Is blight, like beauty, in the eye of the beholder?

Houses to be condemned to make way for Atlantic Yards in Brooklyn. Look blighted to you?

Or is blight just a planner’s word for a city’s natural messiness?

Does this look blighted to you?

Though the question is metaphysical, the answer is anything but.  On that finding of judicial ‘fact’ hinges the most contentious issue in eminent domain for economic development (ED4ED) today, as explored in a protracted City Journal editorial essay by Nicole Gelinas.

Spot the blight: Atlantic Yards

Indeed, what seems an intractable policy problem – when is ED4ED permissible, and when must it be prohibited? – can be reduced to a problem of boundary –what is blight?  In turn, the entire problem, over which so many hours of legal wrestling have been held, can be solved easily – the fuzzy boundary has to be construed against the party with power, so either define blight objectively and observably, or eliminate it as a valid reason.

To see why, we must descend the rabbit hole of current jurisprudence, in particular the way ‘blight’ has been redefined out of all observable meaning (Part 1 of this post), and then resurface elsewhere to see how ED4ED is requisite for urban improvement (Part 2), and hence how to reconcile the competing pressures.

1. If property is ‘blighted,’ government can take it.  Lost in the political uproar that followed the Supreme Court’s Kelo v. New London 5-4 decision is that the jurisprudence on ED4ED is half a century old, as laid down in a landmark 8-0 decision in 1954 [Same year as Brown v. Board of Education of Topeka, another landmark – Ed.], Berman v. Parker.  Under Berman, a Supreme Court enraptured with the promise of economic development allowed the District of Columbia Redevelopment Authority to demolish and rebuild a large chunk of southwestern Washington, based on the finding of ‘blight’, which in the 1954 decision was concluded to exist because:

“64.3% of the dwellings were beyond repair, 18.4% needed major repairs, only 17.3% were satisfactory; 57.8% of the dwellings had outside toilets, 60.3% had no baths, 29.6% lacked electricity, 82.2% had no wash basins or laundry tubs, 83.8% lacked central heating.”

I think anyone today would agree that even in 1954, properties without indoor plumbing, central heating, or running water, constituted blight.  Indeed, under today’s laws – absent in 1954 – those buildings could be condemned as unsanitary. 

 The court that gave us Brown v. Board of Education also gave us Berman

As Justice William O. Douglas, writing for the unanimous court, put it:

Miserable and disreputable housing conditions may do more than spread disease and crime and immorality. They may also suffocate the spirit by reducing the people who live there to the status of cattle. They may indeed make living an almost insufferable burden. They may also be an ugly sore, a blight on the community which robs it of charm, [p33] which makes it a place from which men turn. The misery of housing may despoil a community as an open sewer may ruin a river.

Unfortunately for Justice Douglas’s defenders, the greatest blight now inflicted on many northern urban communities are the slums inside, the high-rise public housing properties such as the French banlieues, all of which should be torn down, and many of which have been torn down or are being torn down.

We’re not sorry to see you go

Justice Douglas was doing more than penning a manifesto.  (No one ever accused Justice Douglas of lacking in legal imagination, as when in Roe v. Wade he found that a right to privacy ‘emanates from the penumbra of the Constitution’ – in other words, that were was no Constitutional language to support it.)  Here he was grounding the decision in an expanded concept of ‘public health’ so as to argue that blight goes beyond the optical:

In the present case, the Congress and its authorized agencies have made determinations that take into account a wide variety of values. It is not for us to reappraise them. If those who govern the District of Columbia decide that the Nation’s Capital should be beautiful as well as sanitary, there is nothing in the Fifth Amendment that stands in the way. ["Nor shall private property be taken for public use without just compensation," the 'takings' clause. -- Ed.]

Berman proved to be the opening salvo in a half-century of ever-expanding municipal authority and judicial deference to local findings.  In 1984 the Supreme Court even expanded municipal discretion through the Midkiff decision, so that when in 2005 the court upheld New London’s taking of Suzette Kelo’s house, the remarkable point was not that the city won, but that it won ‘only’ 5-4, and in winning provoked an impressive and sustained voter backlash.  As the City Journal essay put it:

In 2005, in Kelo v. New London, the Supreme Court decided that these “public purposes” could even include economic development. But New York’s constitution theoretically holds the state to a higher standard. In 1967, Empire State voters voted not to add a “public purpose” clause to their constitution, preferring to stick with the stricter requirement of “public use.”

2. Once ‘blight’ is found, the state can flip property to a private developer.  In parallel with the thread of government having a police power to take small parcels and aggregate them into more rational urban uses ran another thread, that the state can contract these basically technical functions to a private third party.  Here too it was the supremely confident Douglas who wrote the sweeping apologia:

The firebrand justice: William O. Douglas

Here, one of the means chosen is the use of private enterprise for redevelopment of the area. Appellants argue that this makes the project a taking from one businessman for the benefit of another businessman. But the means of executing the project are for Congress, and Congress alone, to determine once the public purpose has been established. See Luxton v. North River Bridge Co., supra; cf. Highland v. Russell Car Co., 279 U.S. 253.

