Affordable Housing Environments: The Ecosystem
B. What is an Ecosystem Good for?
C. The Affordable Housing Ecosystem: American and Others
A. What is an ecosystem?
Concept: housing finance as an ecosystem
Any nation's housing delivery systems — homeownership, rental, or affordable rental — represent a complex and interconnected ecosystem, with individual elements (rules, capital flows, participants) are as creatures operating within the system for their own goals. None of them specifically creates the ecosystem; all of them collectively define it. Housing finance ecosystems vary in success (how well it addresses housing needs), stability (whether it is rapidly changing), robustness (adaptability to changing circumstances and ability to cope with new introductions), biodiversity (number of diverse elements), and complexity (how many interdependencies among elements). Seeing the ecosystem as a whole is enormously useful in evaluating it, identifying gaps and challenges, and proposing solutions.
The Ecosystem's four levels
Just as a rain forest is a complex ecosystem with several distinct ecological subsystems, the housing finance ecosystem can be thought of as four inter-related levels, each of which depends on the successful existence of the previous ones, as follows:and complexity (how many interdependencies among elements). Seeing the ecosystem as a whole is enormously useful in evaluating it, identifying gaps and challenges, and proposing solutions.
1. Finance. Effective markets for property developers to raise long-term capital (debt, equity, and everything in between), with reliable costs of capital and efficient tradeability of instruments.
2. Homeownership. Broad participation in homeownership and financial products that enable households to move up and down the ownership spectrum as their economic and personal circumstances change over their lives.
3. Rental housing. A large supply of for-rent properties co-located not only with homeownership tenures but also with proximity to healthy communities (jobs, retail, schools and recreation).
4. Affordable housing. Specific incentives and resources to bring affordability to the lowest quintile of the population.
Each higher level depends for its success on accessing specialized versions of the tools created for the lower level. In rain-forest terms, affordable housing is an epiphytic plant, living among the branches of more fundamental species (such as functioning rental development, effective property financing tools, and stable capital markets).
How it works
The ecosystem is a listing of all the significant elements in a housing finance ecosystem, together with a brief description of each one's role, functioning, importance, origins, and challenges. It is a snapshot of a functioning ecosystem. Comparisons over time (new creatures that have been introduced or old ones that have gone extinct) signal crucial trends.
"Creatures" (elements) in the ecosystem
The property's ongoing income sources must always exceed its ongoing recurring operating costs, including intermittent costs like capital expenditures. (Because these are hard to predict, most soundly run properties use a substantial annual replacement reserve deposit to smooth out the annual costs and cushion shocks.)
- Statutes, especially those pertaining to property, finance, taxation, and investment.
- Mortgage and financial products.
- Government programs.
- Significant participants (either individually or by cohort).
A useful form is to have a three-column ecosystem, with the US ecology in the left-hand two columns and the second country's ecology in the right-hand columns. This method makes it crystal clear what exists in both places and what is unique to either.
What it isn't
The ecosystem is non-judgmental, nor is it prescriptive. It may invite inquiry or raise questions. It does not answer them.
B. What is a populated ecosystem good for?
1. Primer for stakeholders
It educates stakeholders without advocating. This makes it hugely useful homework or background material for symposia
2. No presumption of sameness
It assures that international folks who might be called upon for advice, funding, or case-study examples will not fall into the trap of assuming the host country is like theirs. The populated ecosystem can be developed ahead of time, then exchanged as required reading among participants before they make any commentary at all.
3. translation between countries
A properly populated two-country ecosystem enables stakeholders from many different backgrounds to talk with one another without stumbling over conflicting vocabulary or apparent incomprehension of lack of acknowledgment of each others' perspectives.
4. Eye-opener and idea generator
Understanding what others have used, and with what impact, can jump-start idea generation for a particular ecology.
5. Highlights differences in ecologies
It invites thoughtful speculation about what might or might not work in your environment because it highlights differences between your environment and the US (or, theoretically, any other point-to-point comparison someone might want to draw, e.g. UK to SA).
6. Compilation is separated from recommendation
An ecosystem can be compiled without having to form a view of the appropriate next actions. Compilation is separated from analysis, analysis from prescription. Each step is important. There is a value in doing them separately and not mingling them.
7. Facilitates importation with innovation rather than replication
By describing one country's forms (e.g. the US) as an ecosystem rather than discrete creatures independent of their environment, and by presenting them as existing (rather than judging them good or bad), it lets other countries' stakeholders think about concepts used in one environment in a fresh way.
- Highlight the need the creature was created to address.
- Observe its effects on the ecosystem when introduced.
- Invite change before introduction — in effect, innovation of implementation even if the underlying concept is adopted.
In short, it allows countries to import and innovate, not import by replicating.
8. Facilitates innovation packages
By making clear the relationships and co-dependency among various elements, it encourages coherent innovation packages rather than piecemeal initiatives likely to fail in isolation.
9. Thought experiments
Evaluating a populated ecosystem can illuminate the relations among significant creatures in the ecosystem. Matching environments (countries and intervals ) with very similar characteristics can help identify what might happen if a particular new element is introduced into a particular ecology.