable housing.  With increasing density comes verticality, and with verticality comes multiple dimensions of contact surface, multiple ways our neighbors can intrude upon us, and we on them.

“It’s nerve-racking to be constantly shushing my kids and not letting them be normal kids in the morning,” said Janeen Thompson, who lives in a postwar rental building in Park Slope, Brooklyn. Her two young sons — ages 5 and 2½ — have elicited multiple noise complaints from their downstairs neighbor, a 25-year-old woman with no children.

From the New York Times: SLEEP SCHEDULES Greg and Janeen Thompson, with their two sons, got complaints from their downstairs neighbor, who doesn’t have children. Both sides say they have tried to be sympathetic to the other’s plight.

We all know that having children is a life-changing and irreversible step that often triggers a move to the suburbs, and that children are a mind-altering drug, because with sleep deprivation comes an unconditional love so powerful it transcends all others.  Yet the parents try to accommodate the neighbors whom they used to resemble:

In the morning when the boys are getting ready for the day, Ms. Thompson said, she insists they not roll their little cars down the hallway, or run before 8 a.m. “I tell them the neighbor is still sleeping, and they just look at me — ‘Why is she sleeping?’ ”

I’m not!

Ms. Thompson said she can’t even let her children cry when they need to. “For six months straight, my younger son woke up at 2 a.m. — we kept him quiet for two hours every night so the neighbor wouldn’t hear him,” she said. “Finally, we had to post signs in the building saying we were going to let him cry it out for a weekend, so our neighbor wouldn’t get mad at us.”

Children shouldn’t live in high-rises.  They need lots of space to run around, get dirty, and be loud. 

Boys in Mumbai: even if you live in a high-rise and the wicket is cement, you need to play cricket!

The downstairs neighbor, who agreed to give her first name, Jennifer, but not her last, out of fear of being branded anti-child –

Nancy and I chose not to have kids.  We got our fair share of looks.

– said the children were waking up every single night in the middle of the week, which prompted her to pound on the ceiling after midnight, triggering an even noisier altercation with the children’s father.  

Pounding the ceiling is seldom the right strategy.  If you haven’t got their phone number, you drag on the bathrobe and sleepily take the elevator up a floor, to ring the doorbell.

And be polite

“The bedrooms of the parents and children are really far apart, so I don’t know if they can hear the children,” she said.

With urbanization, sound intrusion becomes more common. 

According to the professionals drawn into disputes about child noise — managing agents, lawyers, mediators and acoustical engineers — square-offs like these are increasingly common.

From the New York Times: Alan Fierstein, a Manhattan acoustic consultant, says his business is booming

What are the solutions?

1.  Learn to live with it.  Some people just suck it up and gradually inure themselves to the children’s presence.  Unfortunately for them, children have ear-piercing screams and cries – evolution’s way of making sure their parents can find them – and they’re not shy about deploying those little screechy lungs. 

I can’t do much but boy can I make noise!

2.  Behavior modification.  I admire the parents who try to teach their kids to behave like adults.  As a former child myself, I think they’re doomed to failure.  Children have to be kids, and they have to be hyperactive.

Even in a monsoon, we have fun!

3.  Soundproofing.  What technology taketh away – space – technology can giveth back – sound dampening.

“Fifteen years ago or so, it used to be that the noise complaints were all about loud stereo and TV equipment,” said Stuart M. Saft, a real estate lawyer at Dewey & LeBoeuf in Manhattan, which represents about 100 full-service co-op and condominium buildings in Manhattan. “Now it’s kid noise more than anything else, and I think it demonstrates the changing demographic of the city. You have more kids living in the apartment buildings, and parents who feel their children have the right to be children.”

‘Rights’ are tricky things; As Justice Oliver Wendell Holmes memorably put it, your right to swing your fist ends at my nose, and your children’s right to be loud may end at my eardrums – or, even better, at the walls of your apartment.

I have a right to be heard!

At the same time, even as New York City has become a magnet for young families, the escalating price of real estate has contributed to the feeling that people ought to get what they want and expect for their money.