The public end may be as well or better served through an [p34] agency of private enterprise than through a department of government — or so the Congress might conclude.

We cannot say that public ownership is the sole method of promoting the public purposes of community redevelopment projects. What we have said also disposes of any contention concerning the fact that certain property owners in the area may be permitted to repurchase their properties for redevelopment in harmony with the over-all plan. That, too, is a legitimate means which Congress and its agencies may adopt, if they choose.

Now enters the worm of self-interest, for if the state can gobble up small parcels from small and politically unconnected holders, and bestow them in a bundle on a politically connected private redeveloper, then both the redeveloper and the municipality have a selfish interest in doing so.  Land that is redeveloped becomes more valuable.  Land that is rezoned becomes more valuable.

Raise the height, raise the value, raze the incumbents

None of this bothered Douglas, taken as he was by a vision of the city council as philosopher-kings:

Subject to specific constitutional limitations, when the legislature has spoken, the public interest has been declared in terms well nigh conclusive. In such cases, the legislature, not the judiciary, is the main guardian of the public needs to be served by social legislation.

Evidently they trusted their government more back then.

3. By now, the practical definition of ‘blight’ has been diluted into ‘economically underperforming’.  If finding a word translates into giving someone more money, then the word is increasingly found.  With ‘blight’ the key to unlock potent government power to take property from A and then to give it to B, why then will develop, in short order, an active marketplace in finding blight.  [The same thing has happened, on a multi-billion-dollar global scale, in the counterfeiting of certified emission reduction (CER) certificates, otherwise known as carbon credits … but that's another story, about which I may post in the context of India. – Ed.]

You cannot outreach the long arm of the law

Kelo highlighted this and empowered other opponents of ED4ED, such as in Brooklyn, with its billion-dollar battle over Atlantic Yards, which has been going on for more than half a decade.  As City Journal puts it:

Brooklyn’s Prospect Heights, industrial and forlorn for much of the late twentieth century, was looking better by 2003.  Government was doing its proper job: crime was down, and the public-transit commute to midtown Manhattan, where many Brooklynites worked, was just 25 minutes. That meant that the private sector could do its job, too, rejuvenating the neighborhood after urban decay. Developers had bought 1920s-era factories and warehouses and converted them into condos for buyers like Daniel Goldstein, who paid $590,000 for a place in a former dry-goods warehouse in 2003.

My $590k says my home isn’t blighted

These new residents weren’t put off by the Metropolitan Transportation Authority’s railyards nearby, and they liked the hardwood floors and airy views typical of such refurbished buildings. They also settled in alongside longtime residents in little houses on quiet streets. Wealthier newcomers joined regulars at Freddy’s, a bar that predated Prohibition. Small businesses continued to employ skilled laborers in low-rise industrial buildings.

Two questions are entangled here:

1. From an urban-vibrancy perspective, would we ‘like’ to see redevelopment?

2. Is the neighborhood ‘blighted’ today?

It’s entirely possible to answer Yes to the first question – making us wish we could assemble the land – and No to the second, meaning we cannot do it, tempted though we may be.

I can resist everything but temptation

Except that it is all too easy to substitute “I am entitled to” for the phrase “I want to” – especially if one is adjudicating for oneself.

The state hasn’t let this inconvenience derail its plans for Prospect Heights, however. For seven decades, courts have let New York seize and demolish slum housing if it’s blighted—which New York State defines as “substandard” and “unsanitary.” So the Urban Development Corporation (UDC), a public entity of New York State, decided that the “public use” of Atlantic Yards would be blight removal. The city had already designated part of the neighborhood as “blighted” 40 years earlier, long before its resurgence. As for the rest, the UDC commissioned consultants—previously employed by Ratner—who soon returned the requisite blight finding.

I applaud the commission’s consultants

4. When courts confront a blight dispute, they tend to defer to the public agency.  Judicial deference to legislative or executive decision-making is generally a sound principle for separation-of-powers. 

Property owners have looked to the judiciary to check the overweening grasp of the legislative and executive branches.

Yet the courts seem to have difficulty grappling with the municipality’s economic conflict of interest:

In Brooklyn, Goldstein and his neighbors have lost their lawsuits—most recently, in New York’s highest court, the court of appeals. In November, the court decided 6–1 that “all that is at issue is a reasonable difference of opinion as to whether the area in question is in fact substandard and insanitary. This is not a sufficient predicate for us to supplant [the state’s] determination.”

Goldstein’s got his dander up

Except that the harm is unbalanced, because either way, the decision is irrevocable.  If a court finds blight, then owners are dispossessed of their property – uprooted.  With that dispossession goes their entire way of life.  I’m especially sensitized to this by all my global South experience, where slum dwellers are routinely dispossessed of land, once it has become valuable.  The slumdwellers lack legal title – they gained their occupancy rights by squatting – so their claim is weaker, but the principle is the same: occupancy vests political legitimacy.

The court essentially abdicated its duty to protect property owners from the governor and the Legislature.

I choose to abdicate my duty

That’s City Journal’s conclusion, not ours, but it’s in line with the factual record.

