Ten years a blogger: Part 10, Affordability and government

March 20, 2015 | Blogs, Capital markets, Cities, Essential posts, Evolution, Finance, Global news, Government, Holmes on housing, Mobile homes, Money, Slums, Theory, US News, Value chain | No comments 225 views

[Continued from yesterday’s Part 9 and the preceding Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, and Part 8.]

By: David A. Smith

Section 10. Affordable housing and the essential role of government

Because sustainable urban affordable housing always costs money, it arises only when a benefactor is willing to make that happen.  Occasionally the benefactor is the private, for-profit owner; sometimes it can be a philanthropy or charity (such as almshouses), but most commonly the benefactor is government, because only government has the resources at scale, and only government can use eminent domain for economic development or affordable housing development.


Beware the wrecking ball?

The need for government resources, coupled with government’s general inability to be an effective owner/ manager/ doer (an indubitable reality that at some point I should prove via essay), means that the best affordable housing is created through properly structured public-private partnerships (PPPs) or government incentivized financing programs; I’ve explored the nearly infinite variety of these in many posts, including this Top-25 post (June 11, 2009), Development done right in Jamaica? Part 1, the gates of exclusion:


Allow Jamaican columnist and developer/ architect Carlton Cunningham the voice of pride that shines through his mid-April column in The Gleaner as he describes his successful housing development:


Building hope through housing


Jamaican housing is stratified. Uptown erects gated communities while downtown erects settlements at the gates. Some settlers provide valuable services to the gated, while others, marginalised by lack of skills and, motivated by a “we-are-poor-because-you-are-rich” perception, seek to destroy the gate and the gated.


Both gated and settlers are trapped, ultimate fighters, locked at the wrist in a death duel. The trap is called underdevelopment. Its most visible members are donmanship in the settlements and private security behind the gates, disfigured progeny of corrupt ancestry.


Protesting donmanship in Kingston, Jamaica


If you haven’t heard of donmanship (I hadn’t), here’s a Gleaner extract from 2002:


Donmanship gone a school. There is growing terrorist extortion in schools. Other students are being forced by the student dons to pay taxes for right of passage and presence or the victims dare not turn up at school. Like in the protection rackets on the streets, fear of reprisal shelters the extortion from exposure.


I’ve previously posted about how childhood poverty damages your mind, and perpetuates a cycle of poverty, how slums are slums are houses of crime , and how some people are a slum’s winners.


A few weeks ago, a grieving family had to bury their bright, ambitious, peace-keeping daughter who was stabbed to death at school while trying to pacify a fight. Whole armouries of weapons are seized in some institutions and there have been arrests of students for guns and ammunition. The police could profitably open a special statistical category for school-related crimes including an increasing number of murder cases.



A slum in Kingston, Jamaica


Poverty and lack of education tie to crime, via drugs:


There is ganja at Munro – and everywhere else. There is booze (as The Sunday Gleaner has recently documented), and there is every other kind of drug readily available. Not only is there widespread use but students are peddlers on campus.


Though government can be essential it can also be unhelpful, as shown in this Top-25 post (January 2, 2012), Can you say ‘Pruitt-Igoe’ in Chinese? Part 1, what they’re doing wrong:


Pruitt-Igoe in St. Louis, when initially completed circa 1955

Affordable housing is hard enough to create when the goal is solely that of economically and socially healthy communities – but when production is undertaken to create construction and keep a supply-driven economy humming, the odds of delivering successful communities drop even further.  Unfortunately, if one believes the evidence gathered in this Wall Street Journal (December 31, 2011) article, that’s where China’s real estate interests are leading their country, into a comprehensive affordable housing mistake:



A dormitory community 25 miles from downtown Chongqing


One of the biggest public-housing projects in history will help determine whether China can remake its real-estate sector fast enough to prevent its economy from flaming out.


China has already overbuilt the conventional residential sector out of an unholy trinity of central-government cheap money, profit-chasing state-owned developers bent on completions, and local governments that book profits on land upzoning even if the homes sit unsold. 


China is in the midst of a crash program to build 36 million subsidized apartments by the end of 2015—enough units to house the entire population of Germany.


Mix in questionable data made less reliable by self-interested self-reporting and you have a formula for a headlong rush into the ribbon-cutting trap – counting completions as successes even though that is the opening of use, not its ending, and even counting starts as successes even before they are built.



If you build it, will they pay?


