Dissatisfaction guaranteed or your money *not* back: Part 2, A legally binding agreement

September 6, 2016 | Bent Flyvbjerg, budgeting, China, Dictators, Housing, Infrastructure, megaprojects, Olympics, Public finance, public works, Speculation | No comments 162 views


By: David A.  Smith


[Continued from last week’s Part 1.]


In Part 1 (remember it?) of this multi-part post, we started from the observed fact that every Olympic Games has run over its budget, with the typical games costing its host city 2½ times the original projections, which invited the logical question (about which you have no doubt been on tenterhooks) – why would anybody want to host an Olympic Games?




Quasi-important editorial update


As eagled-eyed or at least not entirely somnolent readers will have noticed, I’ve been unable to maintain the one-post-per-business-day regimen that served me so well for a decade.  While I expect to return to it, the last few weeks’ workload has been so high it’s imprudent to make such a pledge to take effect immediately, so for the month of September I’ll post three or four times a week (skipping either Tue-Thu or just Wed), and thus giving readers a regular publication schedule to which to look forward. 

– Your obedient blogger


The reason is easy: Those making the commitment are spending ‘future money’ on ‘present visibility, and that is the catnip of our financial id.



A huge stadium – millions of people –tons o’ catnip



2.  Sponsors’ egos write checks their budgets can’t cash


For a municipality, hosting a major sporting event is well-nigh irresistible: not only do you draw in tens of thousands of excitable money-toting fans, you also showcase your city for a global audience.  (That few of them will ever visit your city seems not to enter into the organizers’ fantasies.)  That’s the argument for recruiting a visible team in a league – the Rams (back) to Los Angeles, for instance, or the former Seattle Supersonics to Oklahoma City.


Seattle Supersonics v Sacramento Kings

Same person, different laundry


Yet the political lure of these leagues eventually wears off, becoming taken for granted: it’s always the same rota, the same fans, and the same sense of letdown that barely has the new stadium been paid off when the fickle team is agitating for another one, either in your city or elsewhere.


What about a truly global event?  Unfortunately for the would-be emergent global city, many of these have fixed locations of decades’ standing.  The FA Cup final is always at Wembley; Wimbledon is always held at, well, Wimbledon.


There’s only one Wimbledon


If you want in to the club of mononym cities, you have to pay an initiation fee of hosting a global event – the World Cup (by far the best), the Olympics, or in a pinch the Commonwealth Games.  And since these events come around only every few years (usually four), if you decide to bid, you really want to win the bid.  So you promise, and promise, and promise some more.  FIFA or the IOC just demur, smile vacantly, explain that some things are mandatory, and play on your aspirational-city (or aspirational-politician) neurosis.


Sources used in this post


Newly published paper (July 1, 2016) by Bent Flyvbjerg, Allison Stewart, and Alexander Budzier (bleeding red ink font)

Wonderfully economist-snarky press release from Oxford’s Said Business School (brown font)



Want the Olympics?  I can get it for you


Eventually you sign, in what might as well be blood – other people’s of course, not yours! – because it’s as binding:


The Candidature File is a legally binding agreement, which states to citizens, decision makers, and the IOC how much it will cost to host the Games. 


Actually – and this is a surprising imprecision from technically sound authors – the cost isn’t binding; rather, the agreement states what the candidate city will do, and estimates a minimum expenditure to fulfill against that set of obligations.


As such the Candidature File represents the baseline from which future cost and cost overrun should be measured.  If cost overruns later turn out to be zero, then decision makers [Meaning those who authorized the city executive to sign – Ed.] made a well-informed decision in the sense that what they were told the Games would cost is what they actually cost, so they had the correct information to make their decision.


Lest the host city forget something that the IOC wants it to promise, the gods of amateurism helpfully divide their gall into three parts:



Always pricier


Costs for hosting the Games fall into the following three categories, established by the IOC:


1. Operational costs incurred by the Organising Committee for the purpose of “staging” the Games.  The largest components of this budget are technology, transportation, workforce, and administration costs, while other costs include items like security, catering, ceremonies, and medical services.  These may be considered the variable costs of staging the Games and are formally called “OCOG costs” by the IOC.  [Organizing Committee of the Olympic Games = OCOG. – Ed.]


Basically, Group 1 are the costs you would incur to run an Olympics if you ran them every two months, so that all the facilities and infrastructure were fully in place and properly maintained.  Or, to use a metaphor that might make things clearer, they’re the cost of serving food out of a food truck that you borrow from your parents at no cost:



Mostly variable costs


But of course, an Olympics isn’t a food truck, it’s a gala fine-dining extravaganza, and it requires surroundings to match:



We have a lot of overhead to pay for


2. Direct capital costs incurred by the host city or country or private investors to build the competition venues, Olympic village(s), international broadcast center, and media and press center, which are required to host the Games.  These are the direct capital costs of hosting the Games and are formally called “non-OCOG direct costs.”



Before, this was a largely informal neighborhood


As has been documented over and over, once the Olympics are finished, those specialized venues are seldom used for much of anything.



Here are the huge crowds flocking to the Sochi Exposition Centre


Finally, there’s the practical challenge of getting hundreds of thousands of people to these venues, and from the venues to their hotels or restaurants or other recreational opportunities.


