Affordable Housing Environments: The Ecosystem 1

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.)

 

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?