The goal is twofold:


[1] To head off social unrest by ensuring decent places to live for low-wage workers, but also

[2] To cushion an expected fall in high-end construction—the result of policies to tame property speculation—by ramping up construction at the low end: so-called social housing.


Of these goals, the former is honorable and worthy – and difficult.  Housing civilizes people, and civilized societies create affordable housing.  The second, however, is a recipe for disaster, because when one rushes pell-mell into production for the sake of a widgets count, the result will be bad housing that is an urban millstone for decades. 



Maybe you shouldn’t have built that


One of China’s most ambitious social-housing efforts is under way in the southwestern metropolis of Chongqing.


China appears to be making many of the classic mistakes that the US, UK and others made decades ago, and from which we are only now extricating ourselves:


Pruitt-Igoe demolition, 1972 or 1974


Fore u can rebuild u got 2 destroy!

Though badly designed and built housing sometimes must go somewhere to die, it’s better to think positively, as in this Top-25 post (November 29, 2010), A sustainable subsidy: Part 2, privatizing development aid:

As referenced in an interesting New York Times blog post by Tina Rosenberg, Africa has too little corporate infrastructure to attract the large-scale indulgence-buyers.  Deploying carbon credits productively in Africa requires building a network to get it to poor people, either a geographically dispersed rural grid of a demographically complex urban one.


Giving people an alternative to boiling water in order to purify it will reduce greenhouse gas emissions in countries where trees are scarce. Boiling water is harmful for many reasons:


1.     Burning coal produces greenhouse gases, and certain ways of burning wood can, too.

2.     The indoor pollution created by burning wood or coal is a prime cause of respiratory disease.

3.     The constant need for wood is deforesting poor countries.

4.     Women who are already spending hours collecting water must spend additional hours collecting firewood as well.



How much of the world cooks


If the carbon-credit indulgence markets are transmogrified into economic development markets, the planet wins.  Personally, I care very little about carbon reduction but a very great deal about poverty reduction – and even if ecology is your prime mover, getting people out of poverty faster has to be a better way to reduce emissions than paying for smokestack innovations from countries whose economies are already booming.


From the standpoint of the carbon credit markets, however, the key point is that boiling water will eventually create demand for fossil fuel, as many areas are running out of trees. So for many reasons, finding a usable alternative to boiling is good for people and good for the earth.


Probably true, but within reason, what does it matter?  The effect is to privatize development aid into Africa, which is where it needs to do – with sustainable ongoing business models.


The product has a bigger cousin called the LifeStraw Family. You hang it on your wall, pour dirty water in the top, open the tap and clean water comes out the bottom. No power or replacement parts are required.



Interpose it between your cachement and your lips: result, safety


Unlike the personal unit, which is mainly a rural innovation, the LifeStraw Family has urban applicability – it can be used in slums.


Each unit cleans about 18,000 liters of water – enough for a family for three years.


The market cost of the unit averages out at a penny per ten liters of water purified.


Though these innovations are almost exclusively rural, not urban, they illustrate how markets can be harnessed.  Install one as part of a low-cost $300 house, fix it in place so that it is hard to steal, and you’re really onto something.



From a napkin to a slum?  The original $300 House vision.

[Continued next week in Part 11.]


Ten years a blogger: Part 9, Housing’s value chains

March 19, 2015 | Blogs, Capital markets, Cities, Essential posts, Evolution, Finance, Global news, Government, Holmes on housing, Mobile homes, Money, Slums, Theory, US News, Value chain | No comments 748 views

[Continued from yesterday’s Part 8 and the preceding Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, and Part 7.]

By: David A. Smith


Section 9. Housing’s value chains: Supply side and demand side

Once one grasps that slums are economically rational, and a transitional phase brought on my rapid urbanization that overwhelms the infrastructure grid, it is but a short step to see all housing as the joining of two manufactured products:

  1. A physical home, the result of a supply-chain value chain.
  2. A long-term housing loan, the product of a demand-side value chain.

Over the last few years, we at AHI have developed the value-chain approach into a proper theory that we’ve used successfully in widely diverse countries (Mongolia, Nigeria, and Vietnam, to name the most recent three) and we have confidence in its speed and efficacy. 


We need all the links

The housing supply-side value chain.  Products are manufactured through supply chains or value chains, and housing’s supply side value chain has eight links.  Though AHI has been developing the particulars of these for years, I’ve yet to write a blog post about the subject, as it’s more suitable for an essay or an article.  Nevertheless, it’s relevant here.