AHI blog posts on the Olympics


August 13, 2012: Maius, melius, devitius?; The cost to London of the 2012 Olympics

March 18, 2014: Zeno’s public-consultation paradox; 2 parts of Brazil scouring favelas to create the Olympic venue, a special case of the planning fallacy

June 1, 2015: Mega-boon or mega-boondoggle; 6 parts on Boston’s ‘winning’ the USOC’s designation to bid for the 2024 summer games

August 10, 2015: The highbrows’ sports carnival; 4 parts on the collapse of Boston 2024.


That means that your emerging-world infrastructure (or your post-emergence infrastructure, if it’s not entirely bright shiny new) will need a world-class-expensive upgrade.



Gautrain: Built for the South Africa World Cup, but valuable valuable


3. Indirect capital costs such as for road, rail, or airport infrastructure, or for hotel upgrades or other business investment incurred in preparation for the Games but not directly related to staging the Games.  These are wider capital costs and are formally called “non-OCOG indirect costs.”


Late in the post we’ll return to the Group 3 indirect capital costs – in their way, they’re the most insidious of the IOC’s categories – but for now, we’ll focus our scorn on the first two (which, in fact, are the only two that Flyvbjerg and company included in their figures.



That ain’t bad for a blog post


[Continued tomorrow in Part 3.]

Dissatisfaction guaranteed or your money *not* back: Part 1, 156% over in real terms

August 29, 2016 | budgeting, China, Dictators, Infrastructure, Olympics, Public finance, public works | No comments 152 views

 By: David A.  Smith


Though the Rio games are in the past and rapidly fading from the public consciousness –



Those memories aren’t fading fast enough


– their financial memory will linger on, as the cash-strapped and spiraling-backward nation of Brazil will spend many years paying for them, and with Boston having only recently dodged the fiscal bomb of hosting the 2024 Olympics, now’s a fine time to bring in da snark –



U S Olympic funkadelic team


– as presented in a Newly published (Jul 1, 2016) paper; bleeding red ink font) by Bent Flyvbjerg, Allison Stewart, and Alexander Budzier at Oxford’s Said Business School, announced with a wonderfully economist-snarky press release (brown font): 


‘The billion-dollar-plus cost overrun on the Rio Games comes at a time when Brazil can ill afford it, given that it’s facing its worst economic and political crisis since the 1930s and the state of Rio de Janeiro is particularly hard hit by recession,’ said Professor Bent Flyvbjerg, lead researcher of the study.


Having long studied the political economy of megaprojects, Professor Flyvbjerg comes across as my kind of guy: a niche specialist obsessed with his topic, erudite, cynically sardonic, blunt, and with a lively idea for the pull quote:



No cost overrun on the first shovelful, anyway (Jean Drapeau at left)


In 1973 Jean Drapeau, the mayor of Montreal, infamously stated “The Montreal Olympics can no more have a deficit, than a man can have a baby,” which caused some peculiar cartoons in Canadian media when the Montreal Games developed a large deficit due to outsized cost overruns (CBC 2006). 



You tink dat’s vunny?  Some day I’m goink to be gobernor of Kollyvornia


Drapeau was wrong, and problems with cost and cost overrun are as prevalent today as they were in his time, and in [Baron Pierre de] Coubertin’s before him.



Tell that to the Russians, baron


In fact, not only do the Olympics consistently run over budget, among megaprojects they win the gold medal for worst financial performance.


“Why are you writing about the Olympics?

This is an affordable housing blog.”


Over the years of writing this blog, I’ve found myself coming back to some unexpected topics – sovereign bankruptcy, global capital markets, rent control, inter-governmental hierarchies (like the Eurozone) – that seem tangential or at best peripheral to affordable housing, and yet when investigated more deeply, each one has proved integrally connected to affordable housing, either as a hidden driver, or sometimes a hidden obstruction of housing affordability.


The Olympics are the political antithesis of affordable housing. 


1. They’re splashy and visible.  Affordable housing is mundane and invisible if successful.

2. They’re a one-time flash, whereas affordable housing is valuable only over the years and decades.

3. They instantly gentrify affordable neighborhoods, often to the current residents’ detriment.  Affordable housing stabilizes.

4. They depend on eminent domain for economic development, which as I’ve shown repeatedly is often used (especially in emerging countries) as a convenient means of scraping the poor off land or property they occupy or own. 

5. They displace public finance by chewing up a government’s long-term borrowing capacity, money that could (and often would) otherwise have been used to fund affordable housing. 


I love sports, and it’s a shame that I have to hate the Olympics, not for what they were imagined to be, but for what they actually are.



1.  All Olympic Games always run over budget


Although past performance is no guarantee of future results, the opening statistic is stark:


All Games, without exception, have cost overrun.  For no other type of megaproject is this the case. 


Nor are the overruns small, either in money or in percentage of original budget:


[1] Average actual outturn cost for Summer Games is $5.2 billion (2015 level), and $3.1 billion for Winter Games.  The most costly Summer Games to date are London 2012 at $15 billion –


But, thinks the reader, I’m sure I read that the London Games came in under budget.  Ah, says the author, just wait a few parts of this post, as in Section 3 all will be revealed.



And the best part is none of that is recoverable cost!


– the most costly Winter Games, Sochi 2014 at $21.9 billion. 