“People’s expectations of quiet for their very expensive apartments have risen, so something that might not have bothered somebody 20 years ago because real estate was so inexpensive then does become an issue now,” said John Hauenstein, the president of JRH Acoustical Consulting Inc., which assesses and mitigates child noise issues.

I find it so cute that Mr. Hauenstein thinks New York apartments were cheap twenty years ago.

4.  The simplest solution.  What about the simplest solution? 

That’s a bit much

No children allowed?

Gee, Saturn, that’s illegal too

Sorry, it’s illegal to exclude children.  As a good Fair Housing site puts it:

Under fair housing laws, rentals must generally be available for rental to families with children and pregnant women. Families with children must be treated the same in advertising, during the application and selection process, and during their tenancy.

“Adults only” communities are generally not allowed, except in housing which qualifies as Housing for Older Persons.  

The law in its majesty makes it illegal not only to exclude children explicitly, but also implicitly:

How dare you try to discriminate against me!!!

Housing providers cannot establish strict occupancy limits that have the effect of discriminating against families with children.

And indirectly:

Housing providers may not restrict families to certain buildings or to first floor units.

We are thus forced to live together.  This is stressful:

Parents, meanwhile, feel persecuted.

From the New York Times: ON EGGSHELLS Margaret Hundley Parker and her husband don’t let their daughter play with loud toys in their bedroom, because it is right above their neighbor’s bedroom.

The problems of an Upper West Side mother who did not want her name used, out of fear of reigniting old tensions, began four years ago. Two days after she and her family moved into their $1.8 million prewar unit, they received a hostile missive from the 30-something married couple living below.

“It was a typewritten note in a typewritten envelope with a formal return address. It said something like, ‘We never heard a sound from the older couple who lived in your apartment, and now that you moved in, our peace is being disrupted and we don’t appreciate it.’ It set such the wrong tone, almost like a lawyer had sent it, and we had been in the building less than a week.

Probably a lawyer-husband-tenant did send it.  Not neighborly though.

No lawyers here

It would have been better even if it had just been handwritten instead of typed. It was like the punishment didn’t fit the crime.”

Had I been advising the downstairs apartment, I would have counseled them, Just because you are infuriated does not mean I intended to infuriate you.  A gentler tone is always wiser.

Still, she said: “I wanted to take the high road. They left their phone number so I called and introduced myself and left ours.” It was a decision she quickly came to regret.

Despite the wall-to-wall carpeting in her children’s bedrooms and a firm policy against bouncing balls indoors and leaping off beds, she fielded a series of “incredibly nasty” telephone calls that “were confrontational, upset and accusatory, not like, ‘Hey, do you mind — it’s getting a little noisy.’ ”

“Over the course of the next year, we felt we were living on eggshells,” she said. “It became almost a mantra, saying to the kids, ‘The neighbors, the neighbors.’ ”

A frosty detente set in when the couple downstairs had their first child two years ago.

That’ll do it!

“By now, I kind of know that our bedroom is over their bedroom and if we drop stuff on the floor it’s really loud for them, so if the baby has a loud toy I just shut the door so she doesn’t come in,” said Margaret Hundley Parker, a 39-year-old freelance writer who rents a postwar apartment on Prospect Avenue in Brooklyn.

“We do indeed walk on eggshells, and I find myself on tiptoes if I have high heels on, even when I’m not home,” wrote Ms. Parker in an earlier e-mail message. “I’m a trained monkey. But my 19-month-old is not.”

“We’d love to move,” she continued, “but did I mention the rent-stabilized apartment?”

You didn’t have to.

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Homeownership is an idea, too, one whose powerful lure moves money and people across vast distances.  As reported in this inspiring story from The Boston Globe on the ultimate remittance:

American dream goes global

More immigrants buying land in native countries

She was raised in a little wooden house with a thatched roof in the Dominican Republic, a nation she left behind 17 years ago to clean offices in Boston’s skyscrapers and dorm rooms at Harvard University.

Lying between Cuba and Puerto Rico

We have that in common; back in 1971 and 1972, I cleaned dorms at Harvard.