All the links and handoffs have to work

The supply-side value chain: eight links

1.  Land.  One must have a secure right to occupy the land, and in most places, to sell the land.

2.  Trunk infrastructure.  Sites are ‘serviced’ when they have paved road access, hookups to water and sewer pipe networks, and power lines along the streets.

3.  Site infrastructure.  Infrastructure that reaches the neighborhood must then be connected from the lot line to the basement, or the toilet, or the heater must run pipes and wires.

4.  Configuration and layout.  The home’s location on the site, grading of the site if required, and design/ choice of the initial home to be built.

5.  Risk assumption.  To assemble the materials into a home is to assume all sorts of risks of incompletion, failure to secure occupancy, failure to sell.

6.  Construction. Houses do not assemble themselves; they have to be built, and usually on-site.  Some houses are built incrementally, steadily over weeks or months or years.

7.  Sales and offtake.  Eventually a house is owned by someone, and often that someone is not the developer/ builder, so developers need reliable means of ‘offtake’.

8.  Maintenance and operations.  Once occupied, a home must be maintained, and this is an ongoing obligation.

Even before I could frame the value-chain analysis properly, I was using it in a report AHI did for the Turkish National Real Estate Association (Gyoder) that I referenced in Top-25 post (April 30, 2007) Turkey: Part 1, national demand:

On 25-26 April, I was a guest speaker at the enormously well-attended (800 registrants) Turkish Real Estate Summit in Istanbul, sponsored by Gyoder, a trade association originally formed of REITs but now a big tent comprising most of the real estate sector: developers, lenders, brokers, investors, and the myriad service providers whose booths are an invariable gauntlet between registration and lecture hall.



I’d been invited by Gyoder, based on a recommendation given by Onur Oszan, now with Istanbul Capital.  I met Onur several years ago when I did a guest lecture at the now-defunct Fannie Mae International Housing Finance Services week-long symposium on US affordable housing markets, and we’d maintained email contact.


My visit was brief — 2½ days — and geographically limited — I went more or less straight from airport to hotel and back again.  (It also coincided with a period of intense furor as Prime Minister Tayyip Erdogan nominated another Islamic party member, Abdullah Gul, as President.  As the opposition party boycotted the first Presidential ballot, temporarily denying Mr. Gul election, from the English-language Turkish papers you would have thought the country was in the throes of constitutional or possibly military crisis — but then, America is unrecognizable in foreign newspapers too.



Turkish flags are everywhere, especially hanging like banners from apartment windows


Special bonus AHI alerts: Since my visit coincided with the start of a potential Turkish constitutional crisis — pure coincidence — that is now heating up this week, I’ll be posting addenda related to the political situation, if only to remind us how much we take political stability for granted, and how without it housing policy is extremely difficult.


During my visit I had the pleasure of spending two days surrounded by and listening to Turkey’s real estate best and brightest, an impressive fraction of whom had worked or been schooled in the US: among the leadership I encountered were graduates of Rutgers, MIT, UC Berkeley, USC, and Iowa State. 



Saluting our Turkish graduates!

Ten years a blogger, section by section

1.     What is a blog?

2.     What can a blog do?

3.     What are a blog’s literary antecedents?

4.     How is a blog post constructed?

5.     Over the ten years, how has this blog evolved?

6.     The laboratory of housing laws

7.     The ongoing study of housing as urban technology

8.     Slums as market response, asset class, and transitional urban adaptation

[Continued tomorrow in Part 10.]


Ten years a blogger: Part 8, Slums as an asset class

March 18, 2015 | Blogs, Capital markets, Cities, Essential posts, Evolution, Finance, Global news, Government, Holmes on housing, Mobile homes, Money, Slums, Theory, US News, Value chain | No comments 255 views

[Continued from yesterday’s Part 7 and the preceding Part 1, Part 2, Part 3, Part 4, Part 5, and Part 6.]

By: David A. Smith

Section 8. Slums as market response, asset class, and transitional urban adaptation

From my first slum-theory post on slums as spontaneous communities, I’ve devoted scores of posts to slums (or their euphemism informal settlements) because when one works on affordable housing outside the US, a slum is a descriptive term, not a pejorative one.  Indeed, once one removes from the term its pejorative implications one becomes progressively more aware that in fact ‘slums’ are virtually omnipresent, whether as invisible ADUs, overcrowded student housing, or colonias of emerging self-built communities, 

Slums are not just where ‘those people’ live:

Ever since I started in affordable housing thirty-plus years ago, knowing nothing about it but what I observed and deduced, I’ve been confronted with prejudice against ‘those’ people:


·         Those people aren’t like us.