[Continued tomorrow in Part 2.]

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Sitting here in Limbo
Waiting for the tide to turn.
Yeah, now, sitting here in Limbo,
So many things I’ve got to learn.
Meanwhile, they’re putting up a resistance,
But I know that my faith will lead me on.

– Jimmy Cliff

And then the harder they come, the harder they fall, one and all!

Whither the GSEs?  A year and a half into their conservatorship, nobody knows – and we could easily wait another whole year with no progress.  As reported in the Washington Post:

The federal government has spent the past half year seeking to roll back its emergency efforts at propping up the financial markets – with the notable exception of its involvement in mortgage giants Fannie Mae and Freddie Mac.

Taking over Fannie Mae and Freddie Mac wasn’t about propping up the financial markets, but rather keeping upright the housing markets.

Houses, not banks

As recently as December, the Obama administration said it expected to release a preliminary report on how to remake Fannie Mae and Freddie Mac around Feb. 1.

The best laid schemes of mice and Administrations gang aft agley.

But no plan was produced, and in response to questions from lawmakers, Treasury Secretary Timothy F. Geithner clarified last month that it would be another year before the government proposes how to restructure the firms.

That’s for me not to know and for you to speculate about, isn’t it?

Sixteen months after they were seized to prevent their collapse, the companies remain wards of the state –

Regarding the GSEs’ continued limbo, I’m of two minds:

1. Don’t risk open-heart surgery.  The GSEs are a lifeblood of the American housing finance system – and hence of the global capital markets.  Tinkering with them now risks a disruption we simply cannot afford.

Don’t tug on that … you never know what it might be attached to

2. Doing nothing is unacceptable too.  Because the GSEs are so important, they cannot be left with no hand at the strategic tiller.  The GSEs should be part of the solution, not simply a metronome ticking away on momentum.

Further, lack of management isn’t just bad strategy, it’s bad governance, and dangerous:

– running a tab that has now exceeded $125 billion in what has become the single costliest component of the federal bailout for the financial system.

Lack of transparency means lack of practical oversight … and we know how well opacity worked for them before, don’t we?

It looked really good until it failed miserably

Some members of Congress have complained that the huge public commitment is unsustainable.

It is – and without transparent reporting, we have no way of knowing whether the GSEs are rebuilding their balance sheets and net equity or continuing to run up losses not of their past executives’ making.

But the administration has been reluctant to start reforming Fannie Mae and Freddie Mac, officials and analysts say, because the firms in their current form play an essential role in supporting the housing market at a time when it is still under severe stress.

Absolutely, categorically true – we cannot allow the housing market’s financial heart to stop pumping liquidity.  Even if it’s artificial.

Don’t worry, your Federal government is at th econtrols

As other financial firms have exited the market and credit has seized up, Fannie and Freddie have been behind the vast majority of mortgages made since the start of the financial crisis. The companies now own or back more than half of all U.S. home loans.

With FHA right behind, and itself weakening.

Moreover, the companies are helping the administration pursue policies designed to make new homes more affordable, ease the burden on struggling borrowers and direct funding to parts of the country especially hard hit by the downturn.

Allow us to be crystal clear here – by continuing to supply liquidity, and to “ease the burden on struggling homeowners” [translation: forbear – Ed.], the Administration is almost certainly increasing Fannie Mae’s and Freddie Mac’s losses. 

A rising tide lifts all boats?

Their bet is simply that the gains to others (e.g. homeowners, other banks, securities holders) and the macroeconomic benefits (lower interest rates, support for employment) outweigh the costs. 

Any initiative to remake the firms could distract energy from these programs or, in some cases, put an end to them.

By their actions, Fannie and Freddie are taking a concentration of the pain that would otherwise be diffused throughout the economy. 

The companies have also been tapped by the Treasury Department to rewrite the terms of home loans for struggling borrowers facing foreclosure. But this program – carried out by Fannie, Freddie and other firms – has had less success. Although 1.3 million borrowers have been eligible, only about one-tenth have had permanent mortgage modifications.

Many of those eligible are under water in all scenarios; most of them should never have been homeowners in the first place.

And keeping the companies solvent has been costly. To cover their losses, the firms have both said they will need additional federal money beyond the more than $125 billion already committed.

As a taxpayer, I think and hope their strategy has been right for the country – I’m willing to pay more if it serves to strengthen the economy.  Were I a director of either institution, I’d want explicit exculpation from breach-of-fiduciary-duty claims.

Yes, something like that

Nor is the administration eager to foster a debate over Fannie Mae and Freddie Mac in an election year, according to analysts and lawmakers.

As a policy wonk, I had overlooked this.  Yes, raising the GSEs’ future now has to be a net loser for the Administration.  With all their current political tribulations and pitched battles on Capitol Hill, the Democrats can ill afford to open another political front.

The pair have long been lightning rods for criticism by many Republicans, who call them [1] an intrusion into the free market and [2] a Democratic patronage haven.

Yes on [1], probably No on [2].  Democrats and urbanists like housing subsidies more than Republicans do, so the leadership of Fannie and Freddie probably veers toward the liberal. 