Fisht Stadium in Sochi: used twice – opening and closing ceremonies – and now dismantled


Many observers beyond lowly me have observed that in recent years the winning megaproject proposals have come from governments (China, Russia) with their people’s money seemingly to burn.


[2] At 156% in real terms, the Olympics have the highest average cost overrun of any type of megaproject. 


To translate that for those whose brains can’t believe the percentage, the average Olympics costs 2½ times as much as its proponents estimated when they were winning the bid. 



Don‘t worry, I just steal it from everybody else


And of course, those winning the bid aren’t proposing to spend their own money; rather, they’ll spend either the public fisc (thanks, Vladimir! or their citizens’ future taxes (thanks, Lula and Dilma!).


Moreover, cost overrun is found in all Games, without exception; for no other type of megaproject is this the case.  47% of Games have cost overruns above 100%.  The largest cost overrun for Summer Games was found for Montreal 1976 at 720% –


SL Olympic.HR

Cheap at one-eighth the price


Yes, impossible-father Mayor Drapeau went 8x over his original budget.



Looks pretty manageable, doesn’t it?



Every single line item went massively over budget


– followed by Barcelona 1992 at 266%. 


And I had always thought Barcelona was a model hosting city.



But you have to admit, the visuals were stunning

(In the haze Gaudi’s never-finished, always-over-budget cathedral, LA Sagrada Familia)


For Winter Games the largest cost overrun was 324% for Lake Placid 1980, followed by Sochi 2014 at 289%.


As with so many forms of data, it’s definitely helpful to see it in graphic form:


Figure 1: Time series of cost for Olympics 1960-2016

(extracted from Flyvbjerg)


We knew Putin has delusions of grandeur; did Boris Johnson too?


Setting aside the obvious outlier of Sochi’s gratuitous extravaganza (fortunately, largely wasted except as a bread-and-circus for President Putin’s own people), the summer Olympics have been largely constant in real monetary terms, clocking in at roughly $7 billion apiece.  The winter games likewise have a largely flat cost, at $2 billion apiece.


Interestingly, it’s not that the Games per se are becoming ruinously more expensive – per athlete (and Sochi aside), they cost about the same as they have for the last four decades


Figure 2: Time series of cost per athlete for Olympics 1960-2016, with and without outlier

(extracted from Flyvbjerg)


If you’re always overrunning with this history, you’re not very good at estimating


Wider capital costs (OCOG indirect costs) for urban and transportation infrastructure are not included in these numbers and such costs are typically substantial.


For reasons best known to the authors, when it came time to present the sports-related cost (a subset of the total cost) overrun percentages, they did this in a boring gray table instead of a brightly colored graphic, so I, slave to laziness that I am, likewise reproduce it:



One of the above numbers is extremely suspicious – which one is left as an exercise for a little later in the post


Every single Games went over – topped, as I mentioned above, by the embarrassingly awful performance of Montreal, 1976. 



Not achievement (last in both events), but wonderful human interest


We further see that:


15 of 19 Games (79%) have cost overruns above 50%.

9 of 19 Games (47%) have cost overruns above 100%.


In other words, if your city wins its Olympic bid, you know for a certainty it will run over; four out of five times, the overrun will be more than 50%; and roughly half the double, you might as well just double the original claim and expect to spend that much.  And lest you think that all megaprojects run over and it just comes with the territory, consider this:


The Olympic Games have the highest average cost overrun of any type of megaproject, at 156% in real terms


Knowing this – a presumption we’ll challenge presently – why would anyone want the Olympics?  The answer has to go well beyond economic instinct.


AHI blog posts on the Olympics


August 13, 2012: Maius, melius, devitius?; The cost to London of the 2012 Olympics

March 18, 2014: Zeno’s public-consultation paradox; 2 parts of Brazil scouring favelas to create the Olympic venue

June 1, 2015: Mega-boon or mega-boondoggle; 6 parts on Boston’s ‘winning’ the USOC’s designation to bid for the 2024 summer games

August 10, 2015: The highbrows’ sports carnival; 4 parts on the collapse of Boston 2024.


[Continued tomorrow in Part 2.]

Zoning’s fifth column

August 26, 2016 | Airbnb, Apartments, Innovations, Law, New York City, Policy, Technology, US News, Zoning | No comments 155 views

As my four columns of troops approach the city, a fifth column of people inside the city will support us and undermine the government from within.

General Emilio Mola, advancing on Madrid, 1936 (paraphrased from Wikipedia)


By: David A. Smith


According to Gordon Gekko’s reading of Sun Tzu, every battle is won before it’s fought. 



And greed is good


And that in my view is the dynamic now playing out in New York City, where Airbnb’s brilliant stealth multi-year campaign, which I’ve documented before, has now reached the crunch point, where its fifth column – apartment occupants making money on the side by renting their pads – are now ready to take on both the Mayor and the Governor of New York – and I’ll bet they win.  As presented in Crain’s New York (August 24, 2016):


A third of Airbnb revenue comes from apartments turned into hotels, says study

Data is revealed as Cuomo ponders bill forbidding advertising of such units

By Greg David 


Although this is a New York-based story, hence the focus on the share of Airbnb revenue from New York, I’m very confident that Airbnb’s revenue distribution is highly, excessively concentrated in high-cost, high-scarcity cities: New York, San Francisco, Boston, Washington DC, because when there’s plenty of supply, the ‘hotel room premium’ – that is, the price of a hotel room versus the price of an Airbnb rental – will be highest. 