·         Those people are lazy and just don’t want to work.

·         Those people are just out to beat the system.

·         Those people have too many children.

Slums are the homes of people like us, as I wrote in Top-25 post (July 7, 2005) Kibera: Africa’s largest slum:


Kibera is on no map, its 550,000+ people — one out of every five Nairobians — cartographically invisible.  One of the many roads in (all unpaved, most only a few walkers’ wide) rises at a twenty degree angle in yellow dirt.  Every day thousands of Kiberans walk several miles to and from their work, formal or informal as it may be. 


One side of Kibera parallels the railroad tracks, the other is bordered by stores in corrugated metal, barrels pounded flat.



Kibera undulates across a long narrow valley near Nairobi Dam.


From a distance, the rows of corrugated metal roofs — the internal structural order of extreme density — are deceptively regular, yet as one moves into the neighborhood itself, the structure reveals itself in an overcrowded, over-stressed environment. 


Afterword: Ten years later, Kibera is little better, in part because Kenya is little better – and that is no answer because it allows the copout of saying, ‘the problem is impossible until the country reforms.’  Improving slums means improving society. 


From the BBC site: People walk through the charred remains of a market in Nairobi‘s Kibera slum

Slums also evolve, rising bit by bit until they are formalized into the ‘visible’ city.  I’m working on a typology of slums, akin to the stellar evolution chart, because if we have a standard descriptive classification system, then we can more effectively observe their development and create more portable and robust slum-upgrading programs and principles.


Can we map slums in similar fashion?

Even as the pupils of our eyes expand when we see something we like, our eyes learn ‘not to see’ things we do not like – so in all the trillions of digital photographs we snap, few of them observe slums as places or things unto themselves.  Instead they’re used as soft-focus background for human-interest or God-Ain’t-It-Awful stories.  I do photograph them as the subject unto themselves.


Nairobi’s Mukuru Sinai slum, clothing for sale in the open air


Mumbai’s Santa Cruz informal neighborhood, at night

Like anything else, if you study slums as an asset class, the thing reveals itself through analysis and classification, as in this Top-25 post (June 9, 2008) Favelas of Sao Paulo: Part 1, Cingapura:


“We’re building a house”: Three boys, Vila Nilo Cingapura development, Sao Paulo

Sao Paulo has a two-decade-plus history of municipal involvement with slum upgrading.  As with most cities, the first response was complete neglect.  When that failed, the municipality evicted people, demolished the favela, and developed something high-end on the newly valuable property.  Meanwhile, the displaced residents were economically lubricated with modest relocation payments, and encouraged to move ‘somewhere farther out,’ usually onto low-lying or poor quality public land.


That strategy works – at least in the sense of real estate, if not public policy – until the human tide becomes so overwhelming something has to be done.  About twenty years ago, the municipality developed a slum demolition-and-redevelopment program, nicknamed Cingapura (the Portuguese pronunciation of Singapore). 


Cingapura draws its architectural inspiration from the same thinking that spawned US public housing — a sense that what’s wrong with the neighborhood is the grotty houses people have built for themselves, and the solution is in new, proper, publicly constructed mid-rises and high-rises. 


Under Cingapura, the Municipality of Sao Paulo cleared out favelas abutting on channeled rivers, railway lines, and highways:



A Cingapura project as most Paulistanos see it: whizzing by the highway


The idea was new-construction walkups, with enclosed courtyards (and play areas), all brightly painted:



Vila Nilo, a Cingapura property in northeast Sao Paulo


Of course not all slums are aspirational (rising up from rural or peri-urban areas), some are in stages of decline, and that decline can be spectacularly rapid, as I showed on Top-25 post (January 22, 2011) Vertical slums:


Such is the resilience and innovation of humanity that, even as Hugo Chavez methodically destroys Venezuela (In pursuit of what, exactly? Does anyone know?), people make lives out of the ruins.  As objectively reported by the BBC:


The views from the 20th floor of the Confinanza Tower are among the most spectacular in Caracas, reminiscent of those from an expensive penthouse apartment.


This is perhaps the most curious skyscraper in Venezuela, being one of the tallest squatter buildings in the world.



