New Orleans public housing, 2001

Old New Orleans was one of the nation’s sickest cities, with declining population, a shrinking employment base, high poverty (23%), and high unemployment (15%):

Of the 49 metropolitan areas with a Census 2000 population of 1 million or more … the highest jobless rates among the large areas were recorded in New Orleans-Metairie-Kenner, LA, 14.8% ….

The largest over-the-year unemployment rate increase was reported by New Orleans-Metairie-Kenner, La. (+10.6 percentage points).  No other large area had a rate increase greater than 0.9 percentage point.

Public housing in Old New Orleans … if you lived here, you and your home would both be gone by now

In terms of economic demography, Katrina did two things simultaneously:

1. Scattered the poor across the country.
2. Created an unprecedented labor opportunity for those in the building trades.

Who comes back first?  

Those who are mobile: the affluent and the economically hungry.  If you wave money, they will come, as this New York Times article reports:

Workers from all over have been pouring into Louisiana, some bused in by contracting companies, others simply turning up on their own in search of jobs. While nobody seems to know how many are here, there is plenty of work; the federal government estimates it will spend more than $450 million just to clean up hurricane debris.

Who comes is not who left, as demonstrated by this story in the Chicago Tribune:

NEW ORLEANS, November 3 — Every day throughout the French Quarter and downtown, the ranks of deeply tanned, Spanish-speaking men in soiled clothing grow and become more visible amid the ruin.

The work that has brought them here is neither glamorous nor high-paying:

Jose L. Garcia, right, and fellow workers originally from the Mexican state of Michoacan get $10 for every refrigerator they throw out.

Jose L. Garcia and five of his friends were camping recently under a live oak tree, sharing three tents, eating food from a church kitchen and bathing in a plastic garbage can.  The men live in Charlotte, N.C., but said most of them knew one other from the Mexican state of Michoacan.

Behind their pickup trucks were two large trailers, which the men use to transport debris to a dump. They get $10 for every reeking refrigerator they throw out, Mr. Garcia said, but they do not want to do that work anymore – it makes them smell too bad.

Even as the Latinos arrive, many Old New Orleanians will not return:

As more Latinos move into the region, a September survey found that most New Orleans evacuees in Houston, a large percentage of them black, didn’t plan to return.

The change is visible:

Louisiana has only a small Spanish-speaking population, which is concentrated in and around Kenner. New Orleans itself is 3.1% Hispanic, according to the latest census, and the state as a whole is just 2.4%, far less than the national average of 12.5%. Therefore many of the newcomers stand out.

The situation is new to Louisiana, which has little tradition of attracting large numbers of transient workers, unlike Florida and other booming areas, said Mark Zandi, chief economist for Economy.com. The stagnant economy here has not provided many job opportunities since 2001.

As a result, not only will New New Orleans be considerably smaller than Old New Orleans, it will be far more Hispanic and far less black:

The swelling numbers of Hispanic migrant laborers, legal or not, have raised political tensions. A Tulane University historian speaks of a possible “population swap” between the city’s evacuated black population and its new Latino workforce. 

The gap between job demand and housing supply is also defining who comes (those who do not mind living …) and who doesn’t:

The complaints also reflect the widespread frustration over the continuing lack of housing in the area.  Tens of thousands of houses were destroyed by Hurricanes Katrina and Rita, leaving their former residents adrift.  Businesses of all sorts are frantically advertising for workers, even as the jobless rate for Louisianans jumped to 11.5% in September, from 5.8% in August.

Who comes depends in part on who will live in what New New Orleans currently has available:

The camp, operated by a New York company called LVI Services, is not much to look at: a row of tractor-trailers crammed with bunks, a long line of portable toilets, a couple of RV’s and three tents with striped roofs. Gun-packing guards wear black T-shirts reading, “Police.”

It is a temporary home for hundreds of LVI’s workers, some of whom said they were in the United States illegally. They are commuting into New Orleans, swabbing the mold off walls, ripping the guts out of buildings, removing mountains of soggy debris.

In some places, the workers are creating spontaneous communities:

There are less formal living arrangements, too. On the west side of City Park, in the north part of New Orleans, campers are parked next to forklifts, tents have sprouted next to dump trucks and hammocks are slung next to front-end loaders. Judging by the license plates on the trucks, many of the inhabitants appear to be from nearby states.

Informal settlement, Seattle, Great Depression

They were named “Hoovervilles” in mockery of President Herbert Hoover

Why would people come from hundreds of miles around and then choose to live in minimally acceptable housing?

