Affordable Housing Institute : US

On Tuesday, 17 October — 

Even the Tate Gallery was celebrating my arrival  … or rather, the dead sculptor’s

 

— I had the privilege and great pleasure of being one of three speakers at 11 Downing Street (official residence of the Chancellor of the Exchequer) on a panel announcing the publication of “Incentives for Growth,” a small book of seven essays, edited by Paul Hackett, and published by the Smith (no relation!) Institute, a UK public-policy think tank.

 

The venue.  11 is a black Georgian fronting on now-cordoned-off Downing Street adjacent to the Prime Minister’s residence at Number Ten.  

 

When most people see 11 Downing: Brown holding up the budget

 

Inside it more resembles a slightly faded manor house than a ruler’s palace, with subdued yellow wallpaper, the odd gray marble mantelpiece, and a downstairs foyer where we sipped orange juice, coffee, or tea until we headed upstairs. 

 

The venue is redolent with history.  The stairs rise, outward-then-inward with a left turn, and on your right hand are black-and-white portraits of chancellors past, in chronological sequence starting with the time of William Pitt the Younger, reaching 1900 at the halfway landing, and giving way to large original political caricatures and cartoons, one per chancellor, presumably with an eye to witty display, important moment, the chancellor’s personality, and not too much barb in the caption.

 

William Pitt the Younger

Prodigy, polymath, prime minister

 

The panel.  Hosted and chaired by Wilf Stevenson, the panel featured:

• Myself.
• Ray Mills, PwC, talking about tax increment funding (TIFs).
• John Callcutt, the no-nonsense former captain of industry now the Chief Executive of English Partnerships, Britain’s housing regeneration agency, who covered land values and their impact on development alternatives.

Something in the vicinity of 80 people attended, filling the tasteful if modestly appointed room, including a handful of MP’s and several people whom I had previously encountered on my UK journeys: the estimable Steve Carr, Head of Policy and Economics of English Partnerships, and Liz Peace, CEO of the British Property Federation. 

 

My topic.  My prepared remarks (such as they were), are here (link in pdf) and sought, insofar as it’s possible in less than ten minutes, to bring across the Atlantic ideas that could be taken up, if duly recalibrated for driving on the left, 220 volt power, and incompatible videotape systems. 

 

The roundabouts are what get you:

The magic roundabout in Swindon

 

Main points that I sought to convey, many of them featured on this blog, were: 

Placemaking uses a tiered hierarchy of government: 

• National government sets priorities, revenue-shares back to regions for sector-oriented interventions.
• Regional government uses national tools in a regional overall strategy by awarding resources with a continuously evolving plan.
• Local government has control over site-specific decisions.

 

Like a three-tier cake plate, each works with the other levels

 

Placemaking is a British neologism well worth importing into the US; it conveys the outcome much better than our process-oriented phrases like ‘urban revitalization.’  The point is into per se to revitalize, but rather to transform an area, like London’s South Bank, from a failing stretch continually dissipating new money and efforts being put into it, into a place that people like in their minds, so they visit with their wallets. 

All three are essential.  The UK, in my view, should strengthen regional and local autonomy and powers.

 

Any healthy placemaking system has a multiplicity of specific tools.  Government always wishes for the program equivalent of the Swiss Army knife — one tool for all purposes. 

 

Looks good, but try opening a can with it! 

Much better is the spanner [English for ‘wrench’ — Ed.] set, each specific to its task, then selected and wielded by people who know what they are doing.  This seems intellectually inefficient … but is not.

 

One for each size and grip needed

 

With our strong predisposition toward pattern recognition and even pattern imposition, we human beings like to have things simpler and more organized.  We strive for unification — even Einstein spent the last two decades of his life trying to overthrow his own relativity in favor of a Grand Unified Field Theory … which he never found.  In the same way, policymakers and economists really wish that reality would be complaisant enough to accept a single solution, without all that messy customization, those ‘wasted’ professional fees, that inter-source entropy. 

 

The point is that when problems are complex, solutions are likewise complex, meaning they are not simple.

 

For every complex problem there is an answer that is clear, simple, and wrong.
H. L. Mencken

When problems are complex, solutions must likewise be complex, meaning they are not simple.  

Placemaking takes time, money, vision, and consistency.  There are no short cuts.  The tea steeps at its own pace.

 

Placemaking takes more time than any election cycle.  That’s why the best programs are those sustained over 2-3 administrations.

This too baffles and thwarts many a policymaker.  By the time housing has become a major electoral issue — as it is in many US cities and has been for some years in the UK — most of the things that make good policy sense will pay dividends only after the next election.  Officials who want housing results must either (1) make the hard choices early in their administration, or (2) grit their party’s teeth and announce measures knowing the return of political capital will be deferred. 