Available for immediate illegal occupancy: Torre Confinanzas


When Hugo Chavez started expropriating other people’s property under the guise of nationalism, capital fled swiftly, and has not come back.  So Venezuela is left with the shells of investment, and out of that elemental vertical infrastructure, the poor create basic homes:


But the homes being built in this high-rise building, which actually goes up another 22 floors, are not expensive apartments. They are the kind of breeze-block shacks found in the city’s hundreds of shanty towns.


The slumdwellers have chosen this shell for their spontaneous community for one simple reason: it has a good location.



An alternative to the slum high-rise: living hillside in Caracas


Isabel Morales is still haunted by the latest tragedy to happen here.


“A little girl fell 18 storeys to her death,” she recalls, shuddering slightly.


“The neighbour who was looking after her only took her eyes off her for a minute. God only knows…”


Her words trail off as she nods towards her own three-year-old son, who is charging around their incomplete, brick shack, playing with a toy truck.



Living the high life in Caracas – not for the faint-hearted (Not a Photoshop!)


Life among the ruins is always dangerous, if not from drug gangs or rapes, then from accident.


Torre Confinanza was never meant to be lived in. In the early 1990s, it was going to be a bank.   One of the tallest office blocks in Latin America, the bank that owned it went bust in 1994, and the semi-completed building passed into state hands.


Despite having the bounty of huge petroleum deposits, Venezuela is no less poor than it was before, and as far as I can tell the country has made minimal if any investments in infrastructure – so what was built before the Chavez slow coup by ballot box remains ossifying and decaying.  Economic nature abhorring a real estate vacuum, Torre Confinanzas soon was occupied as a house of crime:


There it languished for more than a decade, gradually deteriorating and becoming a haven for drug-addicts and prostitution.


Then it changed, and was reoccupied as residential housing – and that is an improvement over the crime haven it was before.


But today the building is again abuzz with activity and construction. Three years ago, hundreds of families who could not find decent homes elsewhere in the capital descended on the derelict building and started setting up their houses.



Be it ever so self-built, there’s no place like home


Hollow masonry is an inexpensive and durable building material, and when presented with a solidly built multi-story foundation, it’s easy enough for the squatters to build out basic homes for themselves. 


Little by little, they have built small, brick homes on more than half the building’s floors. Isabel’s house is inside the multi-storey car park.


In effect, Torre Confinanza is the skeleton on which grew spontaneous embryo houses, and instead of using newly built infrastructure (as in the Chilean case), the slumdwellers co-opted the abandoned infrastructure intended to be a luxury high-rise.



Here’s the alternative: self-building on Caracas’s hillsides


Slums vary by how much investment the slumdwellers put into their structures.  Some, like Kibera, have poor soil and no rights, so the structures are the most primitive imaginable.  Others, like Torre Confinanza, have structurally solid foundations, and through a sense of community the residents are gaining confidence in their security of tenure – so they are investing in improving their homes.


At the Torre Confinanza, there are no working lifts, so young men and women are carrying building materials up dozens of hastily-constructed concrete staircases, with no handrails on either side.


Slums also create the absolute minimum infrastructure to navigate the site – in a vertical slum, it has to go up.  But like most informal housing, it’s functional and therefore structurally unsound.

[Continued tomorrow in Part 9.]


Ten years a blogger: Part 7, Housing as urban technology

March 17, 2015 | Blogs, Capital markets, Cities, Essential posts, Evolution, Finance, Global news, Government, Holmes on housing, Mobile homes, Money, Slums, Theory, US News, Value chain | No comments 286 views

[Continued from yesterday’s Part 6 and the preceding Part 1, Part 2, Part 3, Part 4, and Part 5.]

By: David A. Smith

Section 7. The ongoing study of housing as urban technology

Despite having had just short of thirty years’ experience with US affordable housing when I started the blog, and despite thinking about housing more or less obsessively (and to the exclusion of other things), I discovered that the blog provoked me to think properly about all sorts of aspects of housing that I had never previously considered, such as the impact of technology on housing, and housing on technology.

What is a ‘house’?  Only through writing dozens if not hundreds of blog posts did I appreciate that a house is a manufactured product, and it can be made in many way, by many different people and operating over many different time intervals, as explored in:

The embryo house or core house (April, 2009):

The modern evolving American home is a new creature that first made its US appearance in the mid-nineteenth century and really blossomed in the last half-century with the American post-WW2 subdivision.  Before that, housing was something self-built or self-improved, starting with the frontier log cabin or even more primitive sod house.