One man, a Honduran who said he was afraid to give his real name, said he wanted nothing more than to return to Houston, where he had lived for six months. But he did not have enough money after sending most of his last paycheck back to his family.

In a word, remittances.  When the family is in one place and the job another, the breadwinner goes where the job is and voluntarily chooses a dormitory-style minimal (or worse) accommodation.   Today remittances are among Mexico’s biggest sources of US foreign exchange.  As a result of this sudden demand for basic accommodations, nowheres become new towns:

In Kenner, just west of New Orleans, the City Council has passed an emergency ordinance to try to regulate workers’ trailers and tents that have mushroomed all over the city.

Does this mean a new ethnically different poverty will reconcentrate?  Possibly. 

Meanwhile, as the Federal government fails to grasp the opportunity to create a viable strategic plan, Mayor Ray Nagin continues to make asinine and irresponsible statements:

The backlash was fueled by New Orleans‘ African-American mayor, C. Ray Nagin, who recently uttered remarks deemed offensive by some.

“How do I make sure New Orleans is not overrun with Mexican workers?” Nagin asked at an October forum with business people as he discussed the city’s future.

Way to throw out the Welcome Mat, mayor.

“Mexico’s that way, fellas.”

[Previous posts on New Orleans here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, and here.]

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5.         Build in urban mass transit from inception

A healthy city has not only skeleton (streets and major structures), it also has a nervous system (rapid daily people movement): urban mass transit.  Moving people quickly and cheaply between home and work encourages labor mobility and hence a strong and resilient economy.

More than any other single factor, urban mass transit creates livability:

• Chicago’s El runs into downtown from north, south, and west right from O’Hare Airport.
• Much though Londoners chaff at it, the Tube goes everywhere from Arsenal to Wimbledon.
• Paris’s Metro connects with its RER to run you from Charles de Gaulle to Napoleon’s tomb.

Schematic of a city’s nervous system

Through a tragedy-of-the-commons effect, successful cities grow until they stall under the cumulative noise of stopped vehicles.

Don’t get me started on the smell or the manure removal problem.

Large cities without public transport have been gridlocked ever since Julius Caesar banned all wheeled traffic in Rome during the daylight hours.  Closer to home (in space and time), Boston’s great impetus for its subway (first in the nation!) was to relieve congestion along Tremont Street, where it often took an hour to go three miles.

“A highway under the earth”

In ecosystemic terms, automobiles are scale-intolerant — they work well at low densities, but become exponentially less efficient at high densities.  Mass transit, especially dedicated lanes or ways, is scale-tolerant, and if designed from the beginning, mass transit can be concealed so it does not interfere with pedestrian traffic, the lifeblood of a city’s leisure and thus an integral component in a healthy city that never sleeps.

This is a recommendation I share with the Brookings Institution, who provided a truly illuminating retrospective of how, why, and where Old New Orleans drowned and offered their own nostrums to “‘make the region a paragon of high-quality sustainable development.” 

6.         Deliver large dollops of capital wholesale, not retail

The corollary to thinking big is not acting small.  It is up to the Federal government:

• To provide the strategic vision
• To make the big, fundamental decisions that are preconditions of advancement but must inevitably inflame a quarter of the populace
• To establish the major initiatives
• To fund the last loss (see next section)
• To get out of the way once this is done

All too often, a national government — any national government — has a tendency to advise smaller levels of government, “You have an entirely free choice, now pick my recommendation and do it exactly as I tell you to.“

(The UK’s Westminster is particularly prone to this failing.  Something about a lifetime of secure insulated public service untainted by contact with commerce.)

Retail prescription won’t work here. 

The US’s great advance in affordable housing delivery theory came (by accident, like vulcanization) in 1986 when the Federal government got out of the direct production business (appropriated programs) and in to the indirect fiscal-initiative business (tax credits as a soft equity source).  Providing a block-granted resource, specified by outcome-oriented compliance, to states or localities has the effect of enabling these key decisions to be made close to the action, but without the strangling kudzu of distant process specifics.

The proposal by House Banking Committee Chairman Richard Baker (by coincidence, from Louisiana) for a Louisiana Recovery Corporation (LRC, unfortunately pronounced Lurk) is a very good idea, well worth studying in depth — it includes an offer of voluntary compensation — because it intermediates and consolidates one level of decision-making — but Mr. Baker’s good and detailed proposal should go further:

1.         Establish bounded and time-limited recovery zones.  Once the government has decided where rebuilding is to be incentivized (Points 1 and 2 above), then those areas — all of them, right to the boundary — should be designated as Recovery Zones.  As former HUD Secretary Jack Kemp suggested, businesses that relocate into these zones, or property owners who renovate or build new, should be eligible for long-term relief from real estate taxes and income/ gains tax on earnings or appreciation.  (Rather than invite perpetuity, this should be 100% for five years, then declining 15% a year for the next six-plus years, eventually down to zero relief.)