Seasonality and price spikes


AHI posts on Airbnb and cities


September 18, 2013: Outbreak of informality, 2 parts: New York City wakes up to the invisible invaders in its midst

October 16, 2013: We know where you live, 2 parts: The New York Attorney General’s efforts to compel disclosure of Gotham’s ‘unregistered’ Airbnb hosts

November 18, 2013: The enemy of my enemy, 3 parts: How Airbnb’s disruptive intrusion has made allies of the unlikeliest folks, hoteliers and anti-growth advocates

January 20, 2015: Aiding and a-bedding, 3 parts: How Airbnb has infiltrated and co-opted the intelligentsia of major cities like San Francisco

September 17, 2015: Housing policy’s original sin, 5 parts: How Berlin’s rising rents and Airbnb lettings spurred the enactment of rent control, which of course will end badly


Big NIMBY cities never have enough hotel rooms – the development cycle sees to that – and then they slap on hotel taxes, tourist taxes, and other politically logical soak-the-outsider costs.  The dynamism of hotel pricing (even more rapid-response than airline pricing, though not as responsive as flower-bouquet pricing around romantic holidays) assures that if there is temporary scarcity, the room rates jump – and that creates economic pressure which will bring marginal landlords into the Airbnb system.


Using information scraped from Airbnb’s site, FiveThirtyEight analyzed both the share of commercial listings and the percentage of Airbnb’s revenue they generate in the 25 largest markets across the country. One number makes it clear how important the city is to Airbnb: New York represents a third of all listings and revenue in those markets.


And that means New York City isn’t an idle destination for Airbnb, it’s the beachhead into the high-value high-scarcity high-profitability cities on which Airbnb’s existence depends.


While Gov. Andrew Cuomo ponders legislation to sharply restrict advertising of Airbnb rentals, a new study from the data-based website FiveThirtyEight shows that at least a third of rentals are commercial – meaning entire homes or apartments are rented out for much of the time.


Naturally, high-scarcity cities, in addition to their inherent NIMBYism, are also prone to self-asphyxiating activities like confiscatory rent control, which encourages overconsumption by connected insiders, overhousing, snowbirds and absentee owners, multi-apartment households, and much more fun. 


What makes Airbnb so spectacularly entertaining, in a blackly humorist urban sense, is that it simply monetizes what has already been rampant for decades in NYC.  And by monetizing, Airbnb makes that capture of hidden wealth-transfer subsidy visible.  Now the elected officials who have known for decades that rent control created winners and losers have to be shocked, shocked, that people are making money from the benefit that was supposedly not a benefit at all, just a protection against landlord rapacity.



Whoa, whoa, who’s the rapacious one here?


Subletting and transferring of rent-controlled apartments in New York falls into the category of Anonymous Activities that I introduced in my first Airbnb post, Outbreak of informality:


Assume there a collaborative Anonymous Activity that both parties willingly enter into, but government for one reason or another disapproves of.  A full definition is provided in the box.




Categories of collaborative Anonymous Activity include prostitution, employing an illegal alien, selling marijuana, reselling event tickets, or subletting an apartment in New York City. 



Oh my God I love decriminalization!


Gambling, selling alcohol, and pornography used to be types of Anonymous Activity but no longer are, for reasons that will become clear in this post.


Government has only two postures it can adopt with respect to Anonymous Activity: (x) prohibit it, or (y) regulate, license, and tax it.  If regulated, Anonymous Activity is by definition formal; if prohibited, by definition informal. 



Just lie back and tax it


A third posture, (z) ignore it and hope it will go away, is totally illogical and virtually universal, and when the government adopts posture z the activity lives in a penumbra between formality and informality.


Conversely, if non-compliance with regulation of Anonymous Activity becomes rampant, the government faces the ignominy of being unable to enforce its own laws, and meanwhile paying the costs of enforcement, incarceration while losing the revenue that might otherwise have been gained from a lower-regulation, less-tax approach.


When that happens, what was illegal becomes legalized, wrapped in a cotton wool of epiphanies that Anonymous Activity is a ‘victimless crime,’ or that we can distinguish casual and recreational Anonymous Activities from the hard core, and maybe Anonymous Activity isn’t so bad after all.  (Summon the doctors!  Get the academic studies!  We need peer-reviewed rationalization and we need it now!)



Rationalization is much easier than penance, you know


Here are the other key numbers for commercial rentals on Airbnb in New York:



As always, the power users are disproportionately impactful


The bottom line on the FiveThirtyEight analysis is that the vast majority of New York listings on Airbnb reflect what the site claims is its primary mission—allowing people to rent rooms or couches or apartments to supplement their incomes. 


Even Crain’s New York can’t swallow Airbnb’s specious ‘mission’ claim – this is a company that encourages New Yorkers to violate New York laws, and in fact facilitates their violation with nifty apps.  That may be a terrifically effective form of guerrilla policymaking but you can’t claim it’s done just with morality in your heart.


However, people turning their homes or apartments into hotel rooms, which is already illegal, accounts for about a third of Airbnb revenue generated in New York.