Corridors I have swept: Thayer Hall, Harvard Yard

But now Vinela Arias is preparing to return home in style. A few weeks ago, she and her boyfriend put a bid on a two-story stucco-ed colonial in an elite gated community in Santo Domingo with three bedrooms, a sundeck, and private quarters for a live-in housekeeper.

One day, Arias hopes, she will never have to lift a mop again.

Gates community, Santo Domingo

By moving to America, Ms. Arias dramatically boosted her earning power.  At the same time, she also dramatically boosted her cost of living, so she dramatically reduced her standard of living, including her consumption of housing.

For Arias and her boyfriend Ramon Quinonez , owning a home worth just over $100,000 – which will cost them roughly $1,000 a month – will mark a triumphant return to the Dominican Republic after years of sacrifice in the United States.

We read past a phrase like ‘years of sacrifice’ and taken it as a given, but I now realize it’s wrong.  Ms. Arias didn’t sacrifice for her own future – rather, she made a big investment. 

Arias, the youngest of seven children, followed five older siblings to the United States.

Their sacrifices meant years apart from their families.

Except the ones who moved to the US before her. 

Ms. Arias she gave up her Dominican community to move to a foreign land, but the lifestyle she led in America was probably better than the lifestyle she left behind.  In fact, we can deduce that it was, for Ms. Arias took advantage of international remittances to improve the lives of her extended family:

The money they sent home built their parents a new house and furnished it with comfortable chairs, a stove, and a microwave.  And the money they still send back pays for doctors’ visits as their parents age.

In other words, there’s no doubt that Ms. Arias’s quality of life here in Boston was not only better than what she left behind, it was so much better she could provide for her parents. 

As I posted in capital’s underground river, remittances are a huge source of capital flows to the developing world, including the tiny Dominican Republic:

The Dominican Republic is the eighth largest remittance importer, at over $2 billion annually

As I put it a year ago:

Even as this debate is playing out, the other river is being actively primed by both US and Mexican capital markets, as highlighted in this Economist article:

ACROSS the Mexican countryside, villages are denuded of their working men but kept alive by their labour. 

Increasingly we see communities of separated families, where geographical bachelors have migrated to the cities and the jobs, and their spouses, parents, and children stay behind.  With capital mobile, labor too can be mobile, because it can send its capital home:

The northward exodus to America numbers about 500,000 people a year.

The Dominican’s population is 9.5 million; Mexico’s is 110 million.  The Dominican, with a population 1/10th as large as Mexico’s remits 1/5th as much.  Dominicans remit twice as much per capita – industrious people, like Ms. Arias, who is choosing to convert that accumulated equity into leisure back in the Dominican.  She is, in a word, investing for retirement, as is her partner.

Quinonez graduated from college in the capital of Santo Domingo then gave up a job at a TV station eight years ago to join his sister in Massachusetts and to send money home to their mother.  Now, instead of a coat and tie, he wears an apron and baseball cap to stack organic vegetables at Whole Foods.

Both of them said they daydream about the house at work, though it will probably be at least a decade before they can live there permanently.

Homeownership is a dream that changes behavior. 

Delta Intur, building affordable houses

They are buying the home through the Dominican group Delta Intur Corp., which held its first housing fair in New England last month. Sales are jumping 8% a year, said sales executive Haydee Rodriguez.

“It’s the kind of house I dreamed of,” said Arias, who arranges the furniture in her new home in her mind while riding the bus from her Roxbury neighborhood to work. “It’s mine.”

Commuting from apartment to dream

It is the American dream in reverse:

No, it’s the American Dream in export.  It’s the human dream.  People want to own their own homes.  You are what you live in.

Arias is part of a growing contingent of immigrants who are gobbling up real estate in their native countries, discouraged by high housing prices and foreclosures in the United States [Please lose the cliches -- those forces work in opposite directions – Ed.] and enticed by the possibility of returning home to a better life than the one they left behind.

Typical home in the Dominican.