Many Democrats, even as they faulted companies’ excesses, have defended the firms’ role in fostering homeownership.

Well, if the GSEs haven’t done that, why did we give them all those awfully big advantages?

And with Obama’s campaign to overhaul financial regulation facing resistance on Capitol Hill, administration officials don’t want to add another divisive issue to the mix.

Especially if the Administration is unsure what it wants to do.

“We’ve obviously had our hands full, as has the Congress,” said Michael Barr, assistant Treasury secretary for financial institutions. “We’re just beginning to see some positive signs in the housing market, but we’re not out of the woods yet and so we want to be careful to be sure that we had an appropriate, paced process.”

There’s a Barr in them financial woods

Barr said Treasury officials have been meeting informally with their counterparts at the White House and the Department of Housing and Urban Development and exchanging policy papers to develop principles for overhauling Fannie Mae and Freddie Mac.

All well and good – maybe it starts to coalesce a thought cloud – but a far cry from actual progress, particularly as the Republicans will weigh in strongly before anything happens.

These principles include, for instance, that the government ensure borrowers could still get mortgages even when the private market is no longer offering loans.

A laudable principle if the reason the private market isn’t lending relates to a credit crunch.  But if the private sector is sensibly pulling back from risk, and the GSEs zag when they should have zigged, we will be much worse off.

You are here …

But whatever replaces Fannie and Freddie, it should not be allowed to grow so large that its failure could threaten the financial system.

Oh, brilliant …

“And that’s how there’ll never be any financial crisis ever again.”

“Great, Jackie.”

“They weren’t planning to do much about it,” said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, in an interview. “They’re busy, and it’s hard and it’s complicated and they’re trying to put it off.”

So the Administration, understandably, put GSE reform into the too-hard-revisit-later basket.

Where did I file it?

Frank said he is “forcing” the issue by scheduling a committee hearing later this month, summoning Geithner and other officials to discuss options for reforming the firms.

A hearing, useful though it may be, will not force the issue, but at least it will raise the issue.

Once among their strongest supporters, Frank has more recently called for their abolishment.

As independent entities, that is. 

“Independence may be overrated”

Future scenarios for reforming Fannie Mae and Freddie Mac range widely – from total privatization to total nationalization. But no consensus has emerged over the best fix.

Nor will it any time soon.  This is guaranteed to be divisive. 

Spokesmen for Fannie Mae and Freddie Mac said their current focus is on keeping funds flowing into the mortgage market and helping distressed borrowers remain in their homes.

As it should be.

The companies did not address the question of how they should be restructured.

In view of their obvious self-interest, nothing would be gained by the GSEs’ management vocalizing about their future.  They will be keeping their heads down.

When the Bush administration seized the firms, it said it would make $200 billion available to them. The Obama administration a year ago doubled that figure, then decided late last year to offer them unlimited financial assistance as a signal to investors that the companies’ solvency was guaranteed.

But critics warn this has given Fannie Mae and Freddie Mac a blank check.

That is the problem.  They do have a blank check.

Fill in the zeroes later

“This idea of having money laying around that they can spend on whatever they think politically makes sense is certainly consistent with what we’ve seen from this administration,” said Rep. Jim Jordan (R-Ohio), a member of the House Oversight and Government Reform Committee who has called for an investigation into the delay in planning for the companies’ future.  

True enough, but there are good reasons for caution.

“Any suggestion now about future changes could destabilize the market,” said Karen Shaw Petrou, managing director of analysis firm Federal Financial Analytics and a longtime observer of housing finance policy. “The U.S. mortgage market is so fragile that all Treasury needs to say is ‘boo’ and it could fall apart.”

But time could be tight. Under the firms’ agreement with the Treasury Department, they must shrink their mortgage portfolios every year, eroding their ability to support the market.

That is, unless the rules get changed … yet again.

I’m smiling outside, and crying inside

James Lockhart, a former top regulator of Fannie Mae and Freddie Mac, said the administration is erring by waiting another year to begin the reform process.

“The clock is ticking. We need to reinvigorate the private mortgage market and create something new and we know how long Congress takes,” Lockhart said. “It’s unhealthy to have as much government involvement in the mortgage market as we have in this country.”

He’s right, of course, but limbo is no state for us to be in.

Could be dangerous

Sitting here in Limbo

Waiting for the dice to roll.
Yeah, now, sitting here in Limbo,
Still got some time to search my soul.
Meanwhile, they’re putting up a resistance,
But I know that my faith will lead me on.

– Jimmy Cliff

I said forgive them, Lord, they know not what they done

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[Continued from yesterday's Part 1.]

Now they know how many holes it takes to fill the Albert Hall

– The Beatles, A Day in the Life

If all you took from the February 11 Economic Times of India were the clips we highlighted yesterday, one could be forgiven for being depressed about India’s potential – so it’s time to look on the bright side of things.