I always have a business strategy


I have the utmost respect, even at a distance, for the cynical shrewdness of the Airbnb management team, so I believe they absolutely knew they were creating a stealth application to undermine and explode urban zoning by destroying the hotel-anti-development cabal.  That’s been the consistent theme of my Airbnb writings, although my emotional reactions to this perception have fluctuated over the three years.  At this point I’m for what Airbnb has been doing, if only because (enemy of my enemy) they’re disrupting the restrictive and dysfunctional Zoning by the Taste Police that’s slowly strangling America’s cities. 



Your Taste Police at work


The crucial issue here is whether such commercial activity raises rents, or in the case of New York, is concentrated on more affordable apartments — especially below-market, rent-regulated units. 


No, that’s not a crucial issue at all. 


The impact on rents is a red herring; the real story is the exposure of the shadow-renting economy caused by confiscatory rent control.



Scarcity and demand are driving up prices


As a principle of basic economics, if Airbnb enables the current built environment to be more efficiently used, by ‘soaking up’ the excess invisible under-consumption though leasing it for short intervals, that can only be decreasing housing-cost pressure.  Conversely, if it makes being in New York City for a short stint more affordable, then that is bringing economic activity into Gotham, and that may boost demand but it also boosts city revenues.


Finally, if the Airbnb stealth leasing is occurring in regulated apartments, that’s bilking the public … but nobody wants to talk about that.



Keeping Manhattanites invisibly subsidized for half a century


The fight over the Airbnb advertising bill pits one of the most innovative and aggressive disruption companies and its allies in the city’s tech community against an unusual coalition of tenant advocates, landlords and their organizations like the Real Estate Board of New York, hotels and the powerful hotel unions.


As I posted nearly three years ago, the enemy of my enemy can be, if not my bosom buddy, at least my temporary-ally and putative friend.


Gov. Andrew Cuomo’s decision whether to sign the bill will say a lot about who has the most clout in the city.


Or who has the most clout with the Governor, which is not at all the same thing.



“I’m not talking to you.”

“That’s good, because I wasn’t talking to you first.”

Month(s) in Review, June and July, 2016: Part 2, From abbey to Madonna

August 23, 2016 | Abbeys, Apartments, cathedrals, Co-ops, company town, Employer-assisted, History, Jeddah, kayfabe, Month in review, New Lanark, Roman Empire, Speculation, Trimontium, Workforce housing | No comments 204 views

By: David A. Smith


[Continued from yesterday’s Part 1.]


Yesterday’s Part 1 of the two-month retrospective covered my ruminations about walled cities, some of which, like Jeddah, Saudi Arabia, eventually no longer needed their walls and burst their boundaries; some of the others built around medieval castles retreated into ever-smaller grounds, by the late Middle Ages becoming little more than fortified houses.  But even in medieval times, most days were not sieges, so the municipal form centered on the castle needed more than just defense, and for that grew up churches.



Evidently defenseless


Yet they were costly expenditures of capital (for materials and labor), so their establishment, raising (of both stones and funds), and upkeep occasioned the invention of the third form, profiled in Part 3a, The abbey and its revenue model, Part 3b, the abbey and its physical form:




The abbeys’ campus model


1. Abbeys were designed to be self-sufficient. Like Roman forts (and unlike medieval castles), abbeys were designed for establishment in an empty or hostile territory, which meant that not only were they new construction developments, they also could count on no in-place infrastructure.  Thus the abbey was designed to develop its own complete environment with site infrastructure: work, sleep, cooking, and water/ sanitation all had to be site-based and reliably at hand because any service interruption spelled trouble.



Rievaulx (Rivers) Abbey in its dell, looking west in mid-morning


With this the monks could set up a primitive agricultural model, but of course agriculture has always been rural; it required little more than a village for basic trading, and many a family built their own self-sufficient woodland homestead. 


2. Abbeys were designed as mixed-use campuses. Even with the natural advantage of water, an abbey could not function by bread alone, it needed ongoing cash flow.  For that, it would need the revenue model described in Part 3a – subscription-based salvation, the post-life insurance policy – and for that, the abbey need to be a mixed-use campus.  The layouts were masterpieces of efficient use mixing, as illustrated by this plan of Beaulieu Abbey, a Cistercian abbey founded in 1203:


To my surprise, the more I wrote on abbeys the more it turned out I had to say/ speculate, so I kept going with Part 3c, The abbeys’ capitalization model, Part 3d, The abbey’s development/construction model:


1. Lacking long-term finance, abbeys were financed on major gifts


So used are we to the availability of long-term debt for capital improvements – home purchase, home upgrading, or the expansion of a theological campus by selling air rights – that we forget that this is a very new invention dating (as far as I know) from the early nineteenth century, when (for example) New York City invented municipal finance to pay for the expanded water system in Manhattan.


Debt instruments, after all, depend not only on a stable currency but even more fundamentally on the ability directly to enforce the contracts and indirectly to bind the sovereign (since they were among the first large-scale borrowers, with Felipe II twice going bankrupt, in 1557 and 1596) so it’s little wonder that long-term financial banking could not exist in the medieval period, where only the clergy (souls and excommunication) and the nobility (castles and weapons) had any ability to enforce payment of debts and only came into being in the Italian Renaissance (and that as a recapitalization, so the world’s first bank was a ‘bad bank’).