I later improved it to this Top-25 post (April 30, 2009), The embryo house: Part 1, the idea:

That modern evolving American home is a new creature that first made its US appearance in the mid-nineteenth century and really blossomed in the last half-century with the American post-WW2 subdivision.  Before that, housing was something self-built or self-improved, starting with the frontier log cabin or even more primitive sod house.


Sod house, 1901, San Diego

Reader, look for a moment at the picture above: it’s twentieth-century American housing.

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

Chile is a country that venerates architects, commonly listing their names on buildings’ cornerstones; yet, outside Santiago’s well-to-do areas, evidence of thoughtful design is all too scarce. Exiting the city center, skyscrapers’ shiny glass walls quickly give way to walls around houses, tall enough to obscure fully the homes they protect. Each block is a patchwork of materials: brick next to wrought iron next to opaque plastic. People on horseback share the road with cars.

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


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


Embryo house, Franschhoek, Western Cape, South Africa

Scarcely two months later, I returned to the topic of house-as-box in this Top-25 post (June 10, 2009), Little boxes, little boxes:

If we want to make housing affordable, shouldn’t we be looking at inexpensive construction materials?  That’s the premise of a short Climate Progress article, Shipping containers provide affordable housing, from the Center for American Progress’s “It’s Easy Being Green” series.


There’s an emerging and innovative solution to the environmental, economic, and housing concerns we face around the globe: shipping container homes.



Few shipping containers come with nice large portholes – not cheap!


It turns out reusing the old containers is an inexpensive, efficient, and environmentally friendly way to build homes that can be used by low-income residents or as temporary housing following a natural disaster.


(Readers must make due allowance for the credulous gee-whiz writing, which flits lightly over numerous practical problems, as we’ll see.)


A decade ago, on vacation in Australia’s Northern territory, we visited Kakadu National Park, where in the midst of a torrential downpour we stayed in the relative luxury of what the guidebook called a ‘donger‘: Aussie slang for a shipping container cut in half and converted into a single-room accommodation.



Donger in the making?  Just bifurcate and add people


The prefab metal box or can has a long history in makeshift housing, from the Quonset Hut (to the Airstream trailer, up through the increasingly immobile home, whose history I’ve previously told.



Spam in a can?  Newlywed WW2 couple with their Quonset hut



Some day, son, you’ll live in a full cylinder, not just half of one


The Quonset is the American successor to the British WW1 Nissen hut, which was invented (I have just discovered) by a Norwegian-American, Peter Norman Nissen.


Afterword: My exploration of primitive-industrial-technology houses (dongers, Quonsets), led me further and further into the exploration of minimum-manufactured home, as featured in my two Harvard Business Review blog posts, The $300 house (October, 2010) and the $300 house value-chain challenge.


Imagine my surprise when Vijay Govindarajan posted The $300 House: A hands-On Lab for Reverse Innovation? referencing my Harvard International Review article, Housing the World’s Poor, the Four Essential Roles of Government.  VG’s right about slums as a laboratory for reverse innovation via the $300 House – but it will take more than just a low-cost box being dropped as from on high, because:


1. Urban land occupancy is a ‘money good’.  In cities, the right to occupy land costs money – protection money to a gang, headman, or ward boss; rent; or land purchase.



Ministry of Lands and Housing, Nairobi, Kenya

I was told that over 50% of all slum structures in Nairobi are owned by civil servants

2. Cities’ density emphasizes infrastructure. Every day, slum dwellers need to bring in water; they need to expel sanitary waste.  In between, their homes need heat, cooking, and electricity.  This takes a city infrastructure grid or value-chain network (public or private, formal or informal) that costs money, and expanding that grid costs non-recoverable money, usually from government.

density emphasizes infrastructure


This led naturally enough to The fruitcake house (March, 2013):


A core house is a frame on which to hang gewgaws, and it is a space that can be adapted and readapted almost endlessly.  It exists because it survives and it survives because it exists.


The core house principles, and the mutability of internal spaces, finds its analogs even in the developed world, as I illustrated in this Top-25 post (October 19, 2010): “Mr. landlord, tear down this wall”: Part 2, rebuilding:


Yesterday’s post brought us landlords tearing out perfectly good permanent walls, over their residents’ objections, because, as reported in The New York Times, a long-dormant building code requirement is now being vigorously enforced by New York City:


The company is offering tenants who erected walls with its approval $700 to help defray the cost of erecting new dividers, like bookshelves.