Note rebar from the unfinished second floor of the adjacent house

If you can buy it, they will build, and they will build from the same cultural and demographic heritage as their target customers:

Developers from countries such as El Salvador, the Dominican Republic, Mexico, and Peru are increasingly courting immigrants at housing fairs across the United States, including two events in Massachusetts in the last few weeks. Thousands of immigrants are buying homes in their native countries every year, and more private lenders and some governments are offering financing to sweeten the deal.

In any locale where the home is a financial asset, homeownership is a form of savings with tangible byproducts.  So anticipatory homeownership – savings in anticipation of borrowing and owning – is a form of behavioral improvement for the future.  That’s a great thing.

“It’s something that’s growing,” said Romi Bhatia, vice president of international operations for the Microfinance International Corporation, a company based in Washington that makes financial services available to poor people in developing countries, including a plan this month to offer mortgages to Mexican immigrants in the United States. “There’s a huge untapped market,” he said.

Buying houses has always been part of the immigrant experience in the United States. An estimated 5% of immigrants - tens of thousands of people nationwide – invest every year in some type of house project back home, according to a 2005 survey of eight Latin American countries by Manuel Orozco, a senior associate at the Inter-American Dialogue in Washington.

One in twenty of immigrants, legal and illegal, are savings for a home ‘back home.’

From the New York Times: immigrant entrepreneurs

But Orozco said immigrants still face barriers to buying homes. Often, they cannot qualify for mortgages [in their home countries – Ed.] because they live in the United States, so they send money to relatives who oversee construction of a home.  Even when immigrants qualify for loans, he said, interest rates are often prohibitively high.

Many countries have under-developed housing finance ecosystems, which in turn inhibit the expansion of their physical housing and their national infrastructure.

In recent years, though, more real-estate developers, private lenders, and governments are making it easier for immigrants to buy homes directly, according to government officials and the Inter-American Development Bank in Washington. The Dominican Republic’s government is allowing immigrants to apply for up to $10,000 in aid for down payments.

Wise government works at the frontiers of bankability and affordability.

In Mexico, mortgage lender Su Casita had loaned about $66 million in mortgages to 1,420 Mexican immigrants in the United States as of early last year.

Su Casiia does excellent work; and proof of its success is that its parent company, Caja Madrid, is buying the remainder that it does not already control.

El Salvador’s government started coordinating housing fairs in the United States two years ago because immigrants demanded it, officials said, to avoid getting ripped off by fraudulent contractors.  So far, the fairs have attracted more than 4,000 Salvadorans; more than a quarter said they were prospective buyers, according to the officials.

In Massachusetts, Salvadoran immigrants streamed into promotional events last month for the English-named Riverside Gardens, a development in the Salvadoran state of San Miguel. In restaurants in Chelsea, East Boston, and Attleboro, potential buyers watched videos and flipped through brochures, perusing properties ranging from vacant lots for $27,900 to lavish red-roofed villas for more than $200,000.

A well-designed development program offers a range of prices, lot sizes, house sizes, and configurations.

The costs can be expensive in a country where the average income per capita is less than $6,000 a year, but affordable for immigrants who earn US wages.

“It’s all part of the market that we’re looking for – the Salvadoran people who live in the United States,” Luis Urrutia, manager of Constructora Universal, which owns Riverside Gardens, said in an interview from El Salvador. “They should have something they can be proud of.”

The companies are trying to attract immigrants with American-style amenities, including manicured lawns, 24-hour high-tech security, and prestige: Riverside Gardens‘ home models are dubbed Princeton and Vanderbilt, and the grounds include a gym and hot tub.

Ronald Espinal, 25, of Attleboro, a sous-chef who works 14-hour days at an Italian restaurant, owns two empty lots in Riverside Gardens, including one he bought last month for $32,000.  Although he will soon be a US citizen, he misses El Salvador and plans to build homes on the lots. He intends to use the homes for vacations or, perhaps, retirement.

“I think about retiring, resting my body,” he said in a phone interview as pots and pans clanked in the background. “Here, you work all the time.”