Without long-term debt, large-scale capital investment could be made only in three ways: plunder (always a popular short-term strategy, including among the Scottish), extortion (protection money presented as ‘taxes’), and major philanthropy.  Of these, for moral and practical reasons, the abbey monks could choose only the third – which made them history’s first capital campaigners, as illustrated by the (excerpted, Wikipedia) story of Fountains Abbey in Yorkshire:



By now you can find the lay brothers’ dormitory (bottom), reredorter and infirmary (downstream)


In laboring so to create an understanding of the abbeys’ history, I came to realize that the capitalization model – absence of debt compelling continuous grant-raising – was both a curse and a blessing.  Though cathedral construction took decades or more, once it was built, it was all paid for, and the cash flow annuities were huge. 


That combination – no debt, annuity cash flow – is dangerous.  Debt tightens a company,” Henry Kravis is quoted as saying in Barbarians at the Gate, and our tour of the abbeys showed that the absence of debt makes an enterprise flabby, especially when coupled with an intellectual product whose price one can continually raise and whose quality one can continually dilute.  (Are you listening, universities?)  These ideas found their expression in Part 3e, The abbeys’ symbiotic aggrandizement, Part 3f, The abbeys’ overreach and their destruction:


Founded as the isolated outposts of civilization amid the painted heathens, they became of commercial and intellectual activity, usually surrounded by towns that had grown up around or alongside their campus, spinning off secular business from the innovations the abbeys created, imported, or scaled.


As they did, the abbeys also shifted from being predominantly spiritual entities selling salvation as a byproduct of faith to diversified secular operating businesses providing products and services throughout the community.



Fountains Abbey, with its extension economic additions:

The Abbot’s House, its Great Hall, and support buildings


Meanwhile, with the dominant monopoly came the short-cut knockoff products.  Why have monks praying hour after hour, when it can be much more economical (and therefore more profitable) to offer not salvation itself but reduction of penance requirements via indulgences:


indulgence is “a way to reduce the amount of punishment one has to undergo for sins“ which may reduce either or both of (1) the penance required after a sin has been forgiven, or (2) the temporal punishment after death (called Purgatory).


Perhaps unsurprisingly, given that the monasteries and church could raise only so much from appeals to faith, indulgences became the spiritual equivalent of paper money: they could be mass produced, sold in whatever denominations the market would bear, and even in some cases wholesaled. 


(On our vacation, I recall seeing, possibly in Mary Queen of Scots’ house in Jedburgh, an indulgence made out in favor of the local laird, for him to fill in the names of up to thirty people at his discretion.  Shades of the Letters of Transit!)




Finally leaving the abbeys behind us, I spent a relatively modest two parts dealing with the fourth typology Part 4a, The manufacturing company town; and Part 4b, The factory company town;  


Our journey through pre-municipal urban living, begun on a rainy weekday morning with the Boss’s and my contemplation of the now-buried Roman fort Trimontium, has traveled through the twin medieval forms – the fortified castle and the sanctified monastic abbey – to the Enlightenment’s moral men, the communitarian philosophers including Robert Owen, who not only started a town to accommodate the workers in the enlightened factory mills he and his social-investor partners built, but also decided that creating a factory community was thinking in too small a scale:



A lifetime of visioning gives you a sharp gaze


Yet with the emergence of national government came compensatory benefits – representative democracy, the Enlightenment, and the Industrial Revolution.  These gave rise to a new form of urbanist, the Utopian entrepreneur, such as Robert Owen (via Wikipedia):


A Welsh social reformer and one of the founders of utopian socialism and the cooperative movement. He worked in the cotton industry in Manchester before setting up a large mill at New Lanark in Scotland.


Owen made no bones about his thesis, announcing in in the first paragraph:


Any general character, from the best to the worst, from the most ignorant to the most enlightened, may be given to any community, even to the world at large, by the application of proper means; which means are to a great extent at the command and under the control of those who have influence in the affairs of men.


To put this into practice – doing well by doing good – Owen invested his and his wife’s fortune:


After falling in love with Caroline Dale, the daughter of the New Lanark mill’s proprietor David Dale, in 1799 Owen married Caroline and convinced his partners to buy New Lanark, founded in 1785 by Dale and Richard Arkwright and powered by the falls of the River Clyde.



No, George, you can’t have your own town any more


Today New Lanark is a historical open-air museum, its economic proposition gradually dissipated as industrialization and automation moved the jobs from Europe to America, from America to the emerging world, but the idea of the planned community of live-work-play-socialize continued onward.  George Pullman of railroad fame, another progressive who hired blacks when it was unusual to do so, built a benevolent company town, Pullman, Illinois, but “In 1898 the Supreme Court of Illinois ordered the Pullman Company to divest itself of the town, which was annexed and absorbed by Chicago.”




During July I took time to summarize my posting in halcyon May, and used that as the occasion to explore what I think has come to define twenty-first century American politics, Month in review: May, 2016: Part 1, The world of kayfabe and Part 2,  Breaking the blogger’s fourth wall:


With the rise of social media, kayfabe has become the dominant mode of fame creation and maintenance, where the life soap opera makes the tweets that boost the clicks that sell the ads that pay for the fame merry-go-round:



I knew something was up when she said, “Oh, I’ve got a professional photographer coming”


Politicians are naturally angry about kayfabe’s breakout into the mainstream, because for so many years and decades they’ve had the kayfabe arena all to themselves, whether in creating a persona that they think will garner votes, or alternatively in creating factoids that support whatever narrative is being flogged on the public, as explored in Always look on the bright side … or else (dee doo): Part 1, Gloomy views and positive energy:


I finished up the two months of intermittent but introspective posts with a ­we-bid-you-goodnight ode to one of my favorite kayfabe subjects, Bitch, we’re the co-op boar:


I always thought I should be treated like a star.