We saw yesterday that the ongoing legal clashes between residents and owners at Stuyvesant Town had a spillover effect – shining the building department’s spotlight on the illegal subdivisions, and compelling the landlord to remove them.


Because apartment layouts vary widely, it is difficult to generalize about what types of walls meet with city approval, but officials at the Department of Buildings said the major considerations had to do with “egress routes” to ensure “maximum travel distances in the building code are not impeded, sprinkler coverage areas (where sprinklers are provided) are not obstructed, smoke detectors and carbon monoxide detectors are relocated or supplemented if necessary to comply with the building code.”


Absolutely – all of this is about safety and nothing else.  Here’s the third side of the three-way bargain’s triangle – government and residents cooperating to assure that the landlord keeps the property up to safety standards.

I’m constantly surprised that so few apartment developers pay attention to the inflexibility of exoskeletal strictures. The floor plan is laid out, and that’s it – all interior walls are permanent walls, many of them structural, and if the evolving modern urban household requires an evolving modern apartment, the cost to retrofit will be unduly high.



More money for sliding walls = more configuration flexibility

Afterword: Couple mutability of interior spaces with the downward-spiral reinforcement of slums and slumlords and you have an incendiary combination, one that claimed the life of Boston University student Binland Lee, as I angrily reported in Dangerous, overcrowded, invisible, unenforced, Dying in the attic.


She died for our lack of code enforcement

[Continued tomorrow in Part 8.]


Ten years a blogger: Part 6, The laboratory of housing laws

March 16, 2015 | Blogs, Capital markets, Cities, Essential posts, Evolution, Finance, Global news, Government, Holmes on housing, Mobile homes, Money, Slums, Theory, US News, Value chain | No comments 209 views

[Continued from Friday’s Part 5 and the preceding Part 1, Part 2, Part 3 and Part 4.]

By: David A. Smith

Section 6. The laboratory of housing laws

“Man, I’ve got vision and the rest of the world needs bifocals.”

– Butch Cassidy

A blog is also a theoretician’s dream world, a laboratory in which thought experiments can be conjured, explored, and then published.  In tossing out a post ne stakes a claim to an idea, even if the idea is unproven, untested, and may be unfounded or even ludicrous.  That’s risky stuff … or at least, it would be risky if one foolishly invested all one’s ego in the reliability of every single prediction.  But if one isn’t worried about looking silly now and then, one can use the laboratory to produce continuous thought leadership.


Someday, I’ll be able to send snarky captions invisibly through the air

A good blog is a springboard for imagination, both the readers’ (hey, this is a new way to think about something you have not previously considered) and more importantly the author’s.  For most of my posts, the writing of them causes me to realize, verbalize, or organize, something new – and the blog provides important personal value even if it’s just to write down a concept that has long swum unsurfaced in what passes for my mind. 


Sometimes you’re not quite ready for things to surface

Over the years, I’ve postulated laws or principles to which my posts often refer, as they explain much which is both common sense and apparently beyond the economic understanding of Angela Merkel:


Hey, fella, one text on this and your blog will suddenly go dark

They include:

The Law of Economic Gravity (May, 2005)



Gravity’s not just a good idea, it’s the law

Then there was this Top-25 post (May 11, 2005) Slums are economically rational:


The private sector has a straightforward and economically rational solution to the problem of unsustainable renters, consisting of the following steps:


1. Compress rentable space each unsustainable renter occupies.  This has the effect of increasing the revenue per unit.



Tenement, 1880


2. Reduce operating expenses to a bare minimum.  This results in an accelerating cycle:


2A. Inadequate operating expenses → deferred maintenance and a decline in property physical condition.

2B. Declining property condition → lower curb appeal, difficulty attracting good tenants → acceptance of marginal tenants.



Slums in Thailand


2C. Accepting marginal tenants → higher collection/ bad debt losses, higher maintenance, secondary problems (e.g. vandalism) → higher-income tenants move out.

2D.  Loss of market tenants → lack of rentability → stigmatization of the property.


All these reinforce each other and the property and its neighborhood worsen,.

3. Adverse-select the worst location because these have the lowest acquisitions/ operating costs and the tenancy residing in them has the fewest alternatives and the least economic imperative for (as an example) transportation and public services.