Mr. Espinal is 25.

“That’s part of my goal, a better life for my family,” [Ms. Arial's partner Ramon] Quinonez said. “I think about it, and it inspires me to keep fighting and working. I’ve acquired something – and I tell myself all this wasn’t in vain.” 

Homeownership isn’t a place, it’s an idea.

“Our dream house,” by a Kibera savings cooperative

The American Dream, exported.

Take one back home

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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. 

There’s no question San Francisco’s population is becoming richer:

From 2002 to 2006, the number of households making up to $49,000 per year [In real terms, we presume – Ed.] dropped by 7.4%, those earning between $50,000 and $99,999 declined by 4.4%, and those bringing home between $100,000 and $149,999 fell by 3.9%, according to Census Bureau estimates. In polar opposition, the number of households making between $150,000 and $199,999 surged 52.2% and those earning more than $200,000 climbed 40.1%.

Certainly, some of the movement can be attributed to people earning their way into higher income classes. But a separate analysis of census data from those who reported moving from San Francisco to elsewhere in the United States confirms the overall trend: The less you make, the more likely you are to leave the city or not move here in the first place.

Sucked right out of the city

The trend of well-heeled and upwardly mobile young professionals moving into cities across the country, drawn by a newfound affection for the amenities of urban life, is by now well documented. It’s led to many benefits: Cities are revitalizing aging downtowns with new buildings and businesses, people are walking and using transit instead of making long commutes in polluting autos.

But it’s also been putting pressure on housing prices for existing stock and, many argue, steering much of the new development toward the high end.

I don’t know who you could find to argue that downtown revitalization isn’t pushing development upscale.

Oh, no?  You can find a New Yorker to oppose anything!

Like Portland, whose anti-sprawl experiment appears to have decreased affordability (Sprawl: the Portland experiment, Part 1 and Part 2), San Francisco isn’t meeting the challenge; if anything, it’s making the problem worse.

The worst is you’re priced out

Since 2002, the median price for all San Francisco home types has risen 113.5% to $790,000, according to DataQuick Information Systems.  

San Francisco’s median income in 2002 was $58,600, and in 2006 it was $91,200.  Thus, in a period when San Francisco’s home prices rose 114%, its median income rose 56%, which by the way is nearly four times as fast as the state’s rise in median income, which was about 15% over the same period.

In other words – San Francisco is getting richer faster than the rest of the state, and San Francisco is getting less affordable even as it gets richer.  Restrictive zoning and anti-development regulations act as a pretzel hold, to which some cities respond as if astonished, ‘What, you’re leaving?’  As I wrote two years ago, about my town of Boston:

My two brothers live respectively in Providence and Texas, one a near-mover, one a far-mover, both driven by Micawber’s affordable housing rule.

Economics made him move from Massachusetts.

Him too.

Like the New Orleans diaspora, the emigres divide into two groups: far movers, who are remaking their lives, and near­ movers.  For the latter, relocation is merely a commute extension, as their economic locus remains behind.

You can work here but you can’t live here any more

The same expulsion pressure is pushing middle-income people out of San Francisco:

A San Francisco household requires an annual income of $196,878 to afford a median-priced home in the city, according to a February report from the California Budget Project, a liberal research and advocacy group.

That means fewer homeowners,

Fewer than 4 in 10 city households owned their homes in 2006, 39.3%, the lowest rate among counties in the state.

and fewer young families:

Sarah and Mike Northrop, both 32, lived in San Francisco for seven years, most recently renting an Inner Sunset apartment. She’s a physical therapist and he’s an engineer, and together they make between $100,000 and $150,000 a year. But they spent more than two years looking for a place to buy in the city and couldn’t find anything in their price range that was big enough for them and their two daughters.

As prices rise in a city, how rich is poor rises with it.  At some people, city-dwellers can afford to be childless; they can’t afford to have children.  So they move to the suburbs:

Last year, they expanded their search beyond city limits and closed on a three-bedroom home with a garage and backyard in Pacifica.