Madonna Ciccone

Blogs must be entertaining or they are nothing, and few things can be more entertaining than mocking a self-important bloviator playing the do-you-know-who-i-am card, and who better to play the card than the original, the ur-copycat from whom all other copycats copy, Ms. Louise Ciccone:



I’m so original …



… I copy only originals


For all that she poses as a rebel, Madonna is merely a hugely successful kayfabe character created by Ms. Ciccone for the single purpose of creating a monetizable brand, which she has done to the tune of a speculated net worth of $560 million.  Some modest portion of this she splashes about via multiple houses in convenient trendy venues about the world, in one of which she’s run into an immovable object, as reported as juicily as possible by the ur-copycat Daily Mail July 23, 2016; brown font)


Board members of Madonna’s swanky Upper West Side co-op are appealing to a judge to make the superstar play by the rules after she filed a suit against the building back in April.



3. Who wins the legal dispute?


That’s easy: the co-op does.  Even in a condominium, the trust deed will specify some behaviors that are out of bounds, but in a co-op, whatever the co-op board votes, goes. 


I like to think I’m a role model for women. But I also don’t like to just limit it to women. I like to think I’m a role model for human beings in general.

Madonna Ciccone


It’s instructive that Ms. Ciccone’s previous confrontations show a clear pattern: direct flouting of the rules, followed by legal bullying, then followed by abrupt concession when challenged.


Two days before the [parking space] deadline, she removed all the signage and her driveway was given a fresh lick of gray paint.  


Am I fantasizing too much to hope that when the judge dismisses Ms. Ciccone’s suit, the decision is only five words long? 


Bitch, they’re the co-op board.

Month(s) in Review, June and July, 2016: Part 1, From Jeddah to castle

August 22, 2016 | Abbeys, Apartments, cathedrals, Co-ops, company town, Employer-assisted, History, Jeddah, kayfabe, Month in review, New Lanark, Roman Empire, Speculation, Trimontium, Workforce housing | No comments 135 views

By: David A. Smith


Beginning in June, I did something that I hadn’t done for over a decade – after having posted one installment every business day since mid-2005, I ended up skipping quite a few business days, the blog being a temporary casualty of a stretch of both intense AHI work and four weeks’ nearly back-to-back travel, including a tent-pole event, a two-day executive education seminar on affordable housing under the aegis of Harvard’s Graduate School of Design, held in Jeddah:


I haven’t posted for more than a week because it’s been an incredibly busy week; first with speaking at the World Bank’s 7th Global Housing Finance Summit in Washington DC, where I talked about taking housing finance and housing affordability down the income pyramid.


Then, with scarcely a pause for pause back in Boston, I traveled all the way to Jeddah, Saudi Arabia, to co-teach an executive education workshop on the challenges of affordable housing.



Tall guy squeezing an invisible beach ball:

In Jeddah, explicating the challenges of housing finance


Though most of my time in Jeddah was spent in a hotel/ conference center, that Tantalus curse of the business traveler (to go everywhere and see only the same things each time), we had an evening’s outing to Jeddah’s old city, al-Balad, which occasioned some later reflections:


Even after the Arab Revolt and the establishment of Saudi Arabia, Jeddah remained principally the walled city:



Jeddah, 1938: the wall is obsolete down but its virtual boundaries remain


With the economic boom brought by the oil era, Jeddah boomed too, its population rising well above a million and spilling north, east, and south.



Beyond the boundaries, a boom in development


As a self-taught urbanist, I claim the solipsistic luxury of discovering for myself things that others have already worked out, which gives me license to legitimize my combination in satiable curiosity and airy willingness to speculate from first principles without bothering to research, and for a great many years I’ve been fascinated by path dependencies [I’m a global expert in affordable housing in 2016 because the first multi-week temporary typing job I took in 1975 was in affordable housing – Ed.], such as these:


Outward from the point.  Cities grow outward from their founding point, and if that founding point is water-based (Boston, New York, Bombay), the resulting city will usually be an urban-planner’s nightmare.  Among my favorites are:


Boston, where the entire transportation system started at Long Wharf.




Manhattan, where bridges and tunnel run through Lower Manhattan because ships landed there.



Yes, of course, now I see why we should run a bridge/ tunnel that way, and then a shoreline road around Brooklyn and Queens!



Opening the Battery Tunnel, 1950


Ordered to messy.  Cities are always rationally laid out for their first value proposition (redoubt, marketplace, manufactory, transportation hub, political capital) and then remake their urban configuration as their value proposition changes.  This also means they usually migrate from planned to self-evolved – and, a sardonic reader might comment, so do these blog posts, which start somewhere and end somewhere and jam in between.