Housing is integral to urban regeneration.  It often leads change and solidifies progress in improving people’s attitudes toward urban areas.

 

Mixing is integral: mix use, mix tenure, mix income.  The more options a person has within a single neighborhood, the better that neighborhood.

 

Even though housing and urban regeneration are intrinsically linked, housing is a distinctive type of property as compared with retail, commercial, or other uses.  In fact, it is so distinct, in its use patterns (night versus day occupancy, for instance), financing tools, and consumer perception, that it cannot be subsumed within the larger category of urban development.  The World Bank tried parceling out housing among other placemaking initiatives; that effort has failed. 

It seems paradoxical to claim, as I do, that housing is integrally part of urban regeneration and at the same time separate from the other urban regeneration approaches. 

 

The Chang and Eng of urban policy

 

But it is.  There’s a reason Lyndon Johnson glued various entities together into a Department of Housing and Urban Development; or that virtually every analogous state agency combines both words (e.g. Massachusetts DHCD, New York DHCR).  Both-and, not either-or, and not one-and-the-same. 

“No stick without its carrot.”  Like two blades of a scissors, each works much better if linked with the other.  If government imposes a duty on the marketplace (e.g. an increase cost to restore listed buildings), it will chill if not completely stifle activity, unless it also creates a compensatory benefit (e.g. an investment tax credit).

 

Take for example inclusionary zoning.  When it is zero-sum, as in the UK’s Section 106, developers and localities very swiftly reach a World War I style trench warfare.  But when it is positive-sum, with density bonuses as in Massachusetts Chapter 40B, people play.

 

“No windfall without a mandate.”  If you give industry an additional benefit, no matter how justified in policy terms, that is the ideal time to staple on an obligation logically connected to the benefit.

The UK is ready to adopt REITs, without doubt a useful tool in a nation’s capital-raising toolbox.  But when REITs come in, owners of current income-producing property will reap a significant benefit.  Her Majesty’s government is currently mooting about various forms of one-off entry tax.  That’s understandable but if I were seeking a quid pro quo, I’d impose a rational Community Reinvestment Act — an ongoing obligation rather than a one-off tax — as a better balance.   

Capital is by nature conservative; it needs incentive to innovate.  Something akin to a Community Reinvestment Act would be very handy, as it (a) judges financial institutions on the volume of their reinvestment, (b) does not specify process, just commitments and outcomes, and (c) allows financial entities to make sound business propositions investing in urban placemaking.

Adding a CRA at the same time REITs are enacted will make it difficult for the industry to cry foul too loudly, as the benefit they are gaining will be greater than the obligation they are taking on.

 

Bad strategy, City of London boys 

Piloting is a goal in itself.

So is devolving authority to smaller units of government. 

In today’s UK, these two are linked.  Central government swears up down and sideways that it intends to devolve to ’sub-national bodies’ (as the Treasury so obliviously calls them), yet like the mossback Chief Executive who just cannot bring himself to step aside for the new blood, central government always finds a reason that the locals just aren’t ready.  (Conveniently forgetting just how unready they themselves were when they got power.)

 

Ethelred probably never got a chance, either!

 

The temptation for a central government is to say, “you have freedom to do whatever you want, just make sure you do everything just the way I would have done it … and, as a free service to you, I’ll let you know immediately ­— by shouting through this gigantic megaphone — the instant you put a foot wrong.”

 

May I have a quiet word? 

Devolving authority — meaning permission to fail — to regional and local government is in some sense an exercise in trust.  Central government must trust that the regional/ local people (a) care as much, (b) are intelligent and quick to learn, (c) are well motivated.  This trust must overcome the unquestionable inexperience that regional and local bodies have in the UK.  US experience shows local bodies are the best deciders, if given time to learn.  That takes some trust.

 

I always ask government clients, “How much money do you have permission to lose?”  If the answer is zero, you will never innovate.

That’s part of why I like pilots — they are licenses to fail, and that license is essential.

 

If you cannot fail, you never risk.

   If you cannot risk, you never experiment.

      If you cannot experiment, you never innovate.

 

Finally, I trotted out my UK mantra: 

Investment tax credits — future tax savings sold for private cash today — are a great tool because they (a) transfer risk, (b) reward outcomes not process, (c) are perfectly collectible on clawback.  These features cannot be replicated by appropriated funds; soft equity via tax credits is a new and better kind of money.

I was very pleased to hear, from one of the participants, that my repeating these phrases over and over again during the preceding several years had, in his words, ’sunk in a bit,’ suggesting progress if not breakthrough.

 

The ensuing extremely lively discussion, expertly managed by Wilf Stevenson, was held under the Chatham House Rule, so I can say only that no animals were harmed onsite, we are sure the tragic aftermath was entirely unrelated, and we are fully aiding the authorities in their inquiries.

 

“What all this, then?”

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