“We love the city,” said Sarah Northrop, adding that she misses the cultural events, parks and easy walking to shops and entertainment. “I would have done anything to stay.”

Except not reproduce.

Lest you think that the phenomenon is merely a homeownership conversion bubble:

Rents have also climbed rapidly. In the first quarter, San Francisco was, as always, the most expensive Bay Area city for renters, according to RealFacts of Novato. The average for all apartment types stood at $2,326 in the first quarter, up nearly 25% from 2002 and 14.4% from a year ago.

Monicqua Brown, a union carpenter, lived in San Francisco her whole life, until rising rent forced her out of her Bayview apartment about five years ago.

The only San Francisco neighborhood that she could afford was the Tenderloin – a nonstarter with her two young daughters.

Urban policy that forces aspiring and ambitious young couples to choose whether to be city-dwellers or parents risks starving our cities of just the talent they need to reinvent themselves and remain globally competitive.

Instead, she found a two-bedroom apartment in Richmond, near the El Cerrito border, for about $500 less per month. It means a drive across the Bay Bridge each weekday for her job.

The social consequences for a city where moderate- and low-income families can’t get by are manifold. Many believe it’s the primary reason San Francisco has the fewest children per capita of any major metropolitan area in the United States.

As I’ve written in Zoning oneself blue in the states?, the correlation between development restrictions and shrinking population is so powerful, so multi-dimensional, and so just plain logical as to be undeniable.

I’ll hold my breath until you agree with me

In 2006, a group of Potrero Hill parents concerned about declining public school ranks surveyed families that had left San Francisco to find out why they had done so. Fifty-three percent cited the schools;

School quality is a function of local real estate taxes, which in turn of a function of urban demography. 

For most of the decade, San Francisco Unified School District has lost an average of 800 students per year, which has meant losing an additional $4 million in state and federal funds each time.

It also means fewer teachers required, and fewer new schools. 

“So we offer less for kids in terms of programs and classes,” said Mark Sanchez, president of the San Francisco Board of Education. “It definitely hits us hard.”

That’s questionable logic.

No, dude, it’s totally logical

Most calculations show that adding school-age children costs a locality money in the short run, because they cost more to educate than the new families generate in taxes.   Financially, if not politically, San Francisco could fix its schools.  The real reason?

70% blamed housing costs.

High housing prices are also a key reason that among 2,227 sworn police officers in San Francisco, only 675 live in the city, a little more than 30%, said Gary Delagnes, president of the San Francisco Police Officers Association.

I’ve written previously about the social importance of workforce housing and problems of long commutes.  It’s one of the reasons affordable housing is directly related to healthy communities.

The nightmare consequence of this would be an evening earthquake that shuts down BART and bridges, blocking two-thirds of the city’s police officers and large percentages of other first responders from quickly attending to life-threatening building collapses, injuries or fires.

Housing that’s out of reach in the city also promotes suburban sprawl —

A common myth exploded by Bob Bruegman, as I posted in Sprawl: everything you know is wrong, but the other consequences are right on:

– makes it more difficult for companies, schools, hospitals and nonprofits to attract or hang on to workers, and decreases San Francisco’s economic and cultural diversity.

David and Arianna Orleans, 37 and 36, have been searching for a home they can afford in San Francisco for more than a year. They both have lived here at least a decade and currently rent an apartment in the Inner Richmond.

He’s an insurance broker, and she’s a teacher.  They’re Giants fans and members of the zoo society. They spend weekends visiting the Ferry Building, Ocean Beach or Crissy Field. Their 2-year-old son loves to ride the cable cars.

“Maybe we could live on that concrete island, honey”

But, given the housing prices they’ve seen and the worrisome state of the public school system, David Orleans said there’s a good chance they will have to move to a more affordable suburb.

“San Francisco is such a great city, and we wish there was room just for an average middle-class family,” he said. “Not everyone can make venture-capital money.”

“It’s not very healthy for the city’s social fabric or the city’s economy,” said Roberta Achtenberg, an economic development consultant who focuses on workforce housing.

In short, Affordable housing is essential for modern cities.

Housing required

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