Ahmedabad home-sales billboard: February, 2010

4. The Economic Times on loan pricing

Finance is the engine of housing improvement, and transparent information is the handmaiden of finance:

MUMBAI: Borrowers can now look forward to a more transparent pricing of their loans, with the Reserve Bank of India (RBI) proposing to introduce a new benchmark from April that will more accurately reflect movement in interest rates.

The Bank is also trying to remove barriers to banks going down-market:

At the same time, banks have been granted the freedom to price loans below Rs 2 lakh [$4,000 – Ed.], which effectively paves the way for their entry into microfinance at commercially-viable rates. 

That’s a start, and the Rs 200,000 floor is significant because a great many semi-formal houses can be purchased in roughly this price range, but it will take more than merely small-loan permission to get the banks to move down. 

SEWA Bank in Ahmedabad, February 2010

The central bank plans to introduce a so-called ‘base rate’, which will be computed on a cost plus basis by each bank and which will now be the floor price for all lending by it. The ‘base rate’ system seeks to replace the prime lending rate (PLR), the present benchmark used by banks. 

The RBI on Wednesday announced that the new base rate system would be made applicable from April 1. The guidelines are not yet finalised, but a draft circular issued on Wednesday evening has the broad contours of the new regime. 

“All categories of loans should henceforth be priced only with reference to the base rate. The base rate could also serve as the reference benchmark rate for floating rate loan products, apart from the other external market benchmark rates,” the RBI said in its circular. 

If a bank chooses to base its floating rates on external benchmarks, it should ensure that the external rate is equal to or above the base rate at the time of sanction or renewal of the loan. 

Although there’s a long way to go — as in lending for home improvement, not just on new-build with mortgageable title – it’s a step in the right direction.

Nancy with Indian girls at Chittaugarh, Rajasthan, February 2010

5. The Times of India on development of accurate slum data

NEW DELHI: Aiming to meet ambitious target of making India slum-free, the government has embarked on a plan of remote mapping to get a ‘‘reliable figure’’ of people living in slums by collecting foolproof data on both notified and non-notified slums across the country. 

As I’ve posted before, among the many definitions of a slum is when the physical reality and legal records are wildly at odds.  Thus, when they are brought into harmony, the place is no longer a slum, it’s not merely a low-income neighborhood.  Moreover, in reconciling the two, it is always the law that moves, not the physical reality.

While the current estimate of slum dwellers is based mostly on surveys of notified slums, most non-notified slums have been left out. 

Notification is a legal process both granting rights (to slum dwellers) and giving powers (to government).

Local office of SAATH, Ahmedabad: February, 2010

Serving about 2,000 households on government’s behalf

Maps of cities prepared through remote sensing would give a clearer and more authentic picture of slums in a city and would include non-notified slums.

It’s critical; knowing where the people are is a first step both to enumeration and citizenship, and also to providing financial and physical dimensions on the problem. 

Housing minister Kumari Selja

Housing minister Kumari Selja said: “Most of the time the plans are based on projections rather than hard data. We plan to map the entire country so that we know about slums in each town and city. This would also include non-notified slums which are usually not accounted for.” 

Once you have counted them, you cannot ignore them.

The ministry, which has set a target of making India slum-free in the coming five years with the launch of the Rajiv Awas Yojana (RAY), expects to get the exact figure by GIS mapping and including non-notified slums too.

The GIS mapping will have to be supplemented by on-the-ground enumeration, but when the two are combined, the findings will be well-nigh indisputable.

With involvement of Isro in this project, the land-mapping and slum surveys are being done through remote sensing with GIS-enabled software. 

I read this with encouragement and no small sense of recognition, since two weeks earlier, at the beginning of my trip, I participated in a two-day a World Bank sponsored workshop on Rajiv Awas Yojana (RAY).

The ministry has also asked states to develop a Slum Information System and the Centre has provided them funds for the purpose. “We want the mapping to be completed in two years,” Selja said. 

Riverfront slums, Ahmedabad, February, 2010

As we saw when reviewing The Ghost Map and The Blackest Streets, ever since we created modern urban sums – which I date from the Industrial Revolution – they have been corrected with a combination of tools, including liberal social reformers, enumeration and surveys, vote power, and eminent domain.  India is harnessing twenty-first century technology to accelerate its addressing of a nineteenth-century problem.

However, the ministry says it is facing delays in implementing its plans due to slow response from the states to its draft guidelines for which their opinion has been sought. The ministry has sanctioned more than 1.4 million houses for the poor. As many as 1,327 projects of affordable housing and basic amenities to the urban poor with an outlay of more than Rs 34,791 crore have been approved. 

That’s $7 billion in funding – a meaningful sum, even for massive and populous India.

As further explained in an accompanying DNA India story:

The ministry of housing and urban poverty alleviation (Hupa) will do satellite mapping of all slums in the country under the slum-free cities initiative of the government. Indian Space Research Organisation (Isro) will be collaborating in the project.

Any resemblance to the Star Fleet logo?

Mumbai will be among the four metros to be mapped first.

Hupa believes mapping will help governments find new slums taking shape and prevent their illegal spread.