Camden, New Jersey, 1938

Update: The built environment is a city’s bone structure and unless it is remade (through eminent domain and parcel aggregation) its economic destiny can repeat in cycles.  Seventy-five years after Camden was a Depression-era slum across the river from Philadelphia, it is still depressed and dangerous.

The long-term end result, of course, is a slum, and it is economically significant that exactly the same slum-creation economics recur in cities going back two thousand years. 




Slums will inevitably come into being unless government intervenes in otherwise ‘normal’ market practices.


Afterword: This was a breakthrough post – for me, anyhow – in that it started me on a chain of thinking of slums as a ‘private market solution’, which invited the question, ‘solution to what?’, and that in turn led to all the thinking about rapid urbanization, expansion and overload of infrastructure grids, how a slum dies and what it is replaced by, and more.  Not a day goes by in my AHI work when I do not come back to that basic insight – what is the economic dynamic of the city or neighborhood where we or our clients/ partners are working?  Answer that and you find the value-chain links to work on.

The Law of the Observant Herd (June, 2005):


Government is a factory (June, 2005):


Affordable housing always costs money (September, 2005):

Affordable housing always costs money


Sustainable affordable housing always costs money.

In equilibrium environments, both land and existing property are priced based on market values, and that is not ‘affordable’ to people below median income

I also provided a definition of sustainable affordable housing


People value only what they pay for (December, 2005):


Afterword: The importance of people buying in is a subject to which I returned over and over again.  It’s close to an inviolable rule, up there with the Law of Economic Gravity.

Votes are political equity (January, 2008):



So what if I’m a psychopath?  You elected me and now you own me … or do you?

Urbanization requires formalization (June, 2008):


Padfield’s Law of Construction Complexity (September, 2008):


The Inevitability Effect (November, 2008):


The Law of Economic Pressure (February, 2009):


Sooner default is better default (May, 2011):


The ribbon-cutting trap (August, 2011):

Latent construction defects are the bane of rapid housing production programs, because of the ribbon-cutting trap.  When pressed by their discontented citizens, who are living in overcrowded substandard housing, elected or appointed officials often react by tossing out grandiose promises of new development, invariably expressed in numbers: 500,000 homes, 1,000,000 homes.  Such claims are fantastic political vaporware – easy to say, memorable, wonderful in a headline, and best of all, they cost nothing – then.

Once the cameras are off and the journalists have gone home, the minister turns to his aide and says, “All right, get it done.”


The message then reverberates out and downward, through the ministry, the procurement department, the developer, and the construction community: Get it done, however you do it.  So the homes are built, but with a wham-bam-thank-you-ma-am approach – a one-time transaction, done at great speed, and with every intention of parting immediately and forever. 


The result, naturally, is entirely unsatisfactory: latent construction defects that sprout like mushrooms after a rain.

Writing this retrospective, I’ve reframed it as a law:


Dictatorship is uneconomic (February, 2013):


Zeno’s public-consultation paradox (March, 2014):


The Law of Committee-Action Tardiness (February, 2015):


That law was in turn derived from and can be proved by logic flowing from these lemmas:


Many of these principles were implied or used in this Top-25 post (December 9, 2010), Paved with good intentions:

“Thieves respect property. They merely wish the property to become their property that they may more perfectly respect it.”

G. K. Chesterton, The Wisdom of Father Brown


Fallacies do not cease to be fallacies because they become fashions.– G. K. Chesterton


Sympathy and admiration are the emotions sought to be created by the opening of this New York Times article about a man who forthrightly offers his good intentions as the exculpation for his crimes:


North Lauderdale, Fla. — Save Florida Homes Inc. and its owner, Mark Guerette, have found foreclosed homes for several needy families here in Broward County, and his tenants could not be more pleased.  Fabian Ferguson, his wife and two children now live a two-bedroom home they have transformed from damaged and abandoned to full and cozy.


There is just one problem: Mr. Guerette is not the owner.



Does he look like a crook to you?  Mark Guerette


Succumbing to maudlin, the Times adds a one-worse sentence ‘Yet.’, but that is a red herring:


The North Lauderdale authorities see him as a crook.


Mr. Guerette, who now faces up to 15 years in prison, insists that his business is legitimate and moral. 


Morality is a slippery concept, being measured against multiple standards.

Afterword: After this post, I wrote at length about strategic mortgage default (bad idea, and proven to be so), deficiency judgments, economic debtor’s prison (in Spain), and the invention of bankruptcy.

[Continued tomorrow in Part 7.]