2.         Plus-up existing programs with targeted funding.  Within the Recovery Zone, rather than invent whole new delivery mechanisms, use existing programs and “plus them up” (increase their funding on a targeted and time-limited basis).  Applicable programs that have proven to work include:

·         Low income housing tax credit

·         Historic tax credit

·         CDBG (if modified to allow an automatic match of external funding)

·         HOME (with automatic funding match)

The key advantage of wholesale funding is smooth execution.  Wholesale streams are calculable, reliable, and transaction-efficient.  They will assure that money is rapidly put to work — and speed is essential.

7.         Put the Federal government in last-loss position

Entrepreneurs think wilds thoughts, move quickly, and take risks that terrify outsiders — all because they can better perceive their markets and can thus seize opportunity.

Capital, by contrast, looks suspiciously down its long nose, takes a long and skeptical breath, and with neatly sharpened pencil ticks boxes for completeness, accuracy, and evidentiary soundness.

Entrepreneurs and capital are the ultimate odd couple, bound together by practical need: entrepreneurs are capital consumers, investors are capital providers.  But because capital moves so cautiously and slowly [OODA loop], it can never control the entrepreneur — the most expensive documentation high-priced lawyering can buy is still static, and therefore vulnerable to loss.

Over the centuries, capital has learned one equalizer: the entrepreneur takes first loss.  In other words, in any venture, 100% of the first downside is paid by the originator, so the capital is insulated.  A typical sharing arrangement might be:

“Asps.  Very dangerous.  … [Brightening.]  You go first.”

Spoken like a true investor!

We can apply this to New Orleans‘ recovery by seeing the Federal government as the check-writing investor, the state and local government as the wild-eyed entrepreneurs.  (Not so absurd a notion given some of the less-credible statements tossed off by Mayor Ray Nagin.)  The Federal money should thus be packaged as:

• Loan guarantees (subject to risk sharing as above)
• First mortgages or preferred equity recovery positions
• Credit enhancement for LRC Bonds, provided that the State of Louisiana and the City of New New Orleans collateralize the top loss.

Observe that this approach — Federal government takes last loss — is consistent with the wholesale-not-retail posture we recommended above.

8.         Empower residential rebirth by using housing vouchers

The hurricane destroyed over 150,000 homes, the vast majority of which were low-income, many of these rental (either private or HANO public housing).  In doing this, the hurricane destroyed the fragile economic balance maintained by many of these families, who will not be able to rebuild their rent-paying power any time soon.  If we want to see residential markets come back, we need to provide substantial income subsidy.  Brookings favors portable vouchers:

Wide, long-term access to renewable federal housing vouchers ought to be the starting point, and a core element, of the drive to create neighborhoods of choice and connection in New Orleans.

Housing Choice Vouchers represent one of the most humane, dignified options for providing near-term shelter to the displaced—wherever they may be.  But housing vouchers are also critical to the longer-term recovery of the region.  All in one they have the power to reanimate housing markets and foster the emergence of more diverse, healthy mixed-income neighborhoods.

Vouchers, in the first place, will be essential to stimulated local market demand.  But beyond that, studies have also shown that families who use vouchers often use them to live in lower-poverty neighborhoods, near better employment and educational opportunities.  That means that in helping returnees repopulate their city, vouchers will also help New Orleanians move to better, less-segregated, higher-ground neighborhoods as they resettle.  And the architects of rebirth should note that housing vouchers can be applied not just to rent but to mortgage payments.  That means that vouchers are good for both former renters and homeowners, and can inject a powerful spur to homeownership.

This is all well and good, but overlooks the challenge of creating new affordable housing.  Basing the assistance in properties would enable immediate underwriting and financeability of new construction and substantial rehab properties (under Section 221d4). 

In terms of immediate production, the most successful multifamily affordable housing program ever was Tandem Section 8/  221d4 New Construction/ Substantial Rehab.  Both Section 8 and 221d4 are still on the books — all it takes to revive Tandem is funding.  Do that and those speedy entrepreneurs will be optioning land, demolishing the economically obsolescent, and building at warp speed.

“Mr. Crusher, invest.”

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