Chaos is multiplicity without rhythm – M. C. Escher


Promptly after Jeddah, I took 2½ weeks of Actual Vacation with the Boss, in Scotland, which we love for many reasons including its complicated absorbing outdoor history, and over the ensuing tramps through fields and up and down dark moist sandstone and granite steps inside Historic Scotland properties, this naturally put me in mind of prior ages, and that got me wondering about the forms of Pre-municipal cities, four typologies: Part 1, The Roman Fort:


In the modern, developed world, the adjudicator of real estate law is the government and its court system, and in the English common-law model, land issues are adjudicated at the lowest level of government: the municipality and its companion traveling court, the circuit judge, which dates back to Henry II and includes among its number Abraham Lincoln.  What, I wondered while standing in the Newstead light rain of typical Scottish weather, came before municipal government? 



A reminder of the glory that was Rome


Before there were cities, the land was not empty – at least, not devoid of people nor of claims and uses.  Over the land was spread an invisible tessellation of claims, like air traffic control towers or Joshua trees; all land was owned, with none of what Maine calls Unorganized Territory.  Pre-municipal ownership, however, recognized different levels of claim and divisible rights: rights to farm, rights to forage (as in whatever washed up on the beach), rights to build, rights to occupy.  The undeveloped land was nevertheless divided up for suzerainty, and at the center of the suzerainty area was the pre-municipal city: a complex multistory built environment that created an urban community suitable to house those who came to establish it.



Looks like a landing jet, doesn’t it?


All four of these typologies built a city for a purpose, and in their way they tell the story of the evolving purposes of a city, starting with the first typology: the Roman outpost fort, such as Trimontium in Scotland, at the farthest extent of the Roman Empire’s reach into Britain:


In 79 AD, Trimontium was probably built by the Ninth Legion during Agricola’s northern series of campaigns ending in the victory at Mons Graupius in 83 AD. About 10.5 acres in extent (double the size of a small fort) it was built of turf and timber and defended by an enormous rampart of earth cast up all round the playing-card shape of the fort from the 20 feet wide ditch.


About 86 AD the Agricolan fort was extended to 14.5 acres and its defences strengthened (rampart now 43 feet wide and 25 feet high). The timber-walled buildings were now placed on stone footings for longer life.




[Upon return to Boston, we watched a short-lived BBC wistful comedy series The Detectorists, which I cannot recommend too highly; it’s a long slow sweet ode to people, the past, and ring pulls. – Ed.]



Don’t all crowd in, there’s plenty of room for everyone


After the Romans came their leavings, dominated by Part 2, the medieval castle:


Spend enough time looking at the surviving Roman structures, many of them two millennia old, and as we saw yesterday one cannot help but admire the Romans’ capacity for organization and management, and for civilization’s sake regret Rome’s fall – but fall it did, a victim to the invention of the stirrup, the emergence of a new fearsome fighting force, the mounted cavalry, and the subsequent evolution of a new superhero: the mounted knight.



Iron man, thirteenth-century-style


Against a mounted knight in the field there was no practical defense.  Artillery had not advanced to the point of military utility – at this stage bombard weaponry was human-powered, as via the trebuchet (another clever Roman engineering invention).  The fall of Rome came at the hands of mounted cavalry, and as long as such practical superheroes existed, they were unstoppable – though they required a massive capital infrastructure to sustain them.  Armor was expensive to make, requiring high-quality iron and steel.  A horse to bear both rider and armor was likewise a considerable investment. 



Porcupine, human-style


Hence, not for the first time, economics dictated military hierarchy: unarmored men-at-arms could wield a pike (needing only a steel spear point) and advance in formation; men with a sword, shield or some light chain mail (the middle-class accoutrements) could be part of light infantry, and pay for their protection by serving in their liege lord’s campaigns that he used in service to his liege lord, the earl, duke, or king.  At the apex, the killer weapon, the mounted armored knight. 


For a while (I think; this is my own reinterpretation of history), Europe’s revenue model was kidnap and pillage.  (Something similar is happening now in Venezuela, where gangs in slums have become a power more effective than the government; I may post on the subject if I can get caught up on the blog.)  That didn’t very work well for anybody – it never does.  It’s short-term gain leading to longer-term impoverishment – and the result was the shaky bottom-up-evolved order known as the feudal system: serf to local lord, lord to liege, liege to sovereign. 


Feudalism, with its delivery of basic protection at the cost of taxation, created the economic cryptobiotica to stabilize some bases for revenue production – and the quid pro quo as between small self-employed entrepreneur (serf or craftsman) and liege lord was protection.  That’s the basic business model the Romans offered, just rebuilt bottom-up using the new killer app of the mounted knight, with one critical difference: instead of a fort guarded by thousands of infantry largely alike in their armaments, the defensive model was a shielded perimeter inside which mounted knights could not penetrate – the medieval castle.



Caerlaverock castle today




In Rome, the gods were a pantheon and they could be worshipped anywhere and at any time, but with the coming of Christianity worship became regularized as to both time (Sunday) and place (a consecrated church). 


Temporarily used for contact details: The Engine House, Fire Fly Avenue, Swindon, SN2 2EH, United Kingdom, Tel: 01793 414600, Email: archive@english-heritage.org.uk, Website: http://www.english-heritage.org.uk

Spiritual but way too small to hold all the parishioners


Castles had no place for ordinary churches – the keep was too small, at beast there would be a private chapel for the lord and his retinue – so the churches grew up outside the fortified castle, and led to the third form of pre-municipal cities:


[Continued tomorrow in Part 2.]