That I doubt – but it may accelerate their remediation.  Evidently the article’s author shares my skeptical optimism (that revealing ‘besides’):

Besides, it will be effective in analysing slum communities, providing them sanitation and other amenities, and relocating them to suitable locations.

This I believe.

A similar satellite mapping done by Indian Institute of Remote Sensing on Dehradun’s slums showed that the number of slums in the city had increased from 75 in 1996 to 113 in 2000.

Less important than the number of slums – which, after all, can grow and meld into one another – is the overall scale, particularly including the number of people living in them.

Toward the future: Chittaugarh, February, 2010

Hupa is working with experts for a model legal regulatory framework for according property rights to slum dwellers.

I would love if it we at AHI were part of that activity.

A total of 5,161 towns are being surveyed to prepare a profile of household poverty and livelihoods of the slum dwellers. According to data available, Maharashtra has the highest number of slums in the country (32%), followed by West Bengal (15%) and Andhra Pradesh (15%).

Undoubtedly this directly correlates with the rate of urbanization.

The expanding blue city of Jodhpur: February, 2010

6. The Times of India on binding Public Sector Undertaings (PSU’s) into corporate social responsibility

Norms to bind PSUs with social duty in a month 

The department of public enterprises (DPE) will soon come up with norms on corporate social responsibility (CSR) for central public sector enterprises (CPSEs). 

This is how it begins; when government creates what the Economist calls quangos – quasi-non-governmental organizations, in effect state enterprises – it imbues them with unique powers, resources (such as large sums of money) and responsibilities.  Over time, as the PSU’s and CPSE’s become large and successful, government is within its rights to charge Rumpelstiltskin’s fee, and demand that the corporation take some of its profits – all of which derive ab initio from government largesse – and redeploy them into further expanding their social mission.

As per the proposal, cleared by the committee of secretaries (CoS), profit-making PSUs may have to set aside up to 2-5 % of their net profits for CSR activities.

Indian CSR is about to grow teeth.

 
The new norms will be formulated within a month and there will be no escaping from CSR, which will no longer be a photo opportunity for the chairman, said DPE secretary Bhaskar Chatterjee. “I would put a timeline of two to three weeks,” he added. 

Chatterjee looks implacable and inescapable

I love the phraseology, and the implicit political capital behind it.  Will there be follow-through, I hope?

There ought to be, as these are government entities, not purely private companies.

New construction residential: metropolitan Ahmedabad, February 2010

Even though most CPSEs earmark funds for CSR activities, most of them are on a voluntary basis.

Allowing them to arbitrage visibility against cost to maximize the headline-to-rupee ratio –

The CSR would no more be confined to organising blood donation camps or some charity event.

– which is less cost-effective than maximizing the impact-to-rupee ratio.

The proposal is now awaiting approval by heavy industries and public enterprises minister Vilasrao Deshmukh.

Deshmukh is the decider

The CPSEs with net profit of more than Rs 100 crore may be asked to contribute up to 2% of the amount, Mr Chatterjee said.

In other words, roughly $450,000 annually.  That’s enough for each CPSE to undertake initiatives of some reasonable municipal or local scale.

Of the 244 PSUs, 160 earned a net profit of Rs 91,083 crore in 2007-08, 2% of which amounts to Rs 1,821 crore. 

 
Based on their 2007-08 results, PSUs would have to spend at least Rs 1,500 crore.

Or $300,000,000 – enough to represent a major set of flows, structured in a manner similar to the so-far-stillborn housing trust fund intended to be funded with GSE profits.  [You remember alleged GSE profits, don't you? – Ed.]

The CPSEs would be obliged to take up specific projects to help people affected directly or indirectly by their businesses. This would be their primary obligation, out of the profits that they make. “You (CPSE) must recycle it to help the society,” the DPE secretary said.

For these enterprises, housing is a natural.  They have a vast pool of employees, for whom better quality employer-assisted housing is an employee loyalty and employee productivity issue.

 
Chatterjee said the guidelines would provide for measurement of the CSR. “This is happening not just in India but across the world,” he said. These obligations would be set in the memorandum of understanding, which sets targets for an individual CPSE.

Echoes of South Africa’s Financial Sector Charter.

Community organization, Ahmedabad-style: February, 2010

The performance evaluation would also have CSR as one of the parameters. 

The world’s largest democracy is serious about tackling its challenge of slums.  That’s heady stuff.

Bikaner, February 2010: I command the PSUs to dance to my tune

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I read the news today, oh boy

– The Beatles, A Day in the Life

One day’s newspaper clippings – in this case, The Times of India, Thursday, February 11 – represent an info-montage of the world’s largest democracy muscling its way into the twenty-first century, and along the way the world’s largest and most urgent national affordable housing and slum upgrading challenge.

Ahmedabad retail street, February, 2010

[Recently Nancy and spent three weeks in India, a week of it for AHI at the South Asia Housing Finance Forum (Delhi; two days), a World Bank sponsored workshop (Udaipur) on India's new slum upgrading initiative Rajiv Awas Yojana (RAY), and then (z) in Ahmedabad with our customer SEWA Housing Finance and our working partner the Ashoka Foundation. 

Listening with interest at the SAHF Forum, January 27

Along the way and afterwards, we went all over Rajasthan, the old Rajputana or the India of princely states.  I will have a post forthcoming on the range of Indian housing alternatives, complete with pictures – truly remarkable.]

Boy musician, Jaswand Tanda, Jodhpur, February, 2010

India will overwhelm you – at least, it overwhelmed us.  It’s too large, too rambunctious, too cacophonous, too pungent to be absorbed into any totality in any short interval.  I can see why people hate the place, and I can also see why people become enraptured by it. 

Downtown Jodhpur, rush hour, February, 2010

What follows are representative clips from one day’s Economic Times of India.  They are related an unrelated, consistent and contradictory, serious and silly.  All of them are India, and all of them are now.

Start with the challenges:

1. The Economic Times on the housing deficit in homes and rupees

NEW DELHI: The government on Wednesday said the country needs investment to the tune of Rs 3,61,000 crore [Roughly $7.0 billion – Ed.] to meet the shortage of nearly 25 million housing units. 

That’s called paying the piper!

“There was approximately housing shortage of 24.7 million dwelling units at the beginning of the 11th Five year plan…”

Government bodies love quantifying a housing ‘deficit,’ if only to give a macro scale to the problem.  Personally, I think the deficit has to be even larger than this, since it must include people living in inadequate housing, people living in too little housing, and people who are moving to India’s cities at an unprecedented rate.

“The investment requirements would be to the tune of Rs 3,61,000 crore for overcoming this massive housing shortage,” Minister of State for Urban Development Seagate Roy said at the CII real estate concave here. 

Ray thinks it’s 3.6 lakh crores of rupees

Of the total housing requirement, about 99% is constituted by the economically weaker section and the low income groups, he added. 

Housing demand being elastic, as these people become less poor, they will want more housing, so even if India magically conjured up 25,000,000 homes tomorrow, the nation would need an equal number the day after.

“The massive urbanisation in the past few decades has led to severe housing shortage for the urban poor… providing affordable housing is one of the most formidable challenges that our country faces today,” Roy said. 

As I said in my World Bank presentation, I’ve previously hypothesized that not only are slums economically rational, they may be an inevitable phase in urbanization, a phase that governments and cities escape by investing their way out.

Pushing a bicycle carrying petroleum, Jodhpur, February 2010

He said availability of land at cheap rates is the greatest challenge in providing affordable housing in the country. 

We know that the value of urban land is a residual, so as India urbanizes (today it is only 28% urban), those land prices will only rise – unless something is done to head them off.

Measures like increasing density by [a] hiking the floor-area ratio and [b] encouraging public-private partnership, should be considered in fulfilling the housing need of the country. 

It’s important to distinguish the potential utility and impacts of these two. 

A. Floor-to-area-ratio (FAR) and its close Indian cousin the floor space index (FSI) are the principal means by which India controls its formal development.  The effect, not necessarily a desirable one, is that developable urban land rises dramatically in price.  Tweaking the FSI and FAR can add value to selected land – in the right location, almost as much value as one wants – while at the same time inflating the value of all other land.  (And on the third hand, managing the preservation of open space for municipal infrastructure such as highways, urban rail lines, and even public green space.)

Good thing Lord Ganesha has four hands

B. Public-private partnership is merely a means by which the public sector can get technical functions – land development, construction, ownership – performed faster, cheaper and better.  Public-private partnership cannot conjure up subsidy or value from thin air, nor will the private sector embrace and internalize essentially governmental functions – like owning public-policy imperatives – unless it is very well paid to do so.

“The government has sought to create an enabling and supportive environment for expanding credit flow to the housing sector and increasing home ownership in the country,” Roy said.

Absolutely, creation of the enabling environment is one of government’s four essential roles.

Schoolgirls on a field trip: Jodhpur, February 2010

2. The Economic Times on land grabbing

Her Excellency’s husband a land grabber?

You’re just electing me, not my brother

NEW DELHI: In a major embarrassment to President Pratibha Patil, her husband Devisingh Ransingh Shekhawat has been asked to return over two acres he grabbed from a poor Dalit  [Untouchable – Ed.] farmer in Amravati of Maharashtra. 

She’s India’s first woman president

The president, the First  Gentleman, and the Queen

The farmer, Kishore Bansod, had last year found that most of his land had been transferred to Mr Shekhawat in the government records. The President’s spouse was accused of forging papers to grab 2.5 acres near the highway in Chandrapur two years ago. The farmer went to court in June, 2009. The Daryapur court gave its verdict in the case in December stating that the land belonged to Kishore Madhav Bansod and not Mr Shekhawat and that it be returned to the farmer. However, Mr Bansod got the copy of the judgement only earlier this week. 

Later that day, I read elsewhere that Mr. Shekhawat vigorously disputes the characterization of his land transaction.  All I know is what I read in the newspapers …

The President’s husband took the help of local revenue officers. An inquiry by local officials revealed that five others — all his relatives — colluded with him. 

Though the Rashtrapati Bhavan [The Indian White House – Ed.] has refrained from commenting saying that the President’s husband is a private citizen and enjoys no special privileges, the allegations against him are bound to haunt the President. 

Government buildings, Rajpath, Delhi, Republic Day, 2010

Following the farmer’s complaint last year, SDM Ashok Amankar had issued notices to Shekhawat and seven others, including his nephew Bhanwarsingh Lalsingh Shekhawat and brothers Kishorsingh, Omsingh and Raghusingh. The then revenue inspector was also served a notice. 

The farmer had said that officials who went for land measurements had told him that his land was in the name of the Shekhawat family. The three-acre farm was purchased by his father Mahadevrao in 1985-86 from a Bapurao Chaudhary, he had said.

Indian land use records are an infinitely recursive tangle of documents.  At the India RAY conference, Bimal Patel of HCP Design in Ahmedabad gave a superlative presentation illustrating the land-use and legal history of Jadibanagar in Ahmedabad, a public infrastructure project of our customer SEWA Bank.  It would have been hilarious had it not been so real.  Because land history is inevitably lost in the mists of time, land-use disputes are common. 

Informal neighborhood with municipal infrastructure (streets) added, Ahmedabad, February, 2010

Mr Shekawat is a member of the Congress and has also served as the Mayor of Amravati. This is not the first time that the President’s family has come under a cloud over financial dealings. 

In 1973, [President Patil] had set up a co-operative bank named Pratibha Mahila Shahkari Bank to empower women but its license of the bank was revoked in 2003 by the RBI over alleged financial irregularities. According to reports, one of the reasons listed by RBI for cancellation of the license was the faulty loan policy of the bank and waivers on loan interests given, among others, to Ms Patil’s relatives.

Everyone I talked with bemoans corruption in India.

A new currency created to try to shame people into refusing bribes

3. The Economic Times on the black-market economy

11 Feb 2010, 0542 hrs IST, Mythili Bhusnurmath , ET Bureau

Can you see her tongue in her cheek?  Mythili

The Great Recession might have laid mightier economies than ours struggling but the Indian economy has emerged relatively unscathed. Yes, you’ve heard that before. But chances are that as the global economy lurches from one crisis to another while the Indian economy gathers speed, you will hear that repeated in many quarters, especially in official fora. 

To hear it from government sources, there are many reasons for the Indian economy’s resilience: the Goldilocks fiscal stimulus, monetary easing, our large domestic market, demographic dividend, calibrated opening up of the economy, and so and so forth. But before we pat ourselves on the back, could there be another, no-so-happy reason why the Indian economy has been less affected by the Great Recession? 

If research by Deutsche Bank economists is to be believed, yes, our black economy! 

Doors for sale, Ahmedabad, February, 2010

A vast portion of India’s economy and employment is informal – meaning in cash transactions.

Paper money has no memory

Now, black money has long been regarded the bane of our development process. It results in huge wastage of resources , lowers the rate of growth, leads to criminalisation in society and breakdown of institutions, undermines the capacity of Indian businesses to face the challenge of globalisation, jeopardises our security, leads to poor governance, in short, to every conceivable ill we can think of. 

But there just might be something to be said for it. According to researchers at Deutsche Bank, empirical analysis shows countries with a very high or very low share of activity in the shadow economy appear to be much less affected by growth fluctuations in the world economy than countries that have an average-sized shadow economy. 

Because they have a much larger economy, and its financing is countercyclical.  Thus the formally conducted economy – the one we can observe – may be only the tip of the iceberg of economic activity.

What’s under the surface is more important

Alas! Countries where ‘the population cannot really decide whether it wants to offer its labour ‘honestly’ in the official economy or rigorously off-record are hit particularly hard’ . So, countries such as Germany, Ireland and some Scandinavian ones whose shadow economies are around 15% of GDP, saw their GDP plunge by around 5% in 2009, and in the case of Ireland and Finland, by over 6.5%. 

The report does not include India, but there’s no disputing which end of the scale we occupy when it comes to the share of the black economy. At close to 40% of GDP, i.e., $400 billion, according to Arun Kumar, professor of economics at the Capital’s Jawaharlal Nehru University, who has done a great deal of work on black money, black money vitiates every aspect of our life. 

Kumar tracks the black economy

I’ve posted extensively that lack of electronic – hence, formal and reported – financial activity is a huge barrier to bringing the poor into the formal city – and hence to enabling them to claim their economic citizenship. 

Self-employed food vendor, Ahmedabad, February, 2010

So, is the report a vindication of the rampant corruption and growing scourge of black money? Not at all! The downside of black money far exceeds any possible upside. To the rhetoric question of where would we have been without the black economy shoring up growth, the answer could well be, like the Scandinavians, perhaps! With a growth rate far lower than our present 7-8%, but guess what! I have a feeling that given a choice, most ordinary Indians might happily swap their present lot for that of the Scandinavians, 9% growth be damned! 

If urbanization is a process, and housing formalization is a process, then too the visible manifestation of money is a further process. 

From Nancy’s and my India trip: Friendly tuk-tuk driver and passenger, Ahmedabad

[Continued tomorrow in Part